Finance Chapter 6 Remembering Cash Equivalents Are

subject Type Homework Help
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subject Words 4761
subject Authors Curtis L. Norton, Gary A. Porter

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Chapter 6: Cash and Internal Control
True / False
1. A six-month certificate of deposit would be considered to be a cash equivalent.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
2. Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
3. The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of
time.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
4. Some cash equivalents appear in the long term investment section of a balance sheet.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
5. If collection of accounts receivable is assured, then accounts receivable are considered to be cash equivalents.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
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6. Treasury notes with a maturity of six months or less that are issued by the Federal Government are cash equivalents.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
7. A check written by a company but not yet presented to the bank for payment is called a check in transit.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
8. When reconciling a bank account, the company does not have to prepare an adjusting entry for outstanding checks.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
9. When reconciling a bank account, the company must prepare an adjusting entry for deposits in transit.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
10. In a sound internal control system, all cash receipts should be deposited daily intact.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
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11. Checks received from customers are considered to be cash in the company’s books.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
12. The bank informs a customer that a service charge has been assessed on their account by including a credit
memorandum in the monthly bank statement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
13. On a bank reconciliation, outstanding checks are added to the cash balance per the bank statement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
14. When a bank pays interest or collects an amount owed to a company by one of the bank's customers, the bank issues a
debit memorandum.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
15. When a bank pays interest or collects an amount owed to a company by one of the bank's customers, the bank issues a
credit memorandum.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
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16. On a bank reconciliation, bank charges for the month are added to the cash balance per the books.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
17. On a bank reconciliation, interest earned for the month is added to the cash balance per the books.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
18. A company prepares adjusting entries for debit memorandums but not for credit memorandums.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
19. The establishment of a petty cash fund has no effect on the company's total cash balance.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
20. No special internal control procedures are necessary with a petty cash account because the amount is usually so small.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
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21. An advantage of a strong system of internal control is that less testing of the accounting system is done by the outside
auditors.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-03 - LO: 06-03
KEYWORDS:
Bloom's: Remembering
22. A good system of internal control is important to make a company's accounting records completely foolproof.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-03 - LO: 06-03
KEYWORDS:
Bloom's: Remembering
23. An accounting system must be computerized in order to ensure the company has proper internal control.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-03 - LO: 06-03
KEYWORDS:
Bloom's: Remembering
24. Audit committees are required to consist of only directors who are key officers of the company.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-03 - LO: 06-03
KEYWORDS:
Bloom's: Remembering
25. According to the Sarbanes-Oxley Act of 2002, only external auditors can provide bookkeeping services for the clients
they audit.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-03 - LO: 06-03
KEYWORDS:
Bloom's: Remembering
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26. One concern of the internal auditor is the efficiency with which the organization is run.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
27. If a company has internal auditors, it does not need to have external auditors.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
28. Accounting controls primarily concern safeguarding of assets and ensuring the reliability of the financial statements.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
29. A company’s internal control system is designed by its external auditors.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
30. The only reason a company needs to create an internal control system is to deter intentional fraudulent acts.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
page-pf7
31. A good system of internal controls requires that the physical custody of assets be separated from the accounting for
those assets. This concept is known as safeguarding assets and records.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
32. If a company hires honest employees, no internal control procedures are necessary.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-04 - LO: 06-04
KEYWORDS:
Bloom's: Remembering
33. As part of good internal control, disbursements can be made either by check or cash.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-05 - LO: 06-05
KEYWORDS:
Bloom's: Remembering
34. Most merchandisers receive checks and currency from customers in two ways: (1) cash received over the counter from
cash sales and (2) cash received in the mail from credit sales.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-05 - LO: 06-05
KEYWORDS:
Bloom's: Remembering
35. Only one copy of the prelist should be prepared when an employee opens mail with customer payments to avoid
complexity in the accounting system and maintain control.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-05 - LO: 06-05
KEYWORDS:
Bloom's: Remembering
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36. The use of customer statements as a control device will be effective only if the employees responsible for the custody
of cash received through the mail, for record keeping, and for authorization of adjustments to customers’ accounts are not
allowed to prepare and mail statements to customers.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-05 - LO: 06-05
KEYWORDS:
Bloom's: Remembering
37. A purchase order is not the basis for recording a purchase and a liability.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-05 - LO: 06-05
KEYWORDS:
Bloom's: Remembering
38. The key to the classification of an amount as cash is that it be readily available to pay debts.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
39. Cash equivalents are investments that are readily convertible to a known amount of cash, where readily means six
months or less.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Remembering
page-pf9
page-pfa
44. Which one of the following could never be considered to be cash equivalents?
a.
