multiplechoice

Chapter7-Multiple-ChoiceQuestions

neofthefollowingisnotanobjectiveofasystemofinternalcontrols?

ardcompanyasts

ateliabilitiesinordertobeconrvative

etheaccuracyandreliabilityofaccountingrecords

therisksoferrors

Biscorrect.

Section"Internalcontrol"–Internalcontrolsincorporatepoliciestosafeguardasts,

enhancethecompleteness,accuracyandreliabilityofaccountingrecordsandreducethe

riskoferrors.

neofthefollowingisnotanobjectiveofasystemofinternalcontrols?

ardcompanyasts

etheaccuracyandreliabilityofaccountingrecords

ssofthefinancialstatements

therisksoferrors

Ciscorrect.

Section"Internalcontrol"–Internalcontrolsincorporatepoliciestosafeguardasts,

enhancethecompleteness,accuracyandreliabilityofaccountingrecordsandreducethe

riskoferrors.

hefollowingareexamplesofinternalcontrolprocedurexcept

re-numbereddocuments

ilingthebankstatement

ersatisfactionsurveys

encethatemployeestakevacations

Ciscorrect.

Section"Internalcontrol"–Customersatisfactionsurveysarenotaninternalcontrol

procedure.

thefollowingisafeatureofinternalcontrolexcept

nsivemarketingplan

arditsastsfromtheft

tionofduties

ingofalltransactions

Aiscorrect.

Section"Internalcontrol"–Anextensivemarketingplanisnotafeatureofinternal

control.

thefollowingisafeatureofinternalcontrolexcept

daccesstoasts

ndentinternalverifications

isationoftransactions

tedesignofdocuments

Discorrect.

Section"Internalcontrol"–Adequatedocumentdesignisnotafeatureofinternalcontrol.

fthefollowingisnotalimitationofinternalcontrol?

establishingcontrolproceduresshouldnotexceedtheirbenefit

anelement

ion

eofthecompany

Ciscorrect.

Section"Internalcontrol"–Collusionisnotalimitationofinternalcontrol.

alcontrolsareconcernedwith

nualsystemsofaccounting

entofgovernmentregulations

ardingasts

ingincometaxreturns

Ciscorrect.

Section"Internalcontrol"–Internalcontrolsincludeafocusonsafeguardingasts.

alcontrolisdefined,inpart,asaplanthatsafeguards

ancesheetaccounts.

ities

l

Biscorrect.

Section"Internalcontrol"–Internalcontrolisdefined,inpart,asaplanthatsafeguardsa

company’sasts.

alcontrolsarenotdesignedtosafeguardastsfrom

ldisasters

eetheft

y

oridu

Aiscorrect.

Section"Internalcontrol"–Internalcontrolsarenotdesignedtosafeguardastsfrom

naturaldisasters.

onepersonresponsiblefortherelatedactivitiesoforderingmerchandi,

receivinggoods,andpayingforthem

sthepotentialforerrorsandfraud

sthepotentialforerrorsandfraud

ampleofgoodinternalcontrol

dexampleofsafeguardingthecompany'sasts

Aiscorrect.

Section"Internalcontrol"–Havingonepersonresponsiblefortherelatedactivitiesof

orderingmerchandi,receivinggoods,andpayingforthemincreasthepotentialfor

errorsandfraud.

todianofacompanyastshould

cesstotheaccountingrecordsforthatast

oneoutsidethecompany

eaccesstotheaccountingrecordsforthatast

countant

Ciscorrect.

Section"Internalcontrol"–Thecustodianofacompanyastshouldnothaveaccessto

theaccountingrecordsforthatast.

alauditors

ernalconsultantshiredtoauditbusinessfirms

loyeesoftheATOwhoevaluatetheinternalcontrolsof

companiesfilingtaxreturns

tethesystemofinternalcontrolsforthecompaniesthatemploy

them

evaluatethesystemofinternalcontrolsofthecompanythat

employsthembecautheyarenotindependent

Ciscorrect.

Section"Internalcontrol"–Internalauditorvaluatethesystemofinternalcontrolsfor

thecompaniesthatemploythem.

oormorepeoplegettogetherforthepurpoofcircumventing

prescribedcontrols,itiscalled

committee

ion

ionofduties

gofemployees

Biscorrect.

Section"Internalcontrol"–Collusioniswhentwoormorepeoplegettogetherforthe

purpoofcircumventingprescribedcontrols.

ncipleofestablishingresponsibilitydoesnotinclude

sonbeingresponsibleforonetask

isationoftransactions

ndentinternalverification

aloftransactions

Ciscorrect.

