Chapter 5
1. The Sarbanes-Oxley Act of 2002 applies to all publicly held companies.
a.
True
b.
False
True
Easy
False
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2. The Sarbanes-Oxley Act of 2002 requires companies to maintain strong and effective internal controls over recording
transactions and preparing financial statements.
a.
True
b.
False
True
Easy
False
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3. The Sarbanes-Oxley Act requires companies and their independent accountants to report on the effectiveness of the
Chapter 5
company’s internal controls.
a.
True
b.
False
True
Moderate
False
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4. Employee fraud is the intentional act of deceiving an employer for personal gain.
a.
True
b.
False
True
Easy
False
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5. All organizations face risks, and the assessment of these risks is necessary so that the objectives of internal control can
be achieved.
a.
True
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b.
False
True
Easy
False
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6. The internal control environment is enhanced by the hiring and retention of competent, honest employees.
a.
True
b.
False
True
Easy
False
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7. There are only two internal control objectives: to ensure accurate financial reports, and to ensure compliance with
applicable laws.
a.
True
b.
False
False
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8. Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control
procedure: separating operations, custody of assets, and accounting.
a.
True
b.
False
True
Easy
False
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9. Adding a review of operations by an internal audit staff weakens internal control.
a.
True
b.
False
Easy
Easy
False
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10. Information and communication are essential elements of an organization’s internal control.
a.
True
b.
False
True
Easy
False
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11. Internal control is enhanced by combining the control of a transaction with the record-keeping function.
a.
True
b.
False
False
Easy
False
False
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12. Money orders are considered cash.
a.
True
b.
False
True
Easy
False
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13. If a business has several bank accounts, it will have a separate record for each of them.
a.
True
b.
False
True
Easy
False
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4OTI-GO4W-NQNBEE
Chapter 5
14. A customer’s check received in settlement of an account receivable is considered cash.
a.
True
b.
False
True
Easy
False
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15. For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash
payments divided among different employees.
a.
True
b.
False
True
Easy
False
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Chapter 5
16. A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice
being paid.
a.
True
b.
False
True
Easy
False
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17. A voucher is a written authorization to make a cash payment.
a.
True
b.
False
True
Easy
False
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18. A voucher system is an example of an internal control procedure over cash receipts.
a.
True
b.
False
False
Easy
False
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19. A voucher is a form where pertinent data about a liability and the particulars of its payment are recorded.
a.
True
b.
False
True
Easy
False
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Chapter 5
20. A voucher system is an example of an internal control procedure over cash payments.
a.
True
b.
False
True
Easy
False
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21. In a computerized system, paid vouchers are transferred to a paid voucher file.
a.
True
b.
False
True
Easy
False
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22. A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being
paid.
a.
True
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b.
False
False
Easy
False
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23. For efficiency of operations and better control over cash, a company should maintain only one bank account.
a.
True
b.
False
False
Easy
False
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24. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.
a.
True
b.
False
True
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25. The bank informs the depositor of bank service charges by including a credit memorandum with a monthly bank
statement.
a.
True
b.
False
False
Easy
False
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26. Bank customers are considered owners of the bank, so the bank shows their accounts as an asset on the bank’s records.
a.
True
b.
False
False
Easy
Easy
False
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Chapter 5
27. A credit memorandum received with a bank statement means the company’s bank account has been increased.
a.
True
b.
False
True
Easy
False
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28. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the cash balance per bank.
a.
True
b.
False
False
Moderate
False
False
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Chapter 5
29. The bank section begins with the cash balance according to the bank statement and ends with the adjusted balance.
a.
True
b.
False
True
Moderate
False
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30. In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is added to
the cash balance per books.
a.
True
b.
False
False
Moderate
False
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31. In preparing a bank reconciliation, the amount of a canceled check omitted from the depositor’s records is deducted
from the cash balance per books.
a.
True
b.
False
True
Moderate
False
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32. The amount of the “adjusted balance” appearing on a bank reconciliation as of a given date is the amount that is shown
on the balance sheet for that date after all adjusting entries have been entered.
a.
True
b.
False
True
Moderate
False
33. The data needed to adjust a depositor’s books are shown in the “adjustments to the depositor’s records” section of a
bank reconciliation.
a.
True
b.
False
True
Easy
False
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34. All bank memorandums reported on the bank reconciliation require entries in the depositor’s accounts.
a.
True
b.
False
True
Easy
False
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Chapter 5
35. A bank reconciliation is an important part of the system of internal controls.
a.
True
b.
False
True
Easy
False
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36. Outstanding checks are checks that have been issued but have not cleared by the bank.
a.
True
b.
False
True
Easy
False
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37. The bank reconciles its statement to the depositor’s records.
a.
True
b.
False
False
Easy
False
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38. The depositor reconciles the bank’s statement to the depositor’s records.
a.
True
b.
False
True
Easy
False
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4OTI-GO4W-NQNBEE
Chapter 5
39. A check for $456 was erroneously charged by the bank as $654. In order for the bank reconciliation to balance, you
must subtract $198 from the bank statement balance.
a.
True
b.
False
False
Moderate
False
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40. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the cash balance per books.
a.
True
b.
False
False
Moderate
False
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41. In preparing a bank reconciliation, the amount of outstanding checks is deducted from the cash balance per books.
a.
True
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b.
False
False
Moderate
False
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42. In preparing a bank reconciliation, the amount indicated by a credit memorandum for a note receivable collected by
the bank is added to the cash balance per books.
a.
True
b.
False
True
Moderate
False
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43. In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is deducted
from the cash balance per bank.
a.
True
b.
False