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Chapter 07 - Multiple choice quiz



1.
Which one of the following is not an objective of a system of internal controls?
A.
Safeguard company assets
B.
Overstate liabilities in order to be conservative
C.
Enhance the accuracy and reliability of accounting records
D.
Reduce the risks of errors


2.
Companies that fail to maintain an adequate system of internal control
A.
may be subject to charges of fraud.
B.
will be automatically dissolved.
C.
may be subject to fines and office imprisonment.
D.
may be forced to sell their assets.


3.
The control principle related to not having the same person authorise and pay for goods is known as
A.
establishment of responsibility.
B.
independent internal verification.
C.
separation of duties.
D.
rotation of duties.


4.
Related selling activities do not include
A.
ordering the inventory.
B.
making a sale.
C.
shipping the goods.
D.
billing the customer


5.
Maximum benefit from independent internal verification is obtained when
A.
it is made on a pre-announced basis.
B.
it is done by the employee possessing custody of the asset.
C.
discrepancies are reported to management.
D.
it is done at the time of the audit.


6.
Which of the following is not a suggested procedure to establish internal control over cash disbursements?
A.
Anyone can sign the cheques.
B.
Different individuals approve and make the payments.
C.
Blank cheques are stored with limited access.
D.
The bank statement is reconciled monthly.


7.
Electronic funds transfer (EFT) is a disbursement system that transfers cash from one location to another using
A.
telephone.
B.
telegraph.
C.
computer.
D.
all of these.


8.
A bank statement
A.
lets a depositor know the financial position of the bank as of a certain date.
B.
is a credit reference letter written by the depositor's bank.
C.
is a invoice from the bank for services rendered.
D.
shows the activity that increased or decreased the depositor's account balance.


9.
A bank reconciliation should be prepared
A.
whenever the bank refuses to lend the company money.
B.
when an employee is suspected of fraud.
C.
to explain any difference between the depositor's balance per books with the balance per bank.
D.
by the person who is authorised to sign cheques.


10.
If a cheque correctly written and paid by the bank for $438 is incorrectly recorded on the company's books for $483, the appropriate treatment on the bank reconciliation would be to
A.
add $45 to the bank's balance.
B.
add $45 to the book's balance.
C.
deduct $45 from the bank's balance.
D.
deduct $438 from the book's balance


11.
Dunmorgan Ltd had cheques outstanding totalling $5,400 on its June bank reconciliation. In July, Dunmorgan Ltd issued cheques totalling $38,900. The July bank statement shows that $26,300 in cheques cleared the bank in July. A cheque from one of Dunmorgan Ltd's customers in the amount of $300 was also returned marked "NSF(dishonoured)." The amount of outstanding cheques on Dunmorgan Ltd's July bank reconciliation should be
A.
$12,600.
B.
$18,000.
C.
$17,700.
D.
$7,200.


12.
The Allowance for Doubtful Accounts is necessary because
A.
when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.
B.
uncollectible accounts that are written off must be accumulated in a separate account.
C.
a liability results when a credit sale is made.
D.
management needs to accumulate all the credit losses over the years.


13.
If a company fails to record estimated bad debts expense,
A.
cash realisable value is understated.
B.
expenses are understated.
C.
revenues are understated.
D.
receivables are understated.


14.
If the amount of uncollectible account expense is understated at year end
A.
net Profit will be understated.
B.
shareholders' equity will be understated.
C.
allowance for Doubtful accounts will be overstated.
D.
net Accounts Receivable will be overstated.


15.
An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a
A.
debit to Bad Debts Expense for $4,000.
B.
debit to Allowance for Doubtful Accounts for $2,900.
C.
debit to Bad Debts Expense for $2,900.
D.
credit to Allowance for Doubtful Accounts for $4,000.


16.
A debit balance in the Allowance for Doubtful Accounts
A.
is the normal balance for that account.
B.
indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
C.
indicates that actual bad debt write-offs have been less than what was estimated.
D.
cannot occur if the percentage of receivables method of estimating bad debts is used.


17.
Bad Debts Expense is considered
A.
an avoidable cost in doing business on a credit basis.
B.
an internal control weakness.
C.
a necessary risk of doing business on a credit basis.
D.
avoidable unless there is a recession.


18.
The financial statements of the Widget Manufacturing Company reports net sales of $400,000 and accounts receivable of $60,000 and $40,000 at the beginning of the year and end of year, respectively. What is the receivables turnover ratio for Widget?
A.
7 times
B.
10 times
C.
4.8 times
D.
8 times


19.
Murray Ltd uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Murray Ltd make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
A.
Dr Bad Debts Expense           10,000
                   Cr Allowance for Doubtful Accounts                  10,000
B.
Dr Bad Debts Expense           8,000
                   Cr Allowance for Doubtful Accounts                    8,000
C.
Dr Bad Debts Expense           8,000
                   Cr Accounts Receivable                                     8,000
D.
Dr Bad Debts Expense           10,000
                   Cr Accounts Receivable                                   10,000


20.
A $100 petty cash fund has cash of $18 and receipts of $80. The journal entry to replenish the account would include a
A.
debit to Cash for $80.
B.
credit to Petty Cash for $82.
C.
debit to Cash Over and Short for $2.
D.
credit to Cash for $80.


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