Ethics and Internal Control – Ch4 Test Bank – 2nd Ed

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 4 Ethics, Internal Control, and Cash

4.1 Understand the role of ethics in business and accounting

1) A code of behaviour defines the standards of behaviour that all members of an organization are expected to follow.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

2) Being unethical is the same thing as being unlawful.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Concept

Blooms: Comprehension

3) Fraud is one of the fastest-growing crimes.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

4) In dealing with ethics, saying "Do as I say, not as I do" works very well.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

5) Ethics is defined as principles of right and wrong.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

6) Which statement is FALSE about ethics?

A) Ethics are rules.

B) Ethics are guidelines for how we perceive right and wrong.

C) Ethics are a vital part of the accounting profession.

D) Things may be unethical but still be legal.

E) Ethics are important in Canada.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Concept

Blooms: Comprehension

7) Ethical behaviour is encouraged because:

A) our society expects ethical behaviour.

B) ethics and legality are the same things.

C) laws are the same as ethics.

D) it makes the company happy.

E) it makes the world a better place.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

8) Whistleblowers must be allowed to report ethics violations:

A) by giving their name in their report, no matter what the consequences.

B) but only with the support of another witness.

C) by giving their name in their report, without fear of punishment or retaliation.

D) anonymously, without fear of punishment or retaliation.

E) and to face the accused.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

9) A code of ethics should be:

A) verbal and communicated to all members of the organization.

B) written and provided to potential new employees.

C) enforced.

D) written, communicated, and enforced.

E) kept private.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Concept

Blooms: Comprehension

10) Honesty, fairness, and integrity are all a part of:

A) ethical law.

B) ethical behaviour.

C) accounting law.

D) GAAP.

E) IFRS principles.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Concept

Blooms: Comprehension

11) To ensure that the guidelines for right behaviour are followed, a corporation should follow:

A) ethical principles.

B) accounting law.

C) the leaders in their category of business.

D) the corporate culture.

E) competitive law.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

12) Persons who report unethical behaviour are known as ________.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

13) Name the two forms of fraud explained in your textbook.

Diff: 1

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Recall

Blooms: Knowledge

14) Review the activities below and determine if the activities are ethical or create an ethical dilemma.

Diff: 3

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Critical Thinking

Blooms: Analysis

15) Evaluate this statement, "IFRS can be blamed for the recent accounting scandals." Do you agree or disagree with this statement? Explain your reasoning.

Diff: 3

LO: 4-1 Understand the role of ethics in business and accounting

Skill: Critical Thinking

Blooms: Comprehension

4.2 Define fraud and describe the different types of fraud in business

1) An organization's employees are usually responsible for fraud that is committed by a business organization.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Recall

Blooms: Knowledge

2) In a broad sense, fraud is the use of deception or trickery for personal gain.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Recall

Blooms: Knowledge

3) Fraud is always committed against an organization.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Recall

Blooms: Knowledge

4) One goal of overstating earnings by using fraud is:

A) to deflate the amount of taxes the corporation pays.

B) to overstate the cost of goods sold.

C) to help increase the stock price of the company.

D) to overstate receivables.

E) to deflate accounts payable.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

5) Fraudulent financial reporting typically involves:

A) management.

B) employees.

C) the board of directors.

D) the shareholders.

E) employees and their friends.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Recall

Blooms: Knowledge

6) Besides using an overstatement of earnings to inflate a company's share price, overstating earnings may also be used to:

A) deflate the amount of taxes the corporation pays.

B) avoid paying raises to employees.

C) ensure larger bonuses to upper management at year-end.

D) avoid paying dividends to shareholders.

E) avoid bonuses to management.

Diff: 2

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

7) An employee may embezzle by taking bribes or kickbacks from:

A) suppliers.

B) customers.

C) both suppliers and customers.

D) shareholders of the company.

E) management.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

8) Embezzlement usually involves the misappropriation of business:

A) equity by an employee.

B) liabilities by an employee.

C) assets by an employee.

D) information by an employee.

E) equity by non-employees.

Diff: 2

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

9) The primary form of fraud committed against an organization is usually done by ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Recall

Blooms: Knowledge

10) Recording assets that the company does not possess is an example of ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

11) Granting customers a lower sales price for something that benefits you in return would be an example of a ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

12) An employee authorizing payments to a supplier for goods not delivered to the employer would be an example of a ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

13) ________ embezzlement is a form of fraud committed against an organization.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Recall

Blooms: Knowledge

14) Cash register schemes are a form of ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

15) Establishing fake companies, then having the company pay for goods or services that will never be delivered, and then intercepting and cashing the cheques would be an example of a(n) ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

16) Receiving favours from a supplier by turning a blind eye to the delivery of inferior goods is a form of ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

17) An employee who pockets cash received from a customer without recording the transaction is conducting a ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

18) Overbilling the company for parking fees or cab fare would be an example of a(n) ________.

