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(iii) Check of $100 returned because of not sufficient funds (NSF)
What is the adjusted balance according to the bank statement?
a. $4,400
b. $4,605
c. $4,500
d. $4,810
92. Which of the following would be deducted from the cash balance per books on a bank reconciliation?
a. Service charges
b. Outstanding checks
c. Deposits in transit
d. Notes collected by the bank
93. Anna erroneously records a check drawn for $385 as $835. This error is adjusted on the bank reconciliation as a(n)
____.
a. $450 addition to the cash balance per books
b. $385 addition to the cash balance per bank
c. $835 deduction from the cash balance per bank
d. $1,220 deduction from the cash balance per books
94. When there are major changes in strategy, senior management, business structure, or operations, evaluations of
controls are usually performed by _____.
a. internal auditors
b. management
c. supervisors
d. directors
95. Which of the following elements of internal control focuses on locating weaknesses and improving control
effectiveness?
a. Control environment
b. Risk assessment
c. Control procedures
d. Monitoring
96. Accompanying the bank statement was a debit memorandum for bank service charges. What adjustment is required in
the depositor's accounts?
a. Increase Miscellaneous Expense; decrease Cash
b. Increase Cash; increase Other Income
c. Increase Cash; increase Accounts Payable
d. Decrease Accounts Payable; decrease Cash
97. For each of the following procedures, indicate whether it is an internal control strength or a weakness. Also, for each
weakness, explain why it is a weakness and how it can be corrected.
(a) Only the best accounting graduates are hired to eliminate the need for training.
(b) The person responsible for order supplies also records the receipt of the supplies.
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(c) Company policy mandates that all employees take vacation time.
(d) Internal auditors constantly monitor the internal control system.
(e) The accountant deposits cash at least once each day.
98. Why would a bank require a company to maintain a compensating balance?
99. Using the following information, list the items that will require adjustments to the accounts of Salem Co. Also,
indicate which accounts will increase or decrease due to the adjustment.
(a) The bank statement balance is $2,597.
(b) The cash account balance is $2,680.
(c) Outstanding checks amounted to $703.
(d) Deposits in transit are $732.
(e) The bank service charge is $25.
(f) Interest added to the checking account by the bank is $7.
(g) A check drawn for $59 was incorrectly charged by the bank as $95.
100. List and define each of the five elements of internal control set forth by the Integrated Framework.
101. The bank statement for Exible Co. indicates a balance of $10,252.50 on June 30, 20Y8. The cash account for the
company had a balance of $4,787.10. Prepare a bank reconciliation on the basis of the following reconciling items:
(a) Cash sales of $351 had been erroneously recorded as $315.
(b) Deposits in transit not recorded by bank, $500.
(c) Bank debit memorandum for service charges, $45.
(d) Bank credit memorandum for note collected by bank, $2,782, including $63 interest.
(e) Bank debit memorandum for $223.40 NSF (not sufficient funds) check from Alice Martin, a customer.
(f) Checks outstanding, $3,415.80.
102. Identify each of the following as related to (a) the control environment, (b) risk assessment, or (c) control procedures.
(1) Mandatory vacations
(2) Personnel policies
(3) Report of outside consultants on future market changes
103. Describe the features of a voucher system and list typical supporting documents for a voucher.
104.
(a) Where are cash equivalents disclosed in the financial statements?
(b) List three examples of cash equivalents.
105. List the objectives of internal control and give an example of how each is implemented.
106. List the advantages of Electronic Funds Transfers.
107. From the following particulars of Purple New Co., prepare the bank reconciliation statement as on May 31, 20Y8.
(a) The bank statement balance is $4,000.
(b) The cash account balance is $3,950.
(c) Outstanding checks amounted to $960.
(d) Deposits in transit are $900.
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(e) The bank service charge is $75.
(f) Interest added to the checking account by the bank is $150.
(g) A check drawn for $65 was incorrectly charged by the bank as $150.
108. Using the following information, prepare a bank reconciliation for Murack Co. for May 31, 20Y8:
(a) The bank statement balance is $4,063.
(b) The cash account balance is $3,735.
(c) Outstanding checks amounted to $640.
(d) Deposits in transit are $245.
(e) The bank service charge is $40.
(f) A check for $74 for supplies was recorded on the depositor's books as $47.
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Answer Key
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