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Full download Using Financial Accounting Information The Alternative to Debits and Credits 9th Edition Porter Test Bank all chapter 2024 pdf
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CHAPTER 6: CASH AND INTERNAL CONTROL
1. Among the assets listed below, which one is considered the most liquid?
a. Cash
b. Accounts receivable
c. Merchandise inventory
d. Prepaid expenses
ANSWER: a
ANSWER: a
ANSWER: b
ANSWER: c
ANSWER: a
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Chapter 6: Cash and Internal Control
ANSWER: d
7. Effective cash management and control includes all of the following except
a. The use of a petty cash fund
b. Bank reconciliations
c. Short-term investments of excess cash
d. Purchase of stocks and bonds
ANSWER: d
8. Checks presented for payment and paid by the bank are known as
a. Canceled checks
b. Certified checks
c. NSF checks
d. Outstanding checks
ANSWER: a
9. Deposits made by a company but not yet reflected in a bank statement are called
a. Debit memoranda
b. Deposits in transit
c. Credit memoranda
d. None of the above
ANSWER: b
ANSWER: b
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Chapter 6: Cash and Internal Control
11. Checks returned by a bank because customers did not have sufficient funds in their account are called
a. Canceled checks
b. Certified checks
c. NSF checks
d. Outstanding checks
ANSWER: c
12. Which one of the following would not appear on a bank statement for a checking account?
a. Service charges
b. Interest earned
c. Outstanding checks
d. Deposits
ANSWER: c
13. Which one of the following procedures is not part of preparing a bank reconciliation of a checking
account
a. Tracing deposits listed on the bank statement to the books to identify deposits in transit.
b. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding
checks.
c. Identifying items added on the bank statement which have not been recorded as cash receipts by the
company.
d. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding.
ANSWER: d
ANSWER: a
15. Which one of the following items would be added to the balance per books in a bank reconciliation?
a. Outstanding checks
b. Deposit in transit
c. Service charges
d. Interest on customer note
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Chapter 6: Cash and Internal Control
16. Which one of the following items would be added to the balance per bank statement in a bank
reconciliation?
a. Outstanding checks
b. Deposits in transit
c. Service charge
d. Interest on customer note
ANSWER: b
17. Which one of the following items would be subtracted from the balance per books in a bank reconciliation
a. Outstanding checks
b. Deposit in transit
c. Service charges
d. Interest on customer note
ANSWER: c
18. Which one of the following items would be subtracted from the balance per bank statement in a bank
reconciliation?
a. Outstanding checks
b. Deposit in transit
c. Service charges
d. Interest on customer note
ANSWER: a
19. Which one of the following statements best describes the term “outstanding check?”
a. A check written by the company and presented to the bank for payment.
b. A check written by the company but not yet presented to the bank for payment.
c. A check written by a customer that has been presented to the bank for payment.
d. A check written by a customer that has not yet been presented to the bank for payment.
ANSWER: b
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Chapter 6: Cash and Internal Control
20. The accountant for Darden Corp. was preparing a bank reconciliation as of April 30, 2014. The following
items were identified:
In addition, Darden made an error in recording a customer's check; the amount was recorded in cash
receipts as
$150; the bank recorded the amount correctly as $510. What amount will Darden report as its adjusted
cash balance at April 30, 2014?
a. $44,650
b. $45,890
c. $46,110
d. $46,250
ANSWER: c
RATIONALE: $46,200 (Book Balance) + $50 (Interest Earned) - $500 (NSF Check) + $360
(Transposition Error) =$46,110
21. The accountant for Rogan Corp. was preparing a bank reconciliation as of February 28, 2014. The
following items were identified:
What amount will Rogan report as its adjusted cash balance at February 28, 2014?
a. $12,385
b. $12,500
c. $14,885
d. $17,385
ANSWER: c
RATIONALE: $15,000 (Book Balance) - $100 (NSF Check) - $15 (Service Charge) = $14,885
ANSWER: c
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Chapter 6: Cash and Internal Control
23. How would customer's NSF checks be dealt with in a bank reconciliation?
a. Added to company’s book balance
b. Deducted from company’s book balance
c. Added to bank statement balance
d. Deducted from bank statement balance
ANSWER: b
24. How would interest earned on a checking account be dealt with in a bank reconciliation?
a. Added to company’s book balance
b. Deducted from company’s book balance
c. Added to bank statement balance
d. Deducted from bank statement balance
ANSWER: a
ANSWER: d
26. How would bank service charges be dealt with in a bank reconciliation?
a. Added to company’s book balance
b. Deducted from company’s book balance
c. Added to bank statement balance
d. Deducted from bank statement balance
ANSWER: b
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Chapter 6: Cash and Internal Control
