61
Match each provision of the Sarbanes-Oxley Act with its description.
A) PCAOB establishes standards related to the preparation of audited financial reports.
B) Management must document the effectiveness of procedures that could affect financial
reporting.
C) Lead audit partners are required to change every five years.
D) Audit firm cannot provide a variety of other services to its client, such as consulting.
E) Company management must personally certify the financial statements.
165) Corporate executive accountability
Difficulty: 2 Medium
Topic: Accounting Scandals and Response by Congress
Learning Objective: 04-01 Discuss the impact of accounting scandals and the passage of the
Sarbanes-Oxley Act.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
166) Auditor rotation
Difficulty: 2 Medium
Topic: Accounting Scandals and Response by Congress
Learning Objective: 04-01 Discuss the impact of accounting scandals and the passage of the
Sarbanes-Oxley Act.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
167) Oversight board
Difficulty: 2 Medium
Topic: Accounting Scandals and Response by Congress
Learning Objective: 04-01 Discuss the impact of accounting scandals and the passage of the
Sarbanes-Oxley Act.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
168) Nonaudit services
Difficulty: 2 Medium
Topic: Accounting Scandals and Response by Congress
Learning Objective: 04-01 Discuss the impact of accounting scandals and the passage of the
Sarbanes-Oxley Act.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
62
169) Internal control
Difficulty: 2 Medium
Topic: Accounting Scandals and Response by Congress
Learning Objective: 04-01 Discuss the impact of accounting scandals and the passage of the
Sarbanes-Oxley Act.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
63
Match each term associated with components of internal control with its definition.
A) Procedures for maintaining separation of duties.
B) Transfer of data from lower managers to top executives for accurate financial reporting.
C) Routine activities that are meant to continually observe internal control activities.
D) Overall attitude of the company with respect to internal controls.
E) Formal policies to evaluate internal and external threats to achieving company objectives.
170) Risk assessment
Difficulty: 2 Medium
Topic: Framework for Internal Control
Learning Objective: 04-02 Identify the components, responsibilities, and limitations of internal
control.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
171) Control activities
Difficulty: 2 Medium
Topic: Framework for Internal Control
Learning Objective: 04-02 Identify the components, responsibilities, and limitations of internal
control.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
172) Information and communication
Difficulty: 2 Medium
Topic: Framework for Internal Control
Learning Objective: 04-02 Identify the components, responsibilities, and limitations of internal
control.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
173) Control environment
Difficulty: 2 Medium
Topic: Framework for Internal Control
Learning Objective: 04-02 Identify the components, responsibilities, and limitations of internal
control.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
64
174) Monitoring
Difficulty: 2 Medium
Topic: Framework for Internal Control
Learning Objective: 04-02 Identify the components, responsibilities, and limitations of internal
control.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
65
Match each term associated with cash and cash controls with its definition.
A) Matches the balance of cash in the bank account with the balance of cash in the company’s
own records.
B) Minor amount of cash kept on hand.
C) Withdraws funds directly from the user’s account at the time of use.
D) Short-term investments that have a maturity date no longer than three months from the date of
purchase.
E) Allows users to purchase items without having to pay cash immediately.
175) Credit card
Difficulty: 2 Medium
Topic: Cash and Cash Equivalents; Cash Controls — Receipts; Cash Controls – Disbursements
Learning Objective: 04-03 Define cash and cash equivalents.; 04-04 Understand controls over
cash receipts and cash disbursements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
176) Bank reconciliation
Difficulty: 2 Medium
Topic: Cash and Cash Equivalents; Cash Controls — Receipts; Cash Controls – Disbursements
Learning Objective: 04-03 Define cash and cash equivalents.; 04-04 Understand controls over
cash receipts and cash disbursements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
177) Cash equivalent
Difficulty: 2 Medium
Topic: Cash and Cash Equivalents; Cash Controls — Receipts; Cash Controls – Disbursements
Learning Objective: 04-03 Define cash and cash equivalents.; 04-04 Understand controls over
cash receipts and cash disbursements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
178) Debit card
Difficulty: 2 Medium
Topic: Cash and Cash Equivalents; Cash Controls — Receipts; Cash Controls – Disbursements
Learning Objective: 04-03 Define cash and cash equivalents.; 04-04 Understand controls over
cash receipts and cash disbursements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
66
179) Petty cash
Difficulty: 2 Medium
Topic: Cash and Cash Equivalents; Cash Controls — Receipts; Cash Controls – Disbursements
Learning Objective: 04-03 Define cash and cash equivalents.; 04-04 Understand controls over
cash receipts and cash disbursements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
67
Match each term related to bank reconciliations with its description.
