Chapter 8 Self Test

Question 1

Which of the following is not an element of the fraud triangle?
Rationalization.
Financial pressure.
Segregation of duties.
Opportunity.

Answer 1

Segregation of duties.

Question 2

An organization uses internal control to enhance the accuracy and reliability of its accounting records and to:
safeguard its assets.
prevent fraud.
produce correct financial statements.
deter employee dishonesty.

Answer 2

safeguard its assets.

Question 3

Which of the following was not a result of the Sarbanes-Oxley Act?
Companies must file financial statements with the Internal Revenue Service.
All publicly traded companies must maintain adequate internal controls.
The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity.
Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

Answer 3

Companies must file financial statements with the Internal Revenue Service.

Question 4

The principles of internal control do not include:
establishment of responsibility.
documentation procedures.
management responsibility.
independent internal verification.

Answer 4

management responsibility.

Question 5

Physical controls do not include:
safes and vaults to store cash.
independent bank reconciliations.
locked warehouses for inventories.
bank safety deposit boxes for important papers.

Answer 5

independent bank reconciliations.

Question 6

Permitting only designated personnel to handle cash receipts is an application of the principle of:
segregation of duties.
establishment of responsibility.
independent check.
human resource controls.

Answer 6

establishment of responsibility.

Question 7

Which of the following control activities is not relevant to when a company uses a computerized (rather than manual) accounting system?
Establishment of responsibility.
Segregation of duties.
Independent internal verification.
All of these control activities are relevant to a computerized system.

Answer 7

All of these control activities are relevant to a computerized system.

Question 8

The use of prenumbered checks in disbursing cash is an application of the principle of:
establishment of responsibility.
segregation of duties.
physical controls.
documentation procedures.

Answer 8

documentation procedures.

Question 9

A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check, the company should:
debit Cash Over and Short for $2.
debit Petty Cash for $94.
credit Cash for $94.
credit Petty Cash for $2.

Answer 9

debit Cash Over and Short for $2

Question 10

The control features of a bank account do not include:
having bank auditors verify the correctness of the bank balance per books.
minimizing the amount of cash that must be kept on hand.
providing a double record of all bank transactions.
safeguarding cash by using a bank as a depository.

Answer 10

having bank auditors verify the correctness of the bank balance per books.

Question 11

In a bank reconciliation, deposits in transit are:
deducted from the book balance.
added to the book balance.
added to the bank balance.
deducted from the bank balance.

Answer 11

added to the bank balance

Question 12

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:
outstanding checks.
deposit in transit.
a bank error.
bank service charges.

Answer 12

bank service charges.

Question 13

Which of the following items in a cash drawer at November 30 is not cash?
Money orders.
Coins and currency.
A customer check dated December 1.
A customer check dated November 28.

Answer 13

A customer check dated December 1.

Question 14

Which of the following statements correctly describes the reporting of cash?
Cash cannot be combined with cash equivalents.
Restricted cash funds may be combined with Cash.
Cash is listed first in the current assets section.
Restricted cash funds cannot be reported as a current asset.

Answer 14

Cash is listed first in the current assets section.