Internal Controls and Cash Reconciliations

C 7 - Internal Control & Cash 1. Which one of the following is NOT a main purpose of internal control? a. Safeguard a company's assets from employee theft and unauthorized use. b. Enhance the accuracy and reliability of a company's accounting records. c. Prevent insider trading
2. Which one of the following is NOT a reason for the lack of agreement between the balances per bank statement and cash balance per books? a. Time lags b. Errors by either the bank or the company c. Segregation of duties
3. Bank reconciliation should be prepared a. Whenever the bank refuses to lend the company money b. When an employee is suspected of fraud c. To explain any difference between the depositor's balance per books with the balance per bank d. By the person who is authorized to sign checks
4. Deposits in transit a. Have been recorded on the company's books but not yet by the bank b. Have been recorded by the bank but not yet by the company c. Have not been recorded by the bank or the company d. Are customers' checks that have not yet been received by the company
5. In preparing bank reconciliation, outstanding checks are a. Added to the balance per bank b. De ducted from the balance per books c. Added to the balance per books d. Deducted from the balance per bank
6. If a check correctly written and paid by the bank for $438 is incorrectly recorded on the company's books for $483, the appropriate treatment on the bank reconciliation would be a. Add $45 to the bank's balance b. Add $45 to the book's balance c. Deduct $45 from the bank's balance d. Deduct $438 from the book's balance C 8 - Reporting & Analyzing Receivables
7. Net realizable value of accounts receivable is a. Accounts Receivable plus Allowance for Doubtful Account. b. Accounts Receivable minus Allowance for Doubtful Account. c. The same as Accounts Receivable because all accounts receivable are assumed to be collectible.
8. When an account becomes uncollectible and must be written off a. Allowance for Doubtful Accounts should be credited b. Accounts Receivable should be credited c. Bad Debt Expense should be credited d. Sales should be debited
9. Under the allowance method, every bad debt written-off is debited to the Allowance for Doubtful Account and not to Bad Debts Expense. a. True b. False
10. An aging of a company's accounts receivable indicates that $4,000 is estimated to be uncollectible. If allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a a. Debit to Bad Debts Expense for $4,000 b. Debit to Allowance for Doubtful Accounts for $2,900 c. Debit to Bad Debts Expense for $2,900 d. Credit to Allowance for Doubtful Accounts for $4,000
11. Manning Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment? a. Bad Debt Expense 10,000 Allowance for Doubtful Accounts 10,000 b. Bad Debt Expense 8,000 Allowance for Doubtful Accounts 8,000 c. Bad Debt Expense 8,000 Accounts Receivable 8,000 d. Bad Debt Expense 10,000 Accounts Receivable 10,000
12. The maturity value of a $2,000, 9%, 60-day note receivable (use 360 days per year) is a. $2,030 b. $2,015 c. $2,000 d. $2,180 C 9 - Plant & Intangible Assets
13. Cole Manufacturing Company buys land for $50,000 on 12-31-2000. As of 3-31-2001, the land has appreciated in value to $50,500. On 12-31-2001, the land has an appraised value of $51,800. By what amount should Cole Manufacturing Company record the Land account be increased, if any in 2001? a. $0 b. $500 c. $1,300 d. $1,800 14. Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets? a. Salvage value b. Estimated useful life c. Cash needed to replace the plant asset d. Initial cost of the plant assets 15. Equipment was purchased for $15,000. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be a. $3,560 b. $2,940 c. $2,460 d. $2,400 16. A truck was purchased for $15,000 and it was estimated to have a $3,000 salvage value at the end of its useful life. Monthly depreciation expense of $250 was recorded using the straight-line method. The annual depreciation rate is a. 20% b. 2% c. 8% d. 25% 17. The declining-balance method of depreciation produces a. A decreasing depreciation expense each period. b. An increasing depreciation expense each period. c. A declining percentage rate each period. d. A constant amount of depreciation expense each period. 18. If the straight-line depreciation rate is 10%, the double-decline depreciation rate is a. 0% b. 10% c. 15% d. 20% 19. A gain or loss on disposal of a plant asset is determined by comparing the a. Replacement cost of the asset with the asset's original cost. b. Book value if the asset with the asset's original cost. c. Original cost of the asset with the proceeds received from its sale. d. Book value of the asset with the proceeds received from its sale. 20. A company purchased factory equipment for $100,000. It is estimated that the equipment will have a $10,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be a. $40,000 b. $24,000 c. $36,000 d. $32,600 21. To expense the cost of intangible assets, which of the following account is used? a. Amortization expense b. Depletion expense c. Depreciation expense d. Normal expense C 10 - Reporting & Analyzing Liabilities 22. When a corporation issues bonds, the price that buyers are willing to pay for the bonds depends upon three factors. Which one of the following is NOT one of the factors? a. The face amount of the bonds b. The number of payouts per year c. The periodic interest to be paid on the bonds