Section"Internalcontrol"–Independentinternalverificationisnotoneoftheprinciples

ofestablishingauthority.

trolprinciplerelatedtonothavingthesamepersonauthoriandpayfor

goodsisknownas

ishmentofresponsibility

ndentinternalverification

tionofduties

onofduties

Ciscorrect.

Section"Internalcontrol"–Separationofdutiesdoesnothavethesamepersonauthori

andpayforgoods.

luatethis

situationas

tionofestablishmentofresponsibility

tionofparationofduties

tingtheestablishmentofresponsibility

tinginternalindependentverification

Aiscorrect.

Section"Internalcontrolovercash"–Whentwoindividualsworkatthesamecash

registeritviolatestheestablishmentofresponsibility.

untspayableclerkhasaccesstotheapprovedsuppliermasterfilefor

trolprincipleof

ishmentofresponsibilityisviolated

ndentinternalverificationisviolated

ntationproceduresisviolated

tionofdutiesisviolated

Discorrect.

Section"Internalcontrol"–Ifonepersonhasaccesstoasuppliermasterfileandis

responsibleformakingpaymentstothosuppliersthecontrolprincipleofparationof

dutiesisviolated.

dllingactivitiesdonotinclude

ngthemerchandi

asale

ngthegoods

gthecustomer

Aiscorrect.

Section"Internalcontrol"–Orderingthemerchandiisnotrelatedtollingactivities,it

isrelatedtopurchasingactivities.

dbuyingactivitiesinclude

ng,receiving,paying

ng,lling,paying

ng,shipping,billing

g,shipping,paying

Aiscorrect.

Section"Internalcontrol"–Ordering,receivingandpayingarerelatedbuyingactivities.

alcontrolstosafeguardastsdonotinclude

rdepartmentsupervisors

depositboxes

warehous

Aiscorrect.

Section"Internalcontrol"–Cashierdepartmentsupervisorsarenotsafeguardstoasts.

ecompanies,theindependentinternalverificationprocedureisoften

assignedto

eroperators

ment

alauditors

eaccountingfirms

Ciscorrect.

Section"Internalcontrol"–Internalauditorsoftenprovideanindependentinternal

verificationforlargecompanies.

mbenefitfromindependentinternalverificationisobtainedwhen

deonapre-announcedbasis

nebytheemployeeposssingcustodyoftheast

panciesarereportedtomanagement

neatthetimeoftheaudit

Ciscorrect.

Section"Internalcontrol"–Themaximumbenefitfromindependentinternalverification

isobtainedwhendiscrepanciesarereportedtomanagement.

mofinternalcontrol

llible

enderedineffectivebyemployeecollusion

ablywillhavecostxceedingbenefits

idontheconceptofabsoluteassurance

Biscorrect.

Section"Internalcontrol"–Asystemofinternalcontrolcanberenderedineffectiveby

employeecollusion.

internalcontrolstandpoint,theastmostsusceptibletoimproper

diversionanduis

dinsurance

ngs

Biscorrect.

Section"Internalcontrolovercash"–Cashismostsusceptibletoimproperdiversionand

ufromaninternalcontrolpoint.

neofthefollowingitemswouldnotbeconsideredcash?

rders

cy

tedcheques

Discorrect.

Section"Internalcontrolovercash"Postdatedchequesarenotconsideredcash.

uivalentsdonotinclude

arketaccounts

cialpaper

rybills

mentcurities

Discorrect.

Section"Internalcontrolovercash"–Investmentcuritiesarenotconsideredcashor

cashequivalents.

onciliationofthecashregistertapewiththecashintheregisterisan

exampleof

ontrols

ndentinternalverification

ishmentofresponsibility

ationofduties

Biscorrect.

Section"Internalcontrolovercash"–Thereconciliationofthecashregistertapewiththe

cashintheregisterisanexampleofindependentinternalverification.

fthefollowingisnotaninternalcontrolprocedureforcash?

tsshouldbemadewithcash

bThereshouldbelimitedaccesstocash

untofcashonhandshouldbekepttoaminimum

ouldbedepositeddaily

Aiscorrect.

Section"Internalcontrolovercash"–Makingpaymentswithcashisnotaninternal

controlprocedureforcash.

lovercashdisburmentsisgenerallymoreeffectivewhen

lsarepaidincash

mentsaremadebytheaccountspayablesubsidiaryclerk

tsaremadebycheque

chasaremadeoncredit

Ciscorrect.

