Question Details

CHAPTER 8 INTERNAL CONTROL AND CASH PART 4

MULTIPLE CHOICE QUESTIONS

39. 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
40. Internal controls are concerned with
a. only manual systems of accounting.
b. the extent of government regulations.
c. safeguarding assets.
d. preparing income tax returns.
Internal Control and Cash 8 - 7
41. The Foreign Corrupt Practices Act requires that all U.S. corporations under the jurisdiction
of the Securities and Exchange Commission
a. have at least one foreign subsidiary.
b. maintain accounting records of foreign branches and subsidiaries in the local foreign
currency.
c. maintain an adequate system of internal control.
d. must file reports with the National Commission on Fraudulent Financial Reporting.
42. Internal control is defined, in part, as a plan that safeguards
a. all balance sheet accounts.
b. assets.
c. liabilities.
d. capital stock.
43. The importance of a good system of internal controls was recognized with the passage of
a. the Securities and Exchange Act of 1933.
b. the Securities and Exchange Act of 1994.
c. the Blue Sky Laws.
d. the Foreign Corrupt Practices Act of 1977.
44. Companies that are subject to, but fail to comply with, the Foreign Corrupt Practices Act of
1977
a. may do so legally by obtaining an exemption.
b. will be automatically dissolved.
c. may be subject to fines and officer imprisonment.
d. may be forced to sell their foreign subsidiaries.
45. Internal controls are not designed to safeguard assets from
a. natural disasters.
b. employee theft.
c. robbery.
d. unauthorized use.
46. Having one person post entries to accounts receivable subsidiary ledger and a different
person post to the Accounts Receivable Control account in the general ledger is an
example of
a. inadequate internal control.
b. duplication of effort.
c. external verification.
d. segregation of duties.
47. Having one person responsible for the related activities of ordering merchandise,
receiving goods, and paying for them
a. increases the potential for errors and fraud.
b. decreases the potential for errors and fraud.
c. is an example of good internal control.
d. is a good example of safeguarding the company's assets.
8 - 8 Test Bank for Accounting Principles, Eighth Edition
48. The custodian of a company asset should
a. have access to the accounting records for that asset.
b. be someone outside the company.
c. not have access to the accounting records for that asset.
d. be an accountant.
49. Internal auditors
a. are hired by CPA firms to audit business firms.
b. are employees of the IRS who evaluate the internal controls of companies filing tax
returns.
c. evaluate the system of internal controls for the companies that employ them.
d. cannot evaluate the system of internal controls of the company that employs them
because they are not independent.
50. When two or more people get together for the purpose of circumventing prescribed
controls, it is called
a. a fraud committee.
b. collusion.
c. a division of duties.
d. bonding of employees.
51. From an internal control standpoint, the asset most susceptible to improper diversion and
use is
a. prepaid insurance.
b. cash.
c. buildings.
d. land.
52. The principle of establishing responsibility does not include
a. one person being responsible for one task.
b. authorization of transactions.
c. independent internal verification.
d. approval of transactions.
53. The control principle related to not having the same person authorize and pay for goods is
known as
a. establishment of responsibility.
b. independent internal verification.
c. segregation of duties.
d. rotation of duties.
54. Two individuals at a retail store work the same cash register. You evaluate this situation
as
a. a violation of establishment of responsibility.
b. a violation of segregation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.
Internal Control and Cash 8 - 9
55. An accounts payable clerk also has access to the approved supplier master file for
purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. segregation of duties is violated.
56. Controls that enhance the accuracy and reliability of the accounting records are
a. automated controls.
b. external controls.
c. mechanical and electronic controls.
d. physical controls.
57. Related selling activities do not include
a. ordering the merchandise.
b. making a sale.
c. shipping the goods.
d. billing the customer.
58. The independent internal verification principle involves each of the following except the
______________ of data prepared by other employees.
a. comparison
b. reconciliation
c. review
d. segregation
59. Related buying activities include
a. ordering, receiving, paying.
b. ordering, selling, paying.
c. ordering, shipping, billing.
d. selling, shipping, paying.
60. Joe is warehouse custodian and also maintains the accounting record of the inventory
held at the warehouse. An assessment of this situation indicates
a. documentation procedures are violated.
b. independent internal verification is violated.
c. segregation of duties is violated.
d. establishment of responsibility is violated.