Diff: 1

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Concept

Blooms: Comprehension

19) The primary form of fraud is employee embezzlement. Employees engage in disbursement schemes. This includes cheque tampering schemes, cash register schemes, and expense schemes. Match the disbursement scheme with the event below.

Diff: 3

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Critical Thinking

Blooms: Analysis

20) Jim Scholey is the lead marketing program developer for an educational institutions. This educational institution develops marketing programs for recent graduates of local universities. Upon completion of the program, the students will get a certified marketing designation. Jim is in a position to hire authors to develop content for the program or he can pay for permission to use cases. Jim had relied heavily on a company called Rosen Publishing for its cases. The new controller of the company recently came on board and called the number provided by Rosen Publishing. There was no answer and in actual fact the number was never in service. Later the controller realized that the company did not exist. When he questioned Jim about it, he got very defensive and said he had no clue what was going on. Later on it came to light that Jim had written the cases himself but in order to get paid his salary and payment for permissions for the cases he created a fake publishing company called Rosen Publishing and issued fake invoices from it. Many employees who worked for Jim said they knew there was something suspicious but decided to remain quiet as they did not want to lose their jobs. What are the ethical issues in this situation? What can be done to prevent this situation in the future?

Diff: 3

LO: 4-2 Define fraud and describe the different types of fraud in business

Skill: Critical Thinking

Blooms: Comprehension

4.3 Identify the three elements of the fraud triangle

1) The fraud triangle is used to show the connection of the factors necessary to commit fraud by or against an organization.

Diff: 1

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Recall

Blooms: Knowledge

2) A business has great control over perceived pressure felt by an employee.

Diff: 1

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Recall

Blooms: Knowledge

3) ________ can be reduced through a good system of internal control.

A) Realization

B) Perceived opportunity

C) Rationalization

D) Perceived pressure

E) Fraud opportunity

Diff: 1

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Concept

Blooms: Comprehension

4) Attempting to justify your actions is an example of ________.

Diff: 2

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Concept

Blooms: Comprehension

5) Based on the fraud triangle, the chance to commit a fraud, conceal it, and avoid punishment is an example of ________.

Diff: 1

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Concept

Blooms: Comprehension

6) Based on the fraud triangle, finding good reasons for doing things that we really know are wrong is an example of ________.

Diff: 1

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Concept

Blooms: Comprehension

7) Identity the three things that must exist for fraud to occur.

2. Rationalization

3. Perceived opportunity

Diff: 2

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Concept

Blooms: Comprehension

8) Identify each of the following as an example of perceived opportunity, rationalization, or perceived pressure.

Diff: 3

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Critical Thinking

Blooms: Analysis

9) Identify each of the following as an example of perceived pressure (PP), perceived opportunity (PO), or rationalization (R) in the fraud triangle.

Diff: 3

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Critical Thinking

Blooms: Analysis

10) Identify each of the following as an example of perceived pressure (PP), perceived opportunity (PO), or rationalization (R) in the fraud triangle.

Diff: 3

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Critical Thinking

Blooms: Analysis

11) How can a business prevent fraud? What area of the triangle does the company need to focus on? Explain your answer with examples.

Diff: 3

LO: 4-3 Identify the three elements of the fraud triangle

Skill: Application

Blooms: Knowledge

4.4 Define internal control and describe the objectives of an internal control system

1) One objective of an internal control system is to safeguard the assets of a company.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

2) A control system includes internal controls used to assess risk in an organization.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

3) An organization's employees are responsible for the design and implementation of the internal control system.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

4) Safeguarding assets and ensuring proper reporting of financial information are two of the objectives of having an internal control system.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

5) Companies that carry a large amount of cash on hand are at a higher risk of theft.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

6) Forcing employees to take vacation is a good internal control.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

7) Internal control systems are the same in all companies.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

8) Just like anything in accounting, internal control systems are not perfect, although they do reduce the risk of undetected errors and irregularities.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

9) Small companies' internal control is always inferior.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Recall

Blooms: Knowledge

10) Internal control is a comprehensive system that helps an organization do all of the following EXCEPT:

A) safeguard assets.