27. The set of items below was identified in preparing a bank reconciliation for Heath Corp. as of August 31, 2014.
ANSWER: c
RATIONALE: $18,500 (Bank Statement Balance) + $1,000 (Deposits in Transit) - $2,700 (Outstanding
Checks) = $16,800 (Adjusted Bank Balance) Assuming that the Adjusted Book Balance is equal
to the Adjusted Bank Balance, there is a need to reverse the adjustments. Therefore $16,800
(Adjusted Book Balance) + $350 (NSF Check) + $100 (Bank Service Charge) - $60 (Interest
earned) = $17,190
28. While reconciling the checking account, an accountant with Sonic Corporation noticed that an error had been made
in recording a check received by the company. Sonic recorded the receipt as $729 and the correct amount of the
check was $279. What reconciling adjustment is required?
a. Add $450 to the company’s book balance
b. Deduct $450 from the company’s book balance
c. Add $450 to the bank statement balance
d. Deduct $450 from the bank statement balance
ANSWER: b
29. A debit memorandum appeared on Cinco Inc.’s May bank statement. How will Cinco treat this amount on its May
bank reconciliation?
a. Add it to the bank balance
b. Add it the book balance
c. Deduct from the bank balance
d. Deduct from the book balance
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
30. A credit memorandum appeared on Central Company’s bank statement. How will Central treat this amount on its
bank reconciliation?
a. Add it to the bank balance
b. Add it to the book balance
c. Deduct from the bank balance
d. Deduct from the book balance
ANSWER: b
ANSWER: a
ANSWER: b
33. Which one of the following procedures is incorrect for setting up and maintaining a petty cash fund?
a. A check is prepared for a fixed amount; when the check is cashed, the money is entrusted to a petty cash
custodian.
b. An entry is recorded to establish the fund and obtain the cash.
c. When appropriate documentation is presented, cash payments are made from the fund; the petty cash custodian
retains the documentation.
d. When the petty cash fund is replenished, an entry is recorded to recognize an increase in the petty cash account.
ANSWER: d
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
ANSWER: d
36. If a company erroneously records a $500 deposit as $400 in its books, which of the following must occur when
reconciling the bank statement?
a. The company will have to increase the balance per the bank statement by $100.
b. The company will have to increase the balance per the books by $100.
c. The company will have to decrease the balance per bank statement by $100.
d. None of the above
ANSWER: b
37. Realistic Sound’s unadjusted bank balance amounted to $3,000. Outstanding checks amounted to $500 and deposits
in transit totaled $300. Based on this information alone, Realistic’s adjusted cash balance is:
a. $3,200
b. $3,300
c. $2,800
d. $2,700
ANSWER: c
RATIONALE: $3,000 (Unadjusted balance) - $500 (Outstanding Checks) + $300 (Deposits in Transit) =
$2,800
38. Flake Company accepted a check from Ramos Company as payment for services rendered by Flake Company.
Later Flake’s bank statement revealed that Ramos’ check was an NSF check. Recognizing the NSF check on
Flake’s books would act to:
a. Decrease total assets
b. Decrease total owners’ equity
c. Both a. and b.
d. Have no effect on Total Assets
ANSWER: d
39. If the balance on the bank statement does not equal the balance in the cash account, then it can be assumed that:
a. The company has no errors in its records concerning the cash account
b. The bank has made errors in preparing the statement
c. The company has made errors in is records concerning the cash account
d. There will be items reconciling the difference
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
40. Which one of the following items is a reconciling item on the bank side of a bank reconciliation?
a. Canceled checks
b. Outstanding checks
c. NSF checks
d. Service charge
ANSWER: b
ANSWER: c
ANSWER: b
43. The treasurer for Rahm Corp. was preparing a bank reconciliation as of September 30, 2014. The following items
were identified:
ANSWER: c
RATIONALE: $32,800 (Book Balance) + $100 (Interest Earned) - $400 (NSF Check) = $32,500
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
44. Border Company’s cash account had a balance of $962 on August 31. This included a bank deposit of $87 that was
in transit on the 31st. The August 31 bank statement contained the following information:
Border also had checks outstanding of $169. What is Border’s adjusted cash balance at August 31?
