978-1337276337 Test Bank Chapter 6 Part 2

Chapter 6

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60. The accountant for Busch Corp. was preparing a bank reconciliation as of February 28, 2017. The following items

were identified:

Busch’s book balance $15,000

Outstanding checks 2,500

Service charge 15

Customer’s NSF check returned by the bank 100

What amount will Busch report as its adjusted cash balance at February 28, 2017?

a. $12,385

b. $12,500

c. $14,885

d. $17,385

61. When preparing a bank reconciliation, deposits in transit are

a. added to the bank statement balance.

b. deducted from the company’s book balance.

c. added to the company’s bank balance.

d. deducted from the bank statement balance.

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62. When preparing a bank reconciliation, NSF checks are

a. added to the company’s book balance.

b. deducted from the company’s book balance.

c. added to the bank statement balance.

d. deducted from the bank statement balance.

63. When preparing a bank reconciliation interest earned on a checking account is

a. added to the company’s book balance.

b. deducted from the company’s book balance.

c. added to the bank statement balance.

d. deducted from the bank statement balance.

64. When preparing a bank reconciliation, outstanding checks are

a. deducted from the bank statement balance.

b. deducted from the company’s book balance.

c. added to the bank statement balance.

d. added to the company’s book balance.

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65. When preparing a bank reconciliation, bank service charges are

a. added to the company’s book balance.

b. deducted from the company’s book balance.

c. added to the bank statement balance.

d. deducted from the bank statement balance.

66. The set of items below was identified in preparing a bank reconciliation for Mars Corp. as of August 31, 2017.

Bank statement balance $19,500

Mars’s book balance (before adjustments) ?

Outstanding checks 2,700

Customer’s NSF check 350

Service charges 100

Deposit in transit 1,000

Interest earned on checking account 60

Mars Corp.’s balance per books before the reconciliation is

a. $17,410.

b. $17,900.

c. $18,190.

d. $18,310.

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67. 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. Which of the following reconciling adjustments 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

68. 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 it from the bank balance

d. Deduct it from the book balance

69. 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 it from the bank balance

d. Deduct it from the book balance

70. Which of the following is an example of a debit memorandum?

a. Service charge

b. Interest earned on the account balance

c. Outstanding check

d. Company error in recording a $500 deposit as $600

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71. Which of the following is an example of a credit memorandum?

a. Service charge

b. Collection of a note receivable by the bank

c. Outstanding check

d. Company error in recording a $600 deposit as $500

72. Which 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. A journal 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, a journal entry is recorded to recognize an increase in the petty cash

account.

73. Which of the following statements regarding a credit memorandum is true?

a. A credit memorandum is subtracted from the balance per the company’s books.

b. A credit memorandum could be issued for bank service charges.

c. A credit memorandum is issued when a customer gives the company an NSF check.

d. A credit memorandum is added to the balance per the company’s books.

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76. 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.

77. 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.

78. Which 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

79. When preparing a bank reconciliation, deposits in transit should be

a. added to the unadjusted book balance.

b. subtracted from the unadjusted book balance.

c. added to the unadjusted bank balance.

d. subtracted from the unadjusted bank balance.

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80. An outstanding check is a check that

a. has been presented to the bank for payment but has not been reported on the bank statement.

b. has been written by the account holder but has not been presented to the bank for payment.

c. is guaranteed for payment by the bank.

d. has been written for an amount that is greater than the balance in the account holder’s bank account.

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81. The treasurer for Rahm Corp. was preparing a bank reconciliation as of September 30, 2017. The following items

were identified:

Rahm’s book balance $32,800

Deposits in transit 4,300

Outstanding checks 2,200

Interest earned on checking account 100

Customer’s NSF check returned by the bank 400

Rahm Corp.’s adjusted cash balance at September 30, 2017 is

a. $34,600.

b. $34,900.

c. $32,500.

d. $32,800.

82. Border Company’s Cash account had a balance of $962 on August 31. This included a bank deposit of $87 that was in

transit. The August 31 bank statement contained the following information:

Bank statement balance $1,089

NSF check 16

Bank service charge 7

Collection of notes receivable 68

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

83. The accountant for Lola Corp. was preparing a bank reconciliation as of February 28, 2017. The following items were

identified:

Lola’s book balance $35,900

Outstanding checks 12,050

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Interest earned on checking accounts 75

Customer’s NSF check returned by the bank 325

There was an error in recording a customer’s check as the check was recorded by Lola as $110, but the correct amount of

$101 was recorded by the bank.

Lola’s adjusted cash balance at February 28, 2017 is

a. $23,591.

b. $35,641.

c. $35,659.

d. $47,691.