Section"Internalcontrolovercash"–whenpaymentsaremadebycheque,controlover

cashdisburmentsisgenerallymoreeffective.

isorscountingcashreceiptsdailyisanexampleof

ontrols

ndentinternalverification

ishmentofresponsibility

ationofduties

Biscorrect.

Section"Internalcontrolovercash"–Asupervisorcountingcashreceiptsdailyisan

exampleofindependentinternalverification.

fthefollowingisnotasuggestedproceduretoestablishinternalcontrol

overcashdisburments?

cansignthecheques

entindividualsapproveandmakethepayments

hequesarestoredwithlimitedaccess

kstatementisreconciledmonthly

Aiscorrect.

Section"Internalcontrolovercash"–Onesuggestedproceduretoestablishinternal

controlovercashdisburmentsistohaveonlyauthoridpersonssuchasamanager

signthecheques.

fthefollowingisnotaninternalcontrolprocedureforcash?

signatedpersonnelareauthoridtohandlecash

eindividualreceivesthecashandpaysthebills

auditsofcashonhandshouldbemadeoccasionally

tocashislimited

Biscorrect.

Section"Internalcontrolovercash"–Havingthesameindividualreceivethecashand

paythebillsisnotaninternalcontrolprocedureforcash.

ofpre-numberedchequesisanexampleof

ntationprocedures

ndentinternalverification

ishmentofresponsibility

ationofduties

Aiscorrect.

Section"Internalcontrolovercash"–Usingpre-numberedchequesisanexampleof

documentation.

ptiontodisburmentsbeingmadebychequeisacceptablewhencashis

paid

ner

oyeesaswages

ttycash

oyeesasloans

Ciscorrect.

Section"Internalcontrolovercash"–Makingpaymentsfrompettycashisanexception

tomakingdisburmentsbycheque.

ngonlythefinancialcontrollertosignchequesisanexampleof

ntationprocedures

tionofduties

ontrols

ishmentofresponsibility

Discorrect.

Section"Internalcontrolovercash"–Allowingonlythefinancialcontrollertosign

chequesisanexampleoftheestablishmentofresponsibility.

oyeeauthoridtosignchequesshouldnotrecord

ashcontributions

ceipts

sburmenttransactions

ransactions

Ciscorrect.

Section"Internalcontrolovercash"–Anemployeewhoisauthoridtosigncheques

shouldnotrecordcashdisburmenttransactions.

onicfundstransfer(EFT)isadisburmentsystemthattransferscash

fromonelocationtoanotherusing

one

aph

er

he

Discorrect.

Section"Internalcontrolovercash"–electronicfundstransferscanbemadeusinganyof

themethods.

tatement

epositorknowthefinancialpositionofthebankasofacertain

date

ditreferenceletterwrittenbythedepositor’sbank

lfromthebankforrvicesrendered

heactivitythatincreadordecreadthedepositor’saccount

balance

Discorrect.

Section"Bankreconciliation"–Abankstatementshowstheactivitiesthatcaud

changestothedepositor’sbankbalance.

neofthefollowingwouldnotcauabanktodebitadepositor’s

account?

rvicecharge

tionofanotereceivable

undstootherlocations

smarkedNSF

Biscorrect.

Section"Bankreconciliation"–Thecollectionofanotreceivablewouldcauabankto

creditadepositor’saccount.

nymaintainstheastaccount,Cash,onitsbooks,whilethebank

maintainsareciprocalaccountthatis

aastaccount

lityaccount

astaccount

r'quityaccount

Biscorrect.

Section"Bankreconciliation"–Ifacompanymaintainsanastaccount,Cash,thenthe

bankmaintainsareciprocalaccountthatisaliabilityaccount.

itmadebyacompanywillappearonthebankstatementasa

emorandum

memorandum

Biscorrect.

Section"Bankreconciliation"–adepositmadebyacompanywillappearonthebank

statementasacredit.

fthefollowingwouldbedeductedfromthebalanceperbooksonabank

reconciliation?

ndingcheques

tsintransit

ollectedbythebank

echarges

Biscorrect.

Section"Bankreconciliation"–Depositsintransitaredeductedfromthebookbalanceon

abankreconciliation.

fthefollowingwouldbeaddedtothebalanceperbooksonabank

reconciliation?

ndingcheques

tsintransit

ollectedbythebank

echarges

Ciscorrect.

Section"Bankreconciliation"–Notescollectedbythebankareaddedtothebook

balanceonabankreconciliation.

fthefollowingwouldbedeductedfromthebalanceperbankonabank

reconciliation?

ndingcheques

tsintransit

ollectedbythebank

echarges

Aiscorrect.