Common stock issued by a corporation
b.
Money market funds
c.
Corporate commercial paper
d.
U.S. Treasury bills
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Understanding
45. Which one of the following is not a cash equivalent?
a.
30-day certificate of deposit
b.
60-day commercial paper
c.
90-day U.S. treasury bill
d.
180-day note issued by a local or state government
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-01 - LO: 06-01
KEYWORDS:
Bloom's: Understanding
46. Effective cash management and control includes all of the following except
a.
The use of a petty cash fund
b.
Bank reconciliations
c.
Short-term investments of excess cash
d.
Purchase of stocks and bonds
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
47. Checks presented for payment and paid by the bank are known as
a.
Canceled checks
b.
Certified checks
c.
NSF checks
d.
Outstanding checks
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
page-pfb
48. Deposits made by a company but not yet reflected in a bank statement are called
a.
Debit memoranda
b.
Deposits in transit
c.
Credit memoranda
d.
None of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
49. Which one of the following statements is true?
a.
Good cash management practices dictate that a company should maintain as large a balance as possible in its
cash account.
b.
Sound internal control practice dictates that disbursements should be made by check.
c.
The person handling the cash should also prepare the bank reconciliation.
d.
Petty cash can be substituted for a checking account to expedite the payment of all disbursements.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
50. Checks returned by a bank because customers did not have sufficient funds in their account are called
a.
Canceled checks
b.
Certified checks
c.
NSF checks
d.
Outstanding checks
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Remembering
51. Which one of the following would not appear on a bank statement for a checking account?
a.
Service charges
b.
Interest earned
c.
Outstanding checks
d.
Deposits
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
page-pfc
52. Which one of the following procedures is not part of preparing a bank reconciliation of a checking account?
a.
Tracing deposits listed on the bank statement to the books to identify deposits in transit
b.
Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks
c.
Identifying items added on the bank statement which have not been recorded as cash receipts by the company
d.
Preparing adjustments to reverse the transactions recorded for checks that are still outstanding
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
53. Which of the following items would not be a reconciling item?
a.
Canceled checks
b.
NSF checks
c.
Outstanding checks
d.
Deposits in transit
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
54. Which one of the following items would be added to the balance per books in a bank reconciliation?
a.
Outstanding checks
b.
Deposit in transit
c.
Service charges
d.
Interest on customer note
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
55. Which one of the following items would be added to the balance per bank statement in a bank reconciliation?
a.
Outstanding checks
b.
Deposits in transit
c.
Service charge
d.
Interest on customer note
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
page-pfd
56. Which one of the following items would be subtracted from the balance per books in a bank reconciliation
a.
Outstanding checks
b.
Deposit in transit
c.
Service charges
d.
Interest on customer note
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
57. Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation?
a.
Outstanding checks
b.
Deposit in transit
c.
Service charges
d.
Interest on customer note
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
58. Which one of the following statements best describes the term “outstanding check?
a.
A check written by the company and presented to the bank for payment.
b.
A check written by the company but not yet presented to the bank for payment.
c.
A check written by a customer that has been presented to the bank for payment.
d.
A check written by a customer that has not yet been presented to the bank for payment.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
page-pfe
59. The accountant for Fazzi Corp. was preparing a bank reconciliation as of April 30, 2016. The following items were
identified:
Allan’s book balance
$46,200
Outstanding checks
1,100
Interest earned on checking account
50
Customer's NSF check returned by the bank
500
In addition, Fazzi made an error in recording a customer's check; the amount was recorded in cash receipts as $150; the
bank recorded the amount correctly as $510. What amount will Fazzi report as its adjusted cash balance at April 30, 2016?
a.
