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124) The following information was taken from a company's bank reconciliation at the end of the
year:
Bank balance
$
8,000
Checks outstanding
$
5,800
Note collected by the bank
$
1,500
Service fee
$
20
Deposits outstanding
$
4,000
NSF check
$
300
What is the correct cash balance that should be reported in the company's balance sheet at the
end of the year?
A) $10,200.
B) $7,400.
C) $6,200.
D) $6,160.
125) Cash transactions that have been recorded by the company but not the bank include:
A) NSF checks.
B) Interest earned.
C) Service fees.
D) Deposits outstanding.
126) After preparing a bank reconciliation, the collection of a note by the bank on a company's
behalf would be recorded with a:
A) Credit to Notes Receivable.
B) Credit to Cash.
C) Debit to Notes Receivable.
D) Credit to Accounts Receivable.
127) After preparing a bank reconciliation, the service fee charged by the bank would be
recorded with a:
A) Credit to Service Fees Expense.
B) Debit to Cash.
C) Credit to Service Fees Revenue.
D) Debit to Service Fees Expense.
128) After preparing a bank reconciliation, a check outstanding for the payment of advertising
would be recorded with a:
A) Debit to Advertising Expense.
B) Debit to Cash.
C) Credit to Advertising Expense.
D) No entry is needed.
43
129) The following data were obtained from the bank statement and from the process of
reconciling the bank balance with the company's cash balance:
Bank service charges
$
20
Deposit outstanding
$
150
Interest earned on the bank account
$
10
Checks outstanding
$
400
Which items should be deducted from and added to the bank balance in completing the
reconciliation?
A) Deduct checks outstanding; add service charges and deposit outstanding.
B) Deduct interest earned; add deposit outstanding.
C) Deduct checks outstanding; add deposit outstanding.
D) Deduct deposit outstanding; add checks outstanding.
44
130) The balance in a company's Cash account on August 31 was $19,700, before the bank
reconciliation was prepared. After examining the August bank statement and items included with
it, the company's accountant found:
Checks outstanding
$
4,300
NSF check
140
Note collected by bank for the Colt Company
1,200
Deposits outstanding
1,800
Bank service fees
60
What is the amount of cash that should be reported in the balance sheet as of August 31?
A) $20,700.
B) $17,200.
C) $18,700.
D) $22,200.
131) The balance shown in the August bank statement of a company was $23,200. After
examining the August bank statement and items included with it, the company's accountant
found:
Checks outstanding
$
4,300
NSF check
140
Note collected by bank for the Colt Company
1,200
Deposits outstanding
1,800
Bank service fees
60
What is the amount of cash that should be reported in the balance sheet as of August 31?
A) $20,700.
B) $17,200.
C) $18,700.
D) $22,200.
132) A company-issued debit card or credit card is often referred to as a:
A) Budget care.
B) Allowance card.
C) Purchase card.
D) Receipt card.
133) A minor amount of cash kept on hand to pay for small purchases is referred to as a:
A) Petty cash fund.
B) Cash receipts fund.
C) Cash payments fund.
D) Cookie jar fund.
134) At the end of the month, employees have made the following expenditures from the petty
cash fund and with company-issued credit cards. None of these transactions has been recorded
previously.
Supplies (petty cash)
$
50
Delivery (petty cash)
$
75
Advertising (credit card)
$
1,100
Equipment (credit card)
$
4,200
Accounting for these employee purchases would include a:
A) Credit to Cash for $125.
B) Debit to Accounts Payable for $5,300.
C) Credit to Cash for $1,225.
D) Credit to Accounts Payable for $5,425.
135) At the end of the month, employees have made the following expenditures from the petty
cash fund and with company-issued credit cards. None of these transactions has been recorded
previously.
Supplies (petty cash)
$
50
Delivery (petty cash)
$
75
Advertising (credit card)
$
1,100
Equipment (credit card)
$
4,200
Accounting for these employee purchases would include a:
A) Credit to Cash for $5,425.
B) Credit to Accounts Payable for $5,300.
C) Credit to Equipment for $4,200.
D) Debit to Accounts Receivable for $5,300.
136) Which of the following is NOT involved in the replenishment of the petty cash fund?
A) Transactions related to vouchers will be recorded.