Section"Bankreconciliation"–Outstandingchequesaredeductedfromthebankbalance

onabankreconciliation.

fthefollowingwouldbeaddedtothebalanceperbankonabank

reconciliation?

ndingcheques

tsintransit

ollectedbythebank

echarges

Biscorrect.

Section"Bankreconciliation"–Depositsintransitareaddedtothebankbalanceona

bankreconciliation.

econciliationshouldbeprepared

erthebankrefustolendthecompanymoney

employeeissuspectedoffraud

ainanydifferencebetweenthedepositor'sbalanceperbooks

withthebalanceperbank

ersonwhoisauthoridtosigncheques

Ciscorrect.

Section"Bankreconciliation"–Abankreconciliationshouldbepreparedtoexplainany

differencebetweenthedepositor’sbalanceperbooksandthebalanceperbank.

tsintransit

enrecordedonthecompany'sbooksbutnotyetbythebank

enrecordedbythebankbutnotyetbythecompany

tbeenrecordedbythebankorthecompany

tomers’chequesthathavenotyetbeenreceivedbythecompany

Aiscorrect.

Section"Bankreconciliation"–Depositsintransithavebeenrecordedonthecompany’s

booksbutnotyetbythebank.

aringabankreconciliation,outstandingchequesare

othebalanceperbank

edfromthebalanceperbooks

othebalanceperbooks

edfromthebalanceperbank

Discorrect.

Section"Bankreconciliation"–Inpreparingabankreconciliation,outstandingcheques

aredeductedfromthebalanceperbank.

quecorrectlywrittenandpaidbythebankfor$438isincorrectly

recordedonthecompany'sbooksfor$483,theappropriatetreatmentonthe

bankreconciliationwouldbeto

$45tothebank'sbalance

$45tothebook'sbalance

$45fromthebank'sbalance

$438fromthebook'sbalance

Biscorrect.

Section"Bankreconciliation"–Theappropriatetreatmentinthissituationistoadd$45

tothebook’sbalance.

efor$157isincorrectlyrecordedbyacompanyas$ank

reconciliation,the$18errorshouldbe

othebalanceperbooks

edfromthebalanceperbooks

othebalanceperbank

edfromthebalanceperbank

Aiscorrect.

Section"Bankreconciliation"–Inthissituationthe$18errorshouldbeaddedtothe

balanceperbooks.

chofthefollowingerrorsshouldtheappropriateamountbeaddedtothe

balanceperbankonabankreconciliation?

for$43recordedas$34

tof$500recordedbybankas$50

ned$200chequerecordedbybankas$20

for$35recordedas$53

Biscorrect.

Section"Bankreconciliation"–Adepositrecordedbythebankaslessthanitactuallyis

wouldbeaddedtothebalanceperbankonabankreconciliation.

fthefollowingbankreconciliationitemswouldnotresultinan

adjustingentry?

echarge

ndingcheques

nouredchequeofcustomer

tionofanotebythebank

Biscorrect.

Section"Bankreconciliation"–Outstandingchequesdonotrequireanadjustingentryin

abankreconciliation.

fthefollowingitemsonabankreconciliationwouldrequirean

adjustingentryonthecompany’sbooks?

rbythebank

ndingcheques

ervicecharge

itintransit

Ciscorrect.

Section"Bankreconciliation"–Abankrvicechargewouldrequireanadjustingentry

followingabankreconciliation.

mentofcashistheresponsibilityofthecompany

tant

edirectororfinancemanager

ent

xecutiveofficer

Biscorrect.

Section"Managingandmonitoringcash"–Cashmanagementisusuallythe

responsibilityofthefinancedirectororfinancemanager.

fthefollowingisnotabasicprincipleofcashmanagement?

collectionofreceivables

ventorylevelshigh

aymentofliabilities

idlecash

Biscorrect.

Section"Managingandmonitoringcash"–Maintaininghighinventorylevelsisnota

principleofcashmanagement.

fthefollowingisnotabasicprincipleofcashmanagement?

collectionofreceivables

ventorylevelslow

liabilitiearly

idlecash

Ciscorrect.

Section"Managingandmonitoringcash"–

lateandnotearly,isaprincipleofcashmanagement.

ioofcashtodailycashexpensiscalculatedbydividing

totalexpens

dcashequivalentsbytotalexpens

dailycashexpens

dcashequivalentsbyaveragedailycashexpens

Discorrect.