a. $ 920
b. $ 940
c. $1,007
d. $1,089
ANSWER: c
RATIONALE: $1,089 (Bank Balance) + $87 (Deposit in transit) - $169 (Outstanding checks) = $1,007, or $962
(Book Balance) + $68 (Note Receivable) - $16 (NSF Check) - $7 (Service Charge) = $1,007
45. The accountant for Casa Corp. was preparing a bank reconciliation as of February 28, 2014. The following items
were identified:
There was an error in recording a customer’s check as the check was recorded by Casa as $110, but the correct
amount of $101 was recorded by the bank. Casa’s adjusted cash balance at February 28, 2014 is
a. $23,591
b. $35,641
c. $35,659
d. $47,691
ANSWER: b
RATIONALE: $35,900 (Book balance) - $9 (Transposition error) + $75 (Interest) - $325 (NSF check) = $35,641
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
46. Gentech Corp. prepared a bank reconciliation as of June 30, 2014. The following items were identified:
ANSWER: c
RATIONALE: $14,300 (Bank Balance) + $1,000 (Deposit in Transit) - $1,300 (Outstanding Checks) = $14,000
47. Pierce Corp. identified the following data in preparing a bank reconciliation on October 31, 2014.
ANSWER: a
RATIONALE: $29,600 (Bank Statement Balance) + $2,200 (Deposits in Transit) - $3,100 (Outstanding Checks)
= $28,700
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
48. Pierce Corp. identified the following data in preparing a bank reconciliation on October 31, 2014.
What is the net amount of the adjustments to Pierce’s cash balance as a result of the bank reconciliation?
a. No amounts need to be recorded
b. $400 increase
c. $400 decrease
d. $900 decrease
ANSWER: c
RATIONALE: $100 (Interest) - $300 (NSF checks) - $200 (Service charges) = ($400)
49. The Dinho Corporation identified the following data when preparing their April bank reconciliation:
In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was
recorded by the bank as $1,200. What is the adjusted cash balance at the end of April?
a. $44,300
b. $45,500
c. $45,000
d. $45,700
ANSWER: b
RATIONALE: $45,000 (Bank Statement balance) + $5,000 (Deposits in Transit) - $4,500 (Outstanding Checks) =
$45,500
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
50. The Dinho Corporation identified the following data when preparing their April bank reconciliation:
In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was
recorded by the bank as $1,200. What is the net amount of the adjustment to Dinho’s cash balance as a result of
the bank reconciliation?
a. $1,675 increase
b. $1,700 increase
c. $1,675 decrease
d. $1,475 decrease
ANSWER: d
RATIONALE: $200 (Error correction) + $25 (Interest) - $300 (Service charges) - $1,400 (NSF checks) =
($1,475)
51. Use the following data to answer the question presented below for Raines Corp.'s preparation of a bank
reconciliation on October 31, 2014:
ANSWER: a
RATIONALE: $30,700 (Bank statement balance) - $4,200 (Outstanding checks) + $3,100 (Deposits in transit) =
$29,600
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
52. Use the following data to answer the question presented below for Raines Corp.'s preparation of a bank
reconciliation on October 31, 2014:
What is the net amount of the increase or decrease in Raines’ cash balance which must be recorded as a result of
the adjustments identified by the bank reconciliation?
a. $100 decrease
b. $300 decrease
c. $400 decrease
d. $600 decrease
ANSWER: d
RATIONALE: $100 (Interest earned) - $400 (NSF checks) - $300 (Service charges) = ($600)
53. The debit balance in Cash Short and Over at the end of an accounting period is reported as:
a. an expense on the income statement.
b. income on the income statement.
c. an asset on the balance sheet.
d. a liability on the balance sheet.
ANSWER: a
54. If a credit memo appears on a bank reconciliation, this could be an indication that:
a. there has been a decrease the company's bank account.
b. there has been a bank service charge.
c. there has been a deposit of a customer's NSF check.
d. there has been a note receivable for the company that was collected by the bank.
ANSWER: d
55. A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. This item
would be included on the bank reconciliation as a(n):
a. addition to the balance per the company's records.
b. addition to the balance per the bank statement.
c. deduction from the balance per the bank statement.
d. deduction from the balance per the company's records.
ANSWER: a
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
56. A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. Identify the
effects of the transaction in the company's accounts.
a. Decrease Accounts Payable; Decrease Cash
b. Increase Cash; decrease Accounts Receivable
c. Increase Cash; increase Accounts Payable
d. Increase Accounts Receivable; Decrease Cash
ANSWER: c
57. The documentation with the bank statement shows a debit memo for bank service charges. Identify the effects of
the transaction on the company's accounts.
a. Increase Miscellaneous Administrative Expense; Decrease Cash
b. Increase Cash; increase Other Income
c. Increase Cash; increase Accounts Payable
d. Decrease Accounts Payable; Decrease Cash
ANSWER: a
58. If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the company’s books, then this item
would be included on the bank reconciliation as a(n):
a. deduction from the balance per company's records.
b. addition to the balance per bank statement.
c. deduction from the balance per bank statement.
d. addition to the balance per company's records.