B) safeguard liabilities.

C) operate efficiently and effectively.

D) ensure compliance with applicable laws and regulations.

E) ensure happy employees.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Concept

Blooms: Comprehension

11) Internal control systems:

A) are the same from company to company.

B) are regulated by the Securities and Exchange Commission.

C) vary from company to company.

D) guarantee the safeguard of assets.

E) are regulated by Canadian law.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Concept

Blooms: Comprehension

12) The control environment includes all of the following factors EXCEPT:

A) leadership philosophy.

B) the core competencies of employees.

C) safeguarding assets.

D) ethical values of employees.

E) organizational structure.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Concept

Blooms: Comprehension

13) A good internal control system does which of the following?

A) Guarantees the efficiency and effectiveness of operations

B) Reduces the risk of undetected errors

C) Provides absolute assurance that no errors will occur

D) Guarantees that fraud will be prevented

E) Reduces the risk of breaking the law

Diff: 2

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Application

Blooms: Application

14) A company may be limited in its internal control procedures because the cost of hiring enough people to implement the procedures:

A) outweighs the benefits of the system.

B) has nothing to do with the effectiveness of the internal control system.

C) can prevent collusion.

D) can limit employee distractions.

E) can make employees scared.

Diff: 1

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Concept

Blooms: Comprehension

15) List the four parts of a well-defined internal control system.

2.Operate efficiently and effectively.

3.Ensure proper reporting of financial information.

4.Ensure compliance with applicable laws and regulations.

Diff: 2

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Concept

Blooms: Comprehension

4.5 Identify the elements of a good internal control system

1) The delegation of authority and leadership is part of the control environment of an internal control system.

Diff: 1

LO: 4-5 Identify the elements of a good internal control system

Skill: Recall

Blooms: Knowledge

2) Separation of duties is part of the control environment of an internal control system.

Diff: 1

LO: 4-5 Identify the elements of a good internal control system

Skill: Concept

Blooms: Comprehension

3) Having security measures, proper authorization channels, and restricted access to assets is an example of what element of internal control?

Diff: 1

LO: 4-5 Identify the elements of a good internal control system

Skill: Concept

Blooms: Comprehension

4) Details that support business transactions make up a(n) ________.

Diff: 1

LO: 4-5 Identify the elements of a good internal control system

Skill: Concept

Blooms: Comprehension

5) Employing competent employees would be an example of what element of internal control?

Diff: 1

LO: 4-5 Identify the elements of a good internal control system

Skill: Application

Blooms: Application

6) Provide three examples of good control activities.

2. Having written job descriptions.

3. Keeping accounting records.

Diff: 2

LO: 4-4 Define internal control and describe the objectives of an internal control system

Skill: Application

Blooms: Application

7) What five key elements affect an organization's internal control system?

2. Risk assessment

3. Control activities

4. Information and communication

5. Monitoring

Diff: 2

LO: 4-5 Identify the elements of a good internal control system

Skill: Concept

Blooms: Comprehension

8) Mike Fences, a controller, has an accounting staff of ten. Jeremy, his accounts payable supervisor, never takes more than an occasional day of vacation. The employee is very hard working, and likes to receive the cash payout for vacation. This works well for Mike; it reduces his expenses and the other employees do not have to be trained to help out in his absence.

Do you agree with Mike?

Diff: 3

LO: 4-5 Identify the elements of a good internal control system

Skill: Synthesis

Blooms: Synthesis

9) For each of the following independent situations, identify the internal control element and make a recommendation to improve internal control.

a) Graphic Games is a very busy small company. The blank cheques are available in the box beside the printer for easy access to printing.

b) At Patel's Plumbing, the accounting clerk issues and authorizes the payments.

a) Control Activity-Restricted Access

Recommendation: To prevent fraud, custody of the assets is important. The cheques should be in an area with restricted access for authorized personnel only.

b) Control Activity-Separation of Duties

Recommendation: The duties should be separated. Even in small companies, this is possible. The owner may be responsible for authorizing the transactions.

Diff: 3

LO: 4-5 Identify the elements of a good internal control system

Skill: Critical Thinking

Blooms: Analysis

10) Identify the element of internal control for each of the following examples.

Diff: 3

LO: 4-5 Identify the elements of a good internal control system

Skill: Critical Thinking

Blooms: Analysis

11) Identify the element of internal control in the chart below.