Section"asssingcashadequacy"–Theratioofcashtodailycashexpensiscalculated

bydividingcashandcashequivalentsbyaveragedailycashexpens.

lowinginformationisavailableforGibsonCompany:netincome$1,200

million;netcashprovidedbyoperatingactivities$950million;totalexpens

$1,700million;depreciationexpen$240million;cashdividends$200million;

capitalexpenditures$500million;andcashandcashequivalents$800million.

Gibson’scashtodailycashexpensratioiscalculatedas

a.$950÷($1,700÷365)

b.$800÷($1,700÷365)

c.$950÷[($1,700-$240)÷365]

d.$800÷[($1,700-$240)÷365]

Discorrect.

Section"asssingcashadequacy"–Theratioofcashtodailycashexpensiscalculated

bydividingcashandcashequivalentsbyaveragedailycashexpens.

lowinginformationisavailableforDonnerCompany:netincome$1,100

million;netcashprovidedbyoperatingactivities$800million;totalexpens

$1,500million;depreciationexpen$240million;cashdividends$200million;

capitalexpenditures$500million;andcashandcashequivalents$600million.

Donner’scashtodailycashexpensratioiscalculatedas

a.$800÷($1,500÷365)

b.$600÷($1,500÷365)

c.$800÷[($1,500-$240)÷365]

d.$600÷[($1,500-$240)÷365]

Discorrect.

Section"asssingcashadequacy"–Theratioofcashtodailycashexpensiscalculated

bydividingcashandcashequivalentsbyaveragedailycashexpens.

ablesareclaimsthatareexpectedtobemetin

ory

ities

Aiscorrect.

Section"Receivables"–receivablesareclaimsthatareexpectedtobemetincash.

tsreceivableincludes

-tradereceivables

sowedbycustomersonaccount

streceivable

ocompanyofficers

Biscorrect.

Section"Receivables"–Accountsreceivableincludesamountsowedbycustomerson

account.

tsreceivablearereportedonthebalancesheetasa/an

ity

e

Ciscorrect.

Section"Receivables"–Accountsreceivablearereportedonthebalancesheetasanast.

hedirectwrite-offmethod,whenaparticularaccountisconsideredtobe

uncollectible,thelossischargedto

e

tsreceivable

ncefordoubtfuldebts

txpen

Discorrect.

Section"Receivables"–Underthedirectwrite-offmethod,whenaparticularaccountis

consideredtobeuncollectible,thelossischargedtobaddebtxpen.

hodbeingudtodeterminetheamountoftheallowancefordoubtful

debtsthatreliesonascheduleinwhichcustomersbalancesareclassifiedbythe

lengthoftimetheyhavebeenunpaid,isknownasthe

write-offmethod

lisablemethod

countsreceivablemethod

vatismmethod

Ciscorrect.

Section"Receivables"–Ageingtheaccountsreceivableallowstheallowancefor

doubtfuldebtstobedetermined.

ablesthatmaturewithintheentity’soperatingcycleareclassifiedinthe

balancesheetas

ities

-currentasts

tasts

Discorrect.

Section"Receivables"–Receivablesthatmaturewithintheentity’soperatingcycleare

classifiedinthebalancesheetascurrentasts.

overableamountoftradereceivablesisshowninthe

statement

esheet

entofchangesinequity

owstatement

Biscorrect.

Section"Receivables"–Therecoverableamountofreceivablesisshowninthebalance

sheet.

ngaccountsreceivableinvolvesfivestepsofwhichthefollowingoccurs

first

inetowhomtoextendcredit

ratecashreceiptsfromreceivables

ishapaymentperiod

rthecollections

Aiscorrect.

Section"Managingreceivables"–Themanagementofaccountsreceivablefirstly

involvesthedeterminationofwhomtoextendcreditto.

ditriskratioiscalculatedbydividingtheallowancefordoubtfuldebtsby

ales

sts

tsreceivable

d.365days

Ciscorrect.

Section"Managingreceivables"–Thecreditriskratioiscalculatedbydividingthe

allowancefordoubtfuldebtsbyaccountsreceivable.

fthefollowingwillnothelpminimipotentiallossresultingfrom

creditcustomers

sofcredit/bankguarantees

delivery

/supplierreferences

edpaymentperiod

Discorrect.

Section"Cash"–Anextendedpaymentperiodwillnotminimipotentiallossfrom

creditcustomers.

eivablesturnoverratioisudtoassstheliquidityofthe:

er

ables

ss

Biscorrect.

Section"Managingreceivables"–Thereceivablesturnoverratioisudtoasssthe

liquidityofthereceivables.

risudto

money

orcredit

ratecashreceipts

sales

Ciscorrect.

Section"Managingreceivables"–afactorisonewayofacceleratingcashreceipts.