A) Cash receipts received by the company but not yet recorded by the bank.
B) Checks written to the company that are returned by the bank as not having adequate funds.
C) Money earned on the average daily balance of the checking account.
D) Charges imposed by the bank to the company for providing routine services.
E) The company recorded a deposit twice.
F) Checks written by the company but not yet recorded by the bank.
180) Checks outstanding
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 04-05 Reconcile a bank statement.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
181) NSF checks
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 04-05 Reconcile a bank statement.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
182) Company error
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 04-05 Reconcile a bank statement.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
183) Deposits outstanding
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 04-05 Reconcile a bank statement.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
68
184) Bank service fees
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 04-05 Reconcile a bank statement.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
185) Interest revenue
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 04-05 Reconcile a bank statement.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
69
Match each type of cash flow with its description.
A) Pay dividends to stockholders.
B) Pay salaries to employees.
C) Issue common stock.
D) Receive payment from customers.
E) Purchase equipment.
F) Sell office building.
186) Cash outflow from financing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
187) Cash outflow from investing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
188) Cash inflow from investing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
189) Cash inflow from financing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
70
190) Cash outflow from operating activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
191) Cash inflow from operating activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
71
Match each type of cash flow with its description.
A) Pay cash for utilities.
B) Receive cash in advance from customers.
C) Issue common stock.
D) Purchase building.
E) Sell land.
F) Repay amount borrowed from bank.
192) Cash outflow from financing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
193) Cash outflow from operating activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
194) Cash inflow from investing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
195) Cash inflow from financing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
196) Cash outflow from investing activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
197) Cash inflow from operating activities
Difficulty: 2 Medium
Topic: Statement of Cash Flows
Learning Objective: 04-07 Identify the major inflows and outflows of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
198) A company had the following sales transactions:
1. Total debit card sales = $200,000.
2. Total credit card sales = $400,000.
3. Total cash sales = $800,000.
4. Total check sales = $100,000.
There is a charge of 2% on all credit card transactions. Calculate total sales revenue recorded for
the year.
73
199) A company had the following transactions:
1. Paid $150 for office supplies using a debit card.
2. Purchased office equipment costing $700 using a credit card.
3. Paid utilities bill of $400 by issuing a check.
Record each transaction.
200) Indicate whether the firm should add or subtract each item below from its balance of cash
or the bank’s balance of cash in preparing a bank reconciliation.
Reconciliation Items
Bank Balance
Company
Balance
1. Checks outstanding
2. NSF checks
3. Deposit recorded twice by
company
4. Interest earned
5. Deposits outstanding
6. Bank service fees
1. Checks outstanding
2. NSF checks
3. Deposit recorded twice by
company
4. Interest earned
5. Deposits outstanding
6. Bank service fees
201) A company’s general ledger shows a cash balance of $4,570. Comparing the company’s
cash records with the monthly bank statement reveals several additional cash transactions such as
checks outstanding of $2,840, bank service fees of $110, and interest earned of $15. Calculate
the correct balance of cash.
202) A company’s general ledger shows a cash balance of $2,380. Comparing the company’s
cash records with the monthly bank statement reveals several additional cash transactions such as
deposits outstanding of $1,760, note collected by the bank on the company’s behalf of $1,000,
and interest earned of $20. The company also finds an error by the bank of an additional deposit
of $100. Calculate the correct balance of cash.