Diff: 3

LO: 4-5 Identify the elements of a good internal control system

Skill: Application

Blooms: Application

4.6 Describe the major requirements of the Sarbanes-Oxley Act and how they impact Canadian provincial regulations

1) Sarbanes-Oxley has not influenced Canadian standards.

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Recall

Blooms: Knowledge

2) Prior to SOX, external auditors often reported to a company's upper management.

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Recall

Blooms: Knowledge

3) Under SOX, the Chief Executive Officer and Chief Financial Officer must sign off on:

A) all annual reports by the company.

B) all quarterly reports by the company.

C) all annual or quarterly reports by the company.

D) the external auditor's opinion.

E) monthly expenses.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

4) One of the biggest factors in implementing SOX was:

A) reviewing the financial reports.

B) establishing internal control procedures.

C) disclosing deficiencies in internal controls.

D) the cost of implementing the system.

E) government approval.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

5) The Audit Committee's responsibilities are assigned by the:

A) Chief Executive Officer.

B) Chief Financial Officer.

C) Board of Directors.

D) company Controller.

E) Finance Manager.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

6) The positions of Treasurer and Controller directly report to the:

A) Audit Committee.

B) Vice-President of Accounting and Finance.

C) Chief Executive Officer.

D) Chief Financial Officer.

E) Accounting Manager.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

7) The Sarbanes-Oxley Act in the United States applies to ________.

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Recall

Blooms: Knowledge

8) The responsibility of external and internal auditing is assigned by the ________.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

9) What new accounting supervisory board did Canada form after 2002?

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Recall

Blooms: Knowledge

10) In order to get a handle on accounting fraud, the U.S. Congress in 2002 passed the ________.

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Recall

Blooms: Knowledge

11) In Canada, external auditors must now report to ________.

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

12) Under SOX, the external auditors must now report to ________.

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

13) Under Sarbanes-Oxley, those officers signing off on the reports must have evaluated the company's internal control within the previous ________.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

14) The outcome of an audit is an audit opinion. List the four types of options and indicate the preferred audit option.

Preferred: Unqualified (or "clean" option); Not Preferred: Qualified (or "except"); Adverse; Disclaimer

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

15) During an audit, who is responsible for confirming and validating the accounting record?

Diff: 1

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

16) Based on the situation, determine the type of opinion.

Diff: 2

LO: 4-6 Describe the major requirements of the Sarbanes-Oxley Act and how they impacted Canadian provincial regulations

Skill: Concept

Blooms: Comprehension

4.7 Discuss internal controls for cash and prepare a bank reconciliation

1) Cash is one of the least vulnerable assets that a business has.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

2) The cash register provides control over the cash receipts for a retail business.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

3) Cash receipts should never be deposited more than once a business day.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

4) Separation of duties is essential for internal control over cash receipts and cash payments.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

5) Bank reconciliation is an important part of internal control that should be performed daily.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

6) Streamlined payment procedures now involve the use of electronic data interchange and electronic funds transfer between and among suppliers and merchandisers.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

7) In a bank reconciliation, the bank balance and the book balance must be adjusted to be reconciled.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

8) Differences between when a company records a transaction and when the bank records the same transaction are called "timing" differences.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

9) If possible, the bank reconciler should have no other duties relating to cash transactions in the business.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Recall

Blooms: Knowledge

10) A bank statement shows the:

A) ending book balance as of a specific date.

B) ending bank balance as of a specific date.

C) reconciled balance as of a specific date.

D) book errors as of a specific date.

E) beginning book balance.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

11) Outstanding cheques are:

A) added to the book balance.

B) added to the bank balance.

C) subtracted from the book balance.

D) subtracted from the bank balance.

E) not part of the bank reconciliation.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

12) The ________ usually assumes responsibility for the custody of cash.

A) controller

B) purchasing agent

C) treasurer

D) manager

E) vendor

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

13) Deposits in transit are:

A) subtracted from the book balance.

B) added to the book balance.

C) subtracted from the bank balance.

D) added to the bank balance.

E) not part of the bank reconciliation.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

14) Which of the following bank reconciliation items would not require an adjusting entry on the depositor's books?

A) Bank service charges

B) NSF cheques

C) Electronic fund transfer for rental revenue

D) Outstanding cheques

E) None of the above

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

15) A cheque written by the company for $157 is incorrectly recorded as $175. On the bank reconciliation, the $18 error should be

A) subtracted from the book balance.

B) added to the book balance.

C) subtracted from the bank balance.

D) added to the bank balance.