$44,650
b.
$45,890
c.
$46,110
d.
$46,250
ANSWER:
c
RATIONALE:
$46,200 (Book Balance) + $50 (Interest Earned) $500 (NSF Check) + $360 (Transposition
Error) = $46,110
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing
60. The accountant for Busch Corp. was preparing a bank reconciliation as of February 28, 2016. The following items
were identified:
Busch’s book balance
$15,000
Outstanding checks
2,500
Service charge
15
Customer's NSF check returned by the bank
100
What amount will Busch report as its adjusted cash balance at February 28, 2016?
a.
$12,385
b.
$12,500
c.
$14,885
d.
$17,385
ANSWER:
c
RATIONALE:
$15,000 (Book Balance) $100 (NSF Check) $15 (Service Charge) = $14,885
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing
page-pff
61. How would deposits in transit be dealt with in a bank reconciliation?
a.
added to bank statement balance
b.
deducted from company’s book balance
c.
they would be ignored
d.
None of these choices
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
62. How would customer's NSF checks be dealt with in a bank reconciliation?
a.
added to company’s book balance
b.
deducted from company’s book balance
c.
added to bank statement balance
d.
deducted from bank statement balance
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
63. How would interest earned on a checking account be dealt with in a bank reconciliation?
a.
added to company’s book balance
b.
deducted from company’s book balance
c.
added to bank statement balance
d.
deducted from bank statement balance
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
64. How would outstanding checks be dealt with in a bank reconciliation?
a.
deducted from bank statement balance
b.
deducted from company’s book balance
c.
added to bank statement balance
d.
added to the company’s book balance
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
page-pf10
65. How would bank service charges be dealt with in a bank reconciliation?
a.
added to company’s book balance
b.
deducted from company’s book balance
c.
added to bank statement balance
d.
deducted from bank statement balance
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
66. The set of items below was identified in preparing a bank reconciliation for Mars Corp. as of August 31, 2016.
Bank statement balance
$19,500
Mars’s book balance (before adjustments)
?
Outstanding checks
2,700
Customer's NSF checks
350
Service Charges
100
Deposits in transit
1,000
Interest earned on checking account
60
Mars Corp.’s balance per books before the reconciliation is
a.
$17,410
b.
$17,900
c.
$18,190
d.
$18,310
ANSWER:
c
RATIONALE:
$19,500 (Bank Statement Balance) + $1,000 (Deposits in Transit) $2,700 (Outstanding
Checks) = $16,800 (Adjusted Bank Balance)
Assuming that the Adjusted Book Balance is equal to the Adjusted Bank Balance, there is a
need to reverse the adjustments. Therefore $16,800 (Adjusted Book Balance) + $350 (NSF
Check) + $100 (Bank Service Charge) $60 (Interest earned) = $18,190
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing
67. While reconciling the checking account, an accountant with Sonic Corporation noticed that an error had been made in
recording a check received by the company. Sonic recorded the receipt as $729 and the correct amount of the check was
$279. What reconciling adjustment is required?
a.
Add $450 to the company’s book balance
b.
Deduct $450 from the company’s book balance
c.
Add $450 to the bank statement balance
d.
Deduct $450 from the bank statement balance
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing
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68. A debit memorandum appeared on Cinco Inc.’s May bank statement. How will Cinco treat this amount on its May
bank reconciliation?
a.
Add it to the bank balance
b.
Add it the book balance
c.
Deduct from the bank balance
d.
Deduct from the book balance
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
69. A credit memorandum appeared on Central Company’s bank statement. How will Central treat this amount on its bank
reconciliation?
a.
Add it to the bank balance
b.
Add it to the book balance
c.
Deduct from the bank balance
d.
Deduct from the book balance
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
70. Which of the following is an example of a debit memorandum?
a.
Service charge notice
b.
Interest earned on the account balance
c.
Outstanding check
d.
Company error in recording a $500 deposit as $600
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
71. Which of the following is an example of a credit memorandum?
a.
Service charge notice
b.