ANSWER: d
59. Most annual reports now include a report of management to the stockholders. In this report, which group has the
primary responsibility for the preparation and integrity of the financial statements?
a. Management
b. The company’s CPAs
c. The company’s internal audit staff
d. The audit committee of the company’s board of directors
ANSWER: a
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
61. Which of the following is not a requirement of a company’s external auditors under Sarbanes-Oxley?
a. They must give an opinion that management’s assessment that the internal control system over financial
reporting is fairly stated
b. They must give an opinion that the company maintained an effective internal control system over financial
reporting
c. They must design and implement an effective information system design
d. They cannot perform any brokerage services for the company
ANSWER: c
62. Which of the following represents the board of director’s subset that acts as a direct contact between stockholders
and the independent accounting firm?
a. Audit committee
b. Internal audit staff
c. External auditors
d. Stockholders’ representative
ANSWER: a
ANSWER: d
64. Which of the following represents a group composed of key officers of a corporation and outside members
responsible for the general oversight of the affairs of the company?
a. Board of Directors
b. Internal Audit Staff
c. External Auditors
d. Audit Committee
ANSWER: a
ANSWER: c
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
66. What five-member body created by the Sarbanes-Oxley Act was given authority to set U.S. auditing standards?
a. FASB
b. SEC
c. IAS
d. PCAOB
ANSWER: d
67. Which one of the following is a sound internal control procedure for cash disbursements?
a. Making copies of purchase orders for the receiving department so they know how many items to be expected upon
delivery
b. Using presigned checks to facilitate payment within the cash discount period
c. Comparing purchase requisitions, purchase orders, receiving reports, and invoices
d. Requiring the signature of the purchasing department supervisor on checks
ANSWER: c
68. An internal control system consists of all the following policies and procedures except:
a. Those necessary to ensure the safeguarding of an entity’s assets.
b. Those necessary to ensure that cash on hand and on deposit in checking accounts is beyond the minimal amount
for ongoing operations.
c. Those necessary to ensure the reliability of its accounting records.
d. Those necessary to ensure the accomplishment of its overall objectives.
ANSWER: b
69. Which one of the following situations reflects a weak internal control system?
a. All employees are well supervised
b. A single employee is responsible for comparing a receiving report to an invoice
c. All employees must take their vacations
d. A single employee is responsible for collecting and recording of cash
ANSWER: d
70. The group within an organization that is responsible for monitoring and evaluating the internal control system is
called:
a. the audit committee.
b. the internal audit staff.
c. the board of directors.
d. the accounting staff.
ANSWER: b
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
71. Which of the following statements does not describe the responsibilities of a company’s internal audit staff?
a. Internal auditors ensure that the company’s financial statements have been presented fairly.
b. Internal auditors focus on the efficiency with which the organization is run.
c. Internal auditors help ensure that the company’s policies and procedures are followed.
d. Internal auditors prepare the report of management to the company’s stockholders
ANSWER: a
72. Which one of the following is considered one of the six most important categories of internal control procedures?
a. Computerized accounting systems
b. The board of directors
c. Proper authorizations
d. Verification by government agencies
ANSWER: c
73. Which of the following is not a generally recognized internal control procedure?
a. Establishing of clear lines of authority to carry out specific tasks
b. Physically counting inventory in a perpetual inventory system
c. Reducing the cost of hiring seasonal employees
d. Limiting access to computerized accounting records
ANSWER: c
74. Which one of the following is not a generally recognized internal control procedure?
a. Internal review by the audit committee of the board of directors
b. Independent verification of the work of one employee by another employee
c. Independent review and appraisal by internal auditors
d. Segregation of duties
ANSWER: a
75. Allowing only certain employees to order goods and services for the company is an example of what internal control
procedure?
a. Segregation of duties
b. Safeguarding of assets and records
c. Independent verifications
d. Proper authorizations
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Cash and Internal Control
76. Which internal control procedure is followed when management authorizes the purchasing department to order
goods and services for the company?
a. Segregation of duties
b. Safeguarding of assets and records
c. Independent verifications
d. Proper authorizations
ANSWER: d
77. Which internal control procedure is followed when the work of one department acts as a check on the work of
another?
a. Segregation of duties
b. Safeguarding assets and records
c. Independent verifications
d. Proper authorizations
ANSWER: c
78. Which internal control procedure is followed when storage areas are secured with limited access?
a. Segregation duties
b. Safeguarding assets and records
c. Independent verifications
d. Proper authorizations
ANSWER: b
79. Which internal control procedure is followed when a physical count of inventory is performed in a perpetual inventory
system?
a. Segregation of duties
b. Safeguarding assets and records
c. Independent verifications
d. Proper authorizations
ANSWER: c
ANSWER: d
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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