203) A company’s bank statement shows a cash balance of $4,230. Comparing the company’s
cash records with the monthly bank statement reveals several additional cash transactions such as
checks outstanding of $3,880, deposits outstanding of $1,230, NSF check of $300, and service
fee of $50. Calculate the correct balance of cash.
204) A company’s bank statement shows a cash balance of $4,170. Comparing the company’s
cash records with the monthly bank statement reveals several additional cash transactions such as
checks outstanding of $2,110, NSF check of $200, interest earned of $30, service fee of $40, and
a check for $150 recorded twice by the company. Calculate the correct balance of cash.
205) A company’s Cash account shows a balance of $3,450 at the end of the month. Comparing
the company’s Cash account with the monthly bank statement reveals several additional cash
transactions such as bank service fees ($50), an NSF check from a customer ($300), a customer’s
note receivable collected by the bank ($1,000), and interest earned ($100). Prepare the necessary
entries to adjust the balance of cash.
206) A company’s Cash account shows a balance of $5,680 at the end of the month. Comparing
the company’s Cash account with the monthly bank statement reveals several additional cash
transactions such as deposits outstanding ($1,250), checks outstanding ($2,380), bank service
fees ($40), an NSF check from a customer ($150), a customer’s note receivable collected by the
bank ($500), and interest earned ($60). Prepare the necessary entries to adjust the balance of
cash.
207) Peterson Company’s general ledger shows a cash balance of $7,850 on May 31. May cash
receipts of $1,250, included in the general ledger balance, are placed in the night depository at
the bank on May 31 and processed by the bank on June 1. The bank statement dated May 31
shows an NSF check for $200 and a service fee of $50. The bank processes all checks written by
the company by May 31 and lists them on the bank statement, except for one check totaling
$1,640. The bank statement shows a balance of $7,990 on May 31. Prepare a bank reconciliation
to calculate the correct ending balance of cash on May 31.
78
208) Madison Company’s cash ledger reports the following for the month ending March 31.
Date
Amount
No.
Date
Amount
Deposits:
3/4
$1,200
Checks:
541
3/2
$5,100
3/11
1,200
542
3/8
800
3/18
3,700
543
3/12
2,200
3/25
3,400
544
3/19
1,100
Cash receipts
3/26-3/31
2,100
545
3/27
200
$11,600
546
3/28
600
547
3/30
1,300
Balance on
March 1
$5,400
$11,300
Receipts
11,600
Disbursements
(11,300)
Balance on
March 31
$5,700
Information from March’s bank statement and company records reveals the following additional
information:
a. The ending cash balance recorded in the bank statement is $6,790.
b. Cash receipts of $2,100 from 3/26 – 3/31 are outstanding.
c. Checks 545 and 547 are outstanding.
d. The deposit on 3/11 included a customer’s check for $400 that did not clear the bank (NSF
check).
e. Check 543 was written for $2,800 for office supplies in March. The bank properly recorded
the check for this amount.
f. An automatic withdrawal for March rent was made on March 4 for $1,500.
g. Madison’s checking account earns interest based on the average daily balance. The amount of
interest earned for March is $50.
h. Last year, one of Madison’s top executives borrowed $4,000 from Madison. On March 24, the
executive paid $4,200 ($4,000 borrowed amount plus $200 interest) directly to the bank in
payment for the borrowing.
i. The bank charged the following service fees: $30 for NSF check, $10 for automatic withdrawal
for rent payment, and $20 for collection of the loan amount from the executive.
Prepare a bank reconciliation for March 31, and record the necessary cash adjustments.
80
209) A company establishes a petty cash fund for $400. By the end of the month, employees had
made the following expenditures from the fund: supplies, $150; fuel for deliveries, $120;
postage, $75; miscellaneous, $35. Record the entry to recognize expenditures from the petty cash
fund.