Collection of a note receivable by the bank
c.
Outstanding check
d.
Company error in recording a $600 deposit as $500
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
page-pf12
72. Which one of the following procedures is incorrect for setting up and maintaining a petty cash fund?
a.
A check is prepared for a fixed amount; when the check is cashed, the money is entrusted to a petty cash
custodian.
b.
An entry is recorded to establish the fund and obtain the cash.
c.
When appropriate documentation is presented, cash payments are made from the fund; the petty cash
custodian retains the documentation.
d.
When the petty cash fund is replenished, an entry is recorded to recognize an increase in the petty cash
account.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
73. Which of the following statements is true regarding a credit memorandum?
a.
A credit memorandum is subtracted from the balance per the company’s books.
b.
A credit memorandum could be issued for bank service charges.
c.
A credit memorandum is issued when a customer gives the company an NSF check.
d.
A credit memorandum is added to the balance per the company’s books.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
74. Which of the following statements is false regarding a credit memorandum?
a.
A credit memorandum is added to the balance per the company’s books
b.
A credit memorandum could be issued for interest earned on checking balances
c.
A credit memorandum is issued when the bank collects a note for the customer.
d.
A credit memorandum is subtracted from the balance per the company’s books.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
75. If a company erroneously records a $500 deposit as $400 in its books, which of the following must occur when
reconciling the bank statement?
a.
The company will have to increase the balance per the bank statement by $100.
b.
The company will have to increase the balance per the books by $100.
c.
The company will have to decrease the balance per bank statement by $100.
d.
None of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing
page-pf13
76. Realistic Sound’s unadjusted bank balance amounted to $3,000. Outstanding checks amounted to $500 and deposits in
transit totaled $300. Based on this information alone, Realistic’s adjusted cash balance is:
a.
$3,200
b.
$3,300
c.
$2,800
d.
$2,700
ANSWER:
c
RATIONALE:
$3,000 (Unadjusted balance) $500 (Outstanding Checks) + $300 (Deposits in Transit) =
$2,800
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing
77. Flake Company accepted a check from Ramos Company as payment for services rendered by Flake Company. Later
Flake’s bank statement revealed that Ramos’ check was an NSF check. Recognizing the NSF check on Flake’s books
would act to:
a.
Decrease total assets
b.
Decrease total owners’ equity
c.
Both a. and b.
d.
Have no effect on Total Assets
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Applying
78. If the balance on the bank statement does not equal the balance in the cash account, then it can be assumed that:
a.
The company has no errors in its records concerning the cash account.
b.
The bank has made errors in preparing the statement.
c.
The company has made errors in is records concerning the cash account.
d.
There will be items reconciling the difference.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
79. Which one of the following items is a reconciling item on the bank side of a bank reconciliation?
a.
Canceled checks
b.
Outstanding checks
c.
NSF checks
d.
Service charge
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
page-pf14
80. In the reconciliation of a bank statement, "deposits in transit" should be:
a.
added to the unadjusted book balance
b.
subtracted from the unadjusted bank balance
c.
added to the unadjusted bank balance
d.
subtracted from the unadjusted bank balance
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
81. An outstanding check is a check that:
a.
Has been presented to the bank for payment but has not been reported on the bank statement
b.
Has been written by the account holder but has not been presented to the bank for payment
c.
Is guaranteed for payment by the bank
d.
Has been written for an amount that is greater than the balance in the account holder's bank account
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Understanding
82. The treasurer for Rahm Corp. was preparing a bank reconciliation as of September 30, 2016. The following items
were identified:
Rahm’s book balance
$32,800
Deposits in transit
4,300
Outstanding checks
2,200
Interest earned on checking account
100
Customer's NSF check returned by the bank
400
Rahm Corp.'s adjusted cash balance at September 30, 2016 is
a.
$34,600
b.
$34,900
c.
$32,500
d.
$32,800
ANSWER:
c
RATIONALE:
$32,800 (Book Balance) + $100 (Interest Earned) $400 (NSF Check) = $32,500
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.06-02 - LO: 06-02
KEYWORDS:
Bloom's: Analyzing

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