E) not part of the bank reconciliation.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

16) If a cheque correctly written and paid by the bank for $521 is incorrectly recorded on the company's books for $251, then the $270 error should be:

A) subtracted from the book balance.

B) added to the book balance.

C) subtracted from the bank balance.

D) added to the bank balance.

E) not part of the bank reconciliation.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

17) NSF cheque amounts are:

A) added to the bank balance.

B) subtracted from the bank balance.

C) added to the book balance.

D) subtracted from the book balance.

E) not part of the bank reconciliation.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

18) After the mail room employee open the cash receipts, the cheques then go to the ________.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

19) After the mail room employee open the cash receipts, the remittance advices go to the ________.

Diff: 1

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

20) The ________ verifies the amount of the deposit and the total amount posted to the cash account.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Concept

Blooms: Comprehension

21) The Pumpkin Party Company deposited $1,000 into its bank account, but the bank statement does not show the deposit. This $1,000 is an example of a(n) ________.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

22) CIBC Bank collected a $450 note from a customer for ABC Company. In preparing the bank reconciliation, would the adjustment be done to the balance according to the bank or the balance according to our chequebook?

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Knowledge

23) Casey Company's bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50. Casey's book balance shows outstanding cheques of $5,288 and deposits in transit of $9,325. The bank side reconciliation would show cash of ________.

Calculation:

43,267 + 9,325 - 5,288 = 47,304

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

24) Bank of Montreal collected a $450 note from a customer for Cyber Company. Prepare the journal entry to record the transaction.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Critical Thinking

Blooms: Analysis

25) The bank recorded a $56 deposit as $65. Determine the error amount and state whether the error is recorded on the book or bank side of the reconciliation.

Calculation:

65 - 56 = 9

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

26) Rick Company deposited a cheque for $675, but it was recorded on their books as a cheque for $576. Determine the error amount and state whether the error is recorded on the book or bank side of the reconciliation.

Calculation:

675 - 576 = 99

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

27) Bravo Bakery's bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50 and a bank collection of $760 in Bravo Bakery's behalf. Determine the error amount and state where on the bank reconciliation the error is recorded.

Calculation:

760 - 50 = 710

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

28) Meranda Company has a chequing account that earns interest. The May bank statement shows interest earned of $15.67. Prepare the journal entry to record the interest.

Diff: 2

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

29) In the preparation of the bank reconciliation, understanding on which side of the bank reconciliation to record the transaction is important. Populate the bank reconciliation below with the items that follow.

Deposits in transit

Bank errors

Book errors

Outstanding cheques

Electronic fund transfers

Nonsufficient funds cheques

Service charges

Interest revenue

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

30) Indicate how each of the activities listed below should be handled when preparing the bank reconciliation. Enter the appropriate word in the space to the left of each item.

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Critical Thinking

Blooms: Analysis

31) Prepare a bank reconciliation for Cindy Company for July 31, 2013 from the following information:

Cindy Company Bank Reconciliation July 31, 2013

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

32) Record the necessary journal entries from the following bank reconciliation information for July 31, 2013:

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

33) Prepare a bank reconciliation for Brandon Company for July 31, 2013 from the following information.

Brandon Company Bank Reconciliation July 31, 2013

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

34) Record the necessary journal entries from the following bank reconciliation information for June 30, 2012.

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

35) Record the necessary journal entries from the following bank reconciliation information for September 30, 2012.

Diff: 3

LO: 4-7 Discuss internal controls for cash and prepare a bank reconciliations

Skill: Application

Blooms: Application

4.8 Report cash on the balance sheet

1) Each cash account is listed separately on the balance sheet.

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Recall

Blooms: Knowledge

2) Treasury bills and Treasury notes and other cash equivalents can have maturity dates. They are considered cash equivalents if they mature within 120 days of the statement of financial position date

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Recall

Blooms: Knowledge

3) Cash consists of anything that a bank will take as a deposit.

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Concept

Blooms: Comprehension

4) Cash is listed first on the balance sheet because it is the least liquid asset.

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Recall

Blooms: Knowledge

5) Which of the following would be considered a cash equivalent?

A) Currency

B) Time deposits

C) Cheques

D) Money orders

E) Cash

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Concept

Blooms: Comprehension

6) Treasury bills and Treasury notes and other cash equivalents are considered cash equivalents if they mature within:

A) 90 days.

B) 120 days.

C) 180 days.

D) 270 days.

E) one year.

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Concept

Blooms: Comprehension

7) Which of the following would NOT be considered cash?