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84. Gentech Corp. prepared a bank reconciliation as of June 30, 2017. The following items were identified:

Gentech’s bank balance $14,300

Deposits in transit 1,000

Outstanding checks 1,300

Bank service charge 50

Customer’s NSF check returned by the bank 150

Gentech’s adjusted cash balance at June 30, 2017 is

a. $13,800.

b. $14,100.

c. $14,000.

d. $14,300.

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85. Taylor Corp. identified the following data in preparing a bank reconciliation on October 31, 2017.

Bank statement balance $29,600

Taylor’s book balance (before adjustments) ?

Outstanding checks 3,100

NSF check 300

Service charge 200

Deposits in transit 2,200

Interest earned on checking account 100

How much is Taylor’s adjusted cash balance on October 31, 2017?

a. $28,700

b. $29,100

c. $28,300

d. $29,600

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86. Taylor Corp. identified the following data in preparing a bank reconciliation on October 31, 2017.

Bank statement balance $29,600

Taylor’s book balance (before adjustments) ?

Outstanding checks 3,100

NSF check 300

Service charge 200

Deposits in transit 2,200

Interest earned on checking account 100

What is the net amount of the adjustments to Taylor’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

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87. Dinho Corporation identified the following data when preparing its April bank reconciliation:

Bank statement balance $45,000

Dinho’s book balance (before adjustments) ?

Outstanding checks 4,500

NSF checks 1,400

Service charge 300

Deposits in transit 5,000

Interest earned on checking account 25

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

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88. Dinho Corporation identified the following data when preparing its April bank reconciliation:

Bank statement balance $45,000

Dinho’s book balance (before adjustments) ?

Outstanding checks 4,500

NSF checks 1,400

Service charge 300

Deposits in transit 5,000

Interest earned on checking account 25

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 adjustments to Dinho’s book balance as a result of the bank reconciliation?

a. $1,675 increase

b. $1,700 increase

c. $1,675 decrease

d. $1,475 decrease

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89. The following data was identified by Raines Corp. in preparation of its bank reconciliation on October 31, 2017:

Bank statement balance $30,700

Raines’ book balance (before adjustments) ?

Outstanding checks 4,200

NSF checks 400

Service charge 300

Deposits in transit 3,100

Interest earned on checking account 100

What is the adjusted cash balance on October 31, 2017?

a. $29,600

b. $30,100

c. $30,200

d. $30,700

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90. The following data was identified by Raines Corp. in preparation of a bank reconciliation on October 31, 2017:

Bank statement balance $30,700

Raines’ book balance (before adjustments) ?

Outstanding checks 4,200

NSF checks 400

Service charge 300

Deposits in transit 3,100

Interest earned on checking account 100

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

91. If a credit memorandum appears on a bank reconciliation, this could be an indication that there has been a

a. decrease the company’s bank account.

b. bank service charge.

c. customer’s NSF check.

d. note receivable collected by the bank for the company.

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92. 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.

93. 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 the company’s records.

b. addition to the balance per the bank statement.

c. deduction from the balance per the bank statement.

d. addition to the balance per the company’s records.

94. Annual reports must include an internal control report. In this report, which group has the primary responsibility for

establishing and maintaining an adequate control structure and procedures for financial reporting?

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

95. Which of the following is not a requirement of the Sarbanes-Oxley Act?

a. A company’s annual report must include an internal control report.

b. External auditors can no longer provide human resource services.

c. External auditors can no longer provide brokerage services.

d. An internal control system that guarantees financial accuracy must be established.

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96. Which of the following is not a requirement of a company’s external auditors under the Sarbanes-Oxley Act?

a. They must give an opinion that the company maintained an effective internal control system over financial

reporting.

b. They must design and implement an effective information system design.

c. They cannot perform any brokerage services for the company.

d. All of these are requirements of a company’s external auditors the Sarbanes-Oxley Act.

97. Which of the following represents the subset of board of directors that acts as a direct contact between stockholders

and the independent accounting firm?

a. External auditors

b. Internal audit staff

c. Audit committee

d. Stockholders’ representative

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98. The Sarbanes-Oxley Act requires that the audit committee be composed of

a. at least 50 percent of key officers who are on the board of directors.

b. a majority of all of the members of the board of directors.

c. the outside members of the board of directors and the external auditor.

d. entirely outside members of the board of directors.

99. 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

100. Which of the following statements is true?

a. The audit committee provides contact between the board of directors and the key officers of the company.

b. The audit committee has become less involved in the financial accounting system as a result of the Foreign

Corrupt Practices Act.

c. The audit committee is a subset of individuals on the board of directors that acts as a direct contact between the

stockholders and the independent accounting firm.

d. The board of directors consists of the company’s external auditors.

101. 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