B) Management will verify that the total of all vouchers equals the amount of cash missing from
the petty cash fund.
C) Weekly payroll checks will be recorded.
D) Management will withdraw cash from the bank and place it in the petty cash fund.
137) At the time a $400 petty cash fund is being replenished, the company's accountant finds
vouchers totaling $350 and petty cash of $50. The vouchers include: postage, $100; business
lunches, $150; delivery fees, $75; and office supplies, $25. Which of the following is not
recorded when recognizing expenditures from the petty cash fund?
A) Debit Postage Expense, $100.
B) Debit Supplies, $25.
C) Credit Cash, $350.
D) Debit Cash, $350.
138) Which of the following is correct regarding a petty cash fund?
A) A petty cash fund represents cash on hand at the business for quick access.
B) A petty cash fund is used for minor purposes.
C) When cash from this fund is taken out, it should be replaced with a voucher.
D) All of the answers are correct regarding a petty cash fund.
139) When accounting for employee purchases, effective internal controls could include which
of the following?
A) Credit card receipts are reconciled to credit card statements.
B) Employees should be required to provide receipts and justification for those receipts on a
timely basis.
C) A separate employee reviews receipts and supporting documents to ensure all expenditures
are made appropriately.
D) All of the other answers represent effective internal controls.
140) When accounting for employee purchases, effective internal controls could include which
of the following?
A) Employees should be required to provide receipts and justification for those receipts every six
months.
B) Only those employees that need to make timely business expenditures should receive
authorization.
C) The same employee should review receipts and supporting documents to ensure all
expenditures are made appropriately.
D) To ensure timely expenditures, no pre-approval should be required for major purchases.
141) A company's cash balance is reported in which two financial statements?
A) Income statement and statement of cash flows.
B) Balance sheet and statement of cash flows.
C) Income statement and balance sheet.
D) Balance sheet and statement of stockholders' equity.
142) Which of the following best describes restricted cash?
A) Cash to be collected from customers from sales on account.
B) Cash that is not available to be used for current operations.
C) Cash that has been borrowed from a bank with a high interest rate.
D) Dividends that are expected to be paid to common stockholders in the following year.
143) A common example of restricted cash includes cash set aside by the company for the
specific purpose of:
A) Repaying debt in the future.
B) Purchasing equipment in the future.
C) Making investments in the future.
D) All of the other answers represent examples of restricted cash.
144) The statement of cash flows reports cash flows from the activities of:
A) Operating, purchasing, and investing.
B) Borrowing, paying, and investing.
C) Financing, investing, and operating.
D) Using, investing, and financing.
145) Operating cash flows would exclude:
A) Payment of employee salaries.
B) Receipt of cash from customers.
C) Payment of dividends.
D) Payment for advertising.
51
146) Cash flows from investing do not include cash flows from:
A) Lending.
B) The sale of equipment.
C) Borrowing.
D) The purchase of a building.
147) Which of the following is NOT correct regarding the reporting of cash?
A) Cash is reported in both the balance sheet and the statement of cash flows.
B) Cash flows from buying and selling investments and long-term productive assets are called
operating cash flows.
C) Cash flows from transactions with stockholders and creditors are called financing cash flows.
D) Net cash flows reported in the statement of cash flows should equal the change in cash
reported in the balance sheet.
52
148) Consider the following cash flow items:
Pay amount owed to bank for previous borrowing.
Pay utility costs.
Purchase equipment to be used in operations.
Purchase office supplies.
Pay one year of rent in advance.
Pay workers' salaries.
Pay for research and development costs.
Pay taxes to the IRS.
Sell common stock to investors.
How many of these cash flow items involve investing activities?
A) Zero.
B) One.
C) Two.
D) Three.
149) Consider the following cash flow items:
Pay amount owed to bank for previous borrowing.
Pay utility costs.
Purchase equipment to be used in operations.
Purchase office supplies.
Purchase one year of rent in advance.
Pay workers' salaries.
Pay for research and development costs.
Pay taxes to the IRS.
Sell common stock to investors.
How many of these cash flow items involve financing activities?
A) Zero.
B) One.
C) Two.
D) Three.
150) Investing cash flows would include which of the following?
A) Payment of cash dividends to stockholders.
B) Purchase of office supplies with cash.
C) Purchase of a building with cash.