A) Currency

B) Money market funds

C) Money orders

D) Chequing accounts

E) Cash

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Concept

Blooms: Comprehension

8) Treasury bills and Treasury notes are considered cash equivalents if they mature within ________ days of the balance sheet date.

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Recall

Blooms: Knowledge

9) Cash is the first asset listed on the balance sheet. Explain why.

Diff: 1

LO: 4-8 Report cash on the balance sheet

Skill: Concept

Blooms: Comprehension

10) Cash equivalents include very liquid, very safe short-term investments. Provide examples of cash equivalents.

Diff: 2

LO: 4-8 Report cash on the balance sheet

Skill: Concept

Blooms: Comprehension

4.9 (Appendix 4A) Account for the petty cash fund

1) A petty cash fund may be established for minor expenditures, such as postage.

Diff: 1

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Recall

Blooms: Knowledge

2) A petty cash fund is established by making a cheque payable to cash, cashing the cheque, and placing the funds in a safe, locked location.

Diff: 1

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Recall

Blooms: Knowledge

3) The journal entry to record the set-up of a petty cash fund is to debit Petty Cash and to credit Cash.

Diff: 1

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Application

Blooms: Application

4) The total of cash in the petty cash box plus the amount of the petty cash ticket receipts never total the beginning amount of the petty cash fund.

Diff: 1

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Concept

Blooms: Comprehension

5) The total of cash in the petty cash box plus the amount of the petty cash ticket receipts should total the beginning amount of the petty cash fund.

Diff: 1

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Concept

Blooms: Comprehension

6) Northern Lights Inc. has a petty cash fund of $350. At the end of the September, $7.89 remains in the fund along with $340.56 in various receipts. Prepare the journal entry to replenish the fund.

Diff: 3

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Application

Blooms: Application

7) Newfoundland Equipment established a petty cash fund of $500 on January 1. Prepare the journal entry to record the creation of the fund.

Diff: 2

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Application

Blooms: Application

8) Tofino Enterprises has a petty cash fund of $275. At the end of June, $14.37 remains in the fund along with $269.43 in various receipts. Prepare the journal entry to replenish the fund.

Diff: 3

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Critical Thinking

Blooms: Analysis

9) Newfoundland Equipment established a petty cash fund of $500 on January 1. On June 1, Newfoundland Equipment wants to increase the size of the fund to $600. Prepare the journal entry to record the change to the fund.

Diff: 2

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Concept

Blooms: Comprehension

10) Winnipeg Equipment established a petty cash fund of $500 on January 1. On June 1, Winnipeg Equipment wants to decrease the size of the fund to $400. Prepare the journal entry to record the change to the fund.

Diff: 2

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Concept

Blooms: Comprehension

11) The petty cash fund of $500 includes the following activity for the month of March.

Cash $294.00

Delivery Expense $89.00

Postage 55.00

Flowers for a special celebration 25.00

Meals 30.00

Requirements:

a) Prepare general journal entries to replenish the petty cash fund.

b) On April 1, the controller gives instructions to decrease the petty cash fund by $50. Make the appropriate journal entry.

Calculation

Cash Short = 500 - 294 - 89 - 55 - 25 -30 = 7

Diff: 3

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Critical Thinking

Blooms: Analysis

12) List four kinds of controls that need to be in place to safeguard a petty cash system from theft.

1) Designate a custodian for the petty cash system.

2) Specify a fixed amount for the petty cash.

3) Keep the funds safe in a lock box.

4) ensure proper documentation for all receipts and dispersements.

Diff: 3

LO: 4-9 (Appendix 4A) Account for the petty cash fund.

Skill: Application

Blooms: Knowledge

4.10 Cumulative Questions.

1) The following information is for Pins & Needles Inc. for September.

a) Prepare the bank reconciliation for September 30, 2013.

b) Determine the impact on the accounting equation on each entry.

a)

Pins & Needles Inc.

Bank Reconciliation

September 30, 2013

b)

Diff: 3

LO: 1-4, 2-2, 2-3, 3-2, 3-4, 4-7, & 4-9

Skill: Critical Thinking

Blooms: Analysis

2) The following information is for Pins & Needles Inc for September.

a) Prepare the journal entry to record the transactions below.

b) Determine the cash balance in the general ledger. Show the general ledger account.

b)

CASH

Diff: 3

LO: 1-4, 2-2, 2-3, 3-2, 3-4, 4-7, & 4-9

Skill: Critical Thinking

Blooms: Analysis