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Chapter 5
80. A check drawn by a depositor for $810 in payment of a liability was recorded by the depositor as $180. The $630
difference would be included on the bank reconciliation as a(n):
a.
addition to the cash balance per books.
b.
addition to the cash balance per bank.
c.
deduction from the cash balance per bank.
d.
deduction from the cash balance per books.
81. The amount of deposits in transit is included on the bank statement as a(n):
a.
deduction from the cash balance per books.
b.
deduction from the cash balance per bank.
c.
addition to the cash balance per bank.
d.
addition to the cash balance per books.
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82. Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item
would require an adjusting entry including a:
a.
debit to Accounts Receivable.
b.
debit to Cash.
c.
debit to Accounts Payable.
d.
credit to Accounts Payable.
83. 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
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84. A canceled check for $1,900 was erroneously recorded by the bank as $9,100. How is the error adjusted in a bank
reconciliation?
a.
The amount is deducted from the cash balance in the bank section of the reconciliation.
b.
The amount is deducted from the cash balance in the company section of the reconciliation.
c.
The amount is added to the cash balance in the bank section of the reconciliation.
d.
The amount is added to the cash balance in the company section of the reconciliation.
85. WFC Co.'s petty cash receipts indicate the following expenditures for the end of October:
Office supplies
$500
Miscellaneous selling expense
$350
Miscellaneous administrative expense
$160
As a result of these transactions, WFC Co.'s stockholders' equity:
a.
remains unchanged.
b.
increases by $500.
c.
decreases by $1,010.
d.
decreases by $510.
Chapter 5
86. A special cash fund used to make small payments that occur frequently is called a(n):
a.
operating expenses fund.
b.
change fund.
c.
market fund.
d.
petty cash fund.
87. Terri Co. established a petty cash fund of $2,300. What is the effect of this transaction?
a.
Accounts payable increases
b.
Retained earnings decreases
c.
Cash decreases
d.
Expenses increases
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88. ABC Co.'s petty cash receipts indicate the following expenditures for the end of October:
Office supplies
$490
Miscellaneous selling expense
$300
Miscellaneous administrative expense
$120
What is the cumulative effect of these transactions on the statement of cash flows?
a.
$420 decrease in financing activities
b.
$490 increase in operating activities
c.
$910 decrease in operating activities
d.
No effect on the statement of cash flows
89. XYZ Co.'s petty cash receipts indicate the following expenditures for the end of October:
Office supplies
$490
Miscellaneous selling expense
$300
Miscellaneous administrative expense
$120
These transactions would result in a:
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a.
$910 increase in total assets.
b.
$490 decrease in stockholders' equity.
c.
$420 decrease in total assets.
d.
$910 increase in stockholders' equity.
90. The highly liquid investments that a company may invest in when they temporarily have excess cash are called _____.
a.
cash equivalents
b.
bank overdrafts
c.
cash short and over
d.
vouchers
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91. The following data is given for DGR Company:
Net cash flows from operating activities
$6,000,000
Cash and cash equivalents at end of year
$2,700,000
DGR Company's ratio of cash to monthly cash expenses is:
a.
4.5 months.
b.
5.4 months.
c.
8.1 months.
d.
3.2 months.
92. The ratio of cash to monthly cash expenses can be used to _____.
a.
assess how long a company with positive cash flows from investing activities can continue to operate
b.
assess how long a company with negative cash flows from operations can continue to operate
c.
assess how long a company with negative cash flows from investing activities can continue to operate
d.
assess how long a company with positive cash flows from financing activities can continue to operate
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93. The ratio of cash to monthly cash expenses is computed as _____.
a.
monthly cash expenses divided by cash
b.
current assets divided by monthly cash expenses
c.
cash divided by cash equivalents
d.
cash and cash equivalents divided by monthly cash expenses
94. Denominator in the ratio of cash to monthly cash expense is calculated as _____.
a.
total revenues divided by 12
b.
net cash flows from investing activities divided by 12
c.
earnings before taxes divided by 12
d.
net cash flows from operations divided by 12
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95. If a company's net cash flows from operating activities is $1,500,000 for a year and its end of the year cash and cash
equivalents balance is $750,000, determine the company's ratio of cash to monthly cash expenses.
a.
6 months
b.
2 months
c.
5 months
d.
9 months
96. When a company reports negative net cash flows from operations _____.
a.
ratio of equity to annual cash expenses helps in assessing the survival of the company
b.
ratio of equity to monthly cash expenses helps in assessing the survival of the company
c.
ratio of cash to monthly cash expenses helps in assessing the survival of the company
d.
ratio of accounts payable to annual financing expenses helps in assessing the survival of the company
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97. List the objectives of internal control and give an example of how each is implemented.
98. 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.
(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.
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99. List and define each of the five elements of internal control set forth by the Integrated Framework.
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100. 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
101. Describe the features of a voucher system and list typical supporting documents for a voucher.
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102. List the advantages of Electronic Funds Transfers.
103. From the following particulars of Purple New Co., prepare the bank reconciliation statement as on May 31, 2016.
(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.
(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.
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104. 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.
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105. The bank statement for Exible Co. indicates a balance of $10,252.50 on June 30, 2016. 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.
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106. The bank statement for Marley Co. indicates a cash balance of $10,000.50 on June 30, 2016. The cash account in
Marley's records had a balance of $4,677.10. Illustrate the adjustments to the accounts and their effect on Marley's
financial statements, based on the following reconciling items:
(a)
Cash sales of $342 had been erroneously recorded in the cash receipts journal as $324.
(b)
Deposits in transit not recorded by bank, $700.
(c)
Bank debit memorandum for service charges, $30.
(d)
Bank credit memorandum for note collected by bank, $2,050, including $50 interest.
(e)
Bank debit memorandum for $207.40 NSF (not sufficient funds) check from Alice
Martin, a customer.
(f)
Checks outstanding, $4,192.80.
Assets =
Liabilities + Stockholders' Equity
Cash
Accounts
Receivable
Notes
Receivable
Accounts
Payable
Capital
Stock
Retained
Earnings
Chapter 5
107. Using the following information, prepare a bank reconciliation for Murack Co. for May 31, 2016:
(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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108.
(a)
Where are cash equivalents disclosed in the financial statements?
(b)
List three examples of cash equivalents.
109. Why would a bank require a company to maintain a compensating balance?
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