d. The market rate of interest 23. When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at: a. A premium b. Their face value c. Their maturity value d. A discount 24. When the contract rate of interest on bonds is lower than the market rate of interest, the bonds sell at: a. A premium b. Their face value c. Their maturity value d. A discount 25. A corporation purchases for cash $5,000,000 at 12%, 20-year bonds, interest payable semi-annually from seller. The value for the bonds will be: a. Present value of $5,000,000 to be received in 20 years, less present value of 40 semiannual interest receivable of $300,000 b. Present value of 20 annual interest receivable of $600,000 c. Present value of 20 annual interest receivable of $600,000, plus present value of $5,000,000 to be received in 20 years d. Present value of 40 semi-annual interest receivable of $300,000, plus present value of $5,000,000 to be received in 20 years 26. Bond with a face value of $1,000 has a current price quote of 103 1/4. This bond is selling for a. $1,032.50 b. $1,030.25 c. $1,003.25 d. $1,325.00 27. ABC Company sold $1,000 bond at par. The state interest rate is 10% and the market rate is at 8%. If interest is paid semi-annually, the amount ABC Company has to debit Bond Interest Expense for the first six month of interest payment is a. $100 b. $89 c. $50 d. $40 28. Which method of amortizing bond discount or bond premium is not an acceptable method? a. Double-decline balance amortization b. Effective-interest amortization c. Straight-line amortization C 11 - Reporting & Analyzing Stockholders' Equity 29. If Visser Company issues 1,000 shares of $5 par value common stock for $70,000, the account a. Common stock will be credited for $70,000. b. Paid-In-Capital in Excess of Par Value will be credited for $5,000. c. Paid-In-Capital in Excess of Par Value will be credited for $65,000. d. Cash will be debited for $65,000 30. DEN Inc. has 1,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of 41 par value common stock outstanding at December 31, 2001. What is the annual dividend on the preferred stock? a. $60 per share b. $6,000 in total c. $600 in total d. $0.60 per share Information presented below is for the next three questions. The corporate charter of Hunter Corporation allows the issuance of a maximum of 2,000,000 shares of $1 par value common stock. During its first three years of operation, Hunter issued 1,200,000 shares at $15 per share. It later acquired 25,000 of these shares as treasury stock for $25 per share. In the current year when the stock was selling at $24 a cash dividend equates to 100,000 shares in cash value was declared and paid. 31. How many shares were authorized? a. 2,000,000 b. 1,200,000 c. 100,000 d. 25,000 32. How many shares were issued? a. 2,000,000 b. 1,200,000 c. 100,000 d. 25,000 33. How many shares is treasury stock? a. 2,000,000 b. 1,200,000 c. 100,000 d. 25,000 34. The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to a. Decrease total liabilities and stockholders' equity b. Increase total expenses and total liabilities c. Increase total assets and stockholders' equity d. Decrease total assets and stockholders' equity 35. Jade Inc. had 200,000 shares of common stock outstanding before a stock split occurred and 400,000 shares outstanding after the stock split. The stock spit was a. 2 for 4 b. 4 for 1 c. 1 for 4 d. 2 for 1 36. Two classifications appearing in the paid-in capital section of the balance sheet are a. Preferred stock and common stock b. Paid-in capital and retained earnings c. Capital stock and additional paid-in capital d. Capital stock and treasury stock 37. The effect of stock dividends is to transfer of a portion of retained earnings to paid-in-capital and increase the number of outstanding shares of common stock. a. True b. False 38. The effect of stock split is to transfer of a portion of retained earnings to paid-in-capital and increase the number of outstanding shares of common stock. a. True b. False 39. The normal balance of treasury stock is a. Debit b. Credit C 13 - Financial Analysis: The Big Picture 40. Which one of the following analysis is used to evaluate a series of financial statement data over a period of time? a. Horizontal analysis b. Marketability analysis c. Ratio analysis d. Vertical analysis 41. Which one of the following analysis is used to evaluate financial statement data by expressing each item in a financial statement as a percent of a base amount? a. Horizontal analysis b. Marketability analysis c. Ratio analysis d. Vertical analysis 42. Which one of the following analysis is used to express the relationship among selected items of financial statement data? a. Horizontal analysis b. Marketability analysis c. Ratio analysis d. Vertical analysis C23 - Operating Budgeting 43. Which of the following is a characteristic of the behavioral approach to setting budget targets? a. Complete elimination of inefficiency. B. Complete elimination of non-value-adding activities. c. Constant need for improvement. d. Achievable performance expectations. 44. Which of the following is not normally considered an element of a master budget? a. The production schedule. b. The employee turnover budget. c. The operating expense budget. d. The cash budget. 45. Which budget typically serves as a starting point in developing a master budget? a. The sales budget. b. The cost of goods sold budget. c. The employee turnover budget. d. The manufacturing cost budget.