D) Cash sales to customers.
151) Cash flows from investing activities do not include:
A) Borrowing.
B) The purchase of equipment.
C) The sale of land.
D) The purchase of a building.
152) Payment of dividends to stockholders is considered a(n):
A) Operating cash flow.
B) Investing cash flow.
C) Financing cash flow.
D) Not a cash flow.
153) Issuing common stock for cash is considered a(n):
A) Operating cash flow.
B) Investing cash flow.
C) Financing cash flow.
D) Not a cash flow.
154) Cash flows from financing activities include:
A) Lending.
B) Salaries paid.
C) The sale of land.
D) Dividends paid.
155) Providing services to customers on account is considered a(n):
A) Operating cash flow.
B) Investing cash flow.
C) Financing cash flow.
D) Not a cash flow.
156) Consider the following list of transactions:
Repay borrowing from the bank, $2,000.
Pay employees' salaries of $1,500.
Purchase equipment for cash, $10,000.
Provide services to customers for cash, $4,500.
Issue shares of common stock for cash, $5,000.
Pay utilities, $1,000.
Provide services to customers on account, $2,500.
Sell old delivery truck for cash, $4,000.
What amount would the company report for operating cash flows in the statement of cash flows?
A) $5,000.
B) $4,500.
C) $1,000.
D) $2,000.
157) Consider the following list of transactions:
Repay borrowing from the bank, $2,000.
Pay employees' salaries of $1,500.
Purchase equipment for cash, $10,000.
Provide services to customers for cash, $4,500.
Issue shares of common stock for cash, $5,000.
Pay utilities, $1,000.
Provide services to customers on account, $2,500.
Sell old delivery truck for cash, $4,000.
What amount would the company report for investing cash flows in the statement of cash flows?
A) $(3,500).
B) $(6,000).
C) $(4,000).
D) $(7,500).
158) Consider the following list of transactions:
Repay borrowing from the bank, $2,000.
Pay employees' salaries of $1,500.
Purchase equipment for cash, $10,000.
Provide services to customers for cash, $4,500.
Issue shares of common stock for cash, $5,000.
Pay utilities, $1,000.
Provide services to customers on account, $2,500.
Sell old delivery truck for cash, $4,000.
What amount would the company report for financing cash flows in the statement of cash flows?
A) $3,000.
B) $6,000.
C) $1,500.
D) $4,500.
159) A company might hold a large amount of cash relative to noncash assets for which of the
following reasons?
A) Part of its operations includes low-tax foreign jurisdictions.
B) Operating risks are high.
C) Dividends are not typically paid to shareholders.
D) All of the other answers represent reasons for large cash holdings.
160) The company's ratio of cash to noncash assets increased in the current year from 20% to
30%? Which of the following represents the most likely reason for this increase?
A) The company maintained operations only in the United States.
B) The company declared a large dividend in the current year.
C) Management forecasts additional operating volatility in future periods.
D) The company acquired additional equipment and buildings for expansion of operations.
161) A potential risk of a company with a high ratio of cash to noncash assets is:
A) Creditors are less likely to lend money to the company.
B) Management may not foresee any growth opportunities.
C) The company likely will not be able to pay dividends in the near future.
D) The company likely is paying higher taxes than it should be.
162) A company's lower ratio of cash to noncash assets most likely represents which
characteristic of management?
A) Greater willingness to take risk.
B) Lower ability to find profitable investment projects.
C) Greater caution to ensure funds are available to pay debt as it becomes due.
D) Greater willingness to be compensated with company stock than cash.
163) A company reports the following amounts:
Cash
Total Assets
Total Liabilities
$
10,000
$
50,000
$
35,000
What is the ratio of cash to noncash assets?
A) 75%.
B) 20%.
C) 25%.
D) 67%.
164) Below are trends in operating cash flows for three companies.
Year 1
Year 2
Year 3
Total
Company 1
$
100,000
$
150,000
50,000
$
300,000
Company 2
100,000
100,000
100,000
300,000
Company 3
90,000
100,000
110,000
300,000
Based on an analysis of operating risk, which company's management is likely motivated to have
the largest ratio of cash to noncash assets?
A) Company 1.
B) Company 2.
C) Company 3.
D) All companies are expected to have the same ratio.
