Internal Controls, Financial Fraud, and Banking Principles Quiz and Answer

Term 3-MC 1. A system of internal control can be ineffective if employees collude. will have costs exceeding benefits. is based on the concept of absolute assurance. can never fail. 2. LCNRV is applied to inventory at the end of the period. at the beginning of the period. after each purchase. after each sale. 3. Which of the following is not an example of financial pressure to commit fraud? inexpensive lifestyle drug addiction too much debt gambling 4. A bank statement shows the activity that increased or decreased the depositor's account balance. lets a depositor know the financial position of the bank as at a certain date. is a bill from the bank for services rendered. is a credit reference letter written by the depositor's bank. 5. Peter Griffin has worked for Happy Go Luck Toy Company for 20 years without taking a vacation. An internal control that would address this situation would be human resource control. physical and IT controls. documentation procedures. establishment of responsibility. 6. From an internal control standpoint, the asset most susceptible to improper diversion and use is short-term investments. accounts receivable. cash. inventory. 7. An accounts payable clerk also can change the approved supplier master file for purchases. The control activity establishment of responsibility is violated. independent check of performance is violated. segregation of duties is violated. documentation procedures is violated. 8. Which of the following statements is correct? Errors can only occur in a perpetual inventory system. Errors can only occur in a periodic inventory system. Errors can occur either in a perpetual or periodic inventory system. Errors will not occur if you are using a perpetual inventory system. 9. An employee assigned to counting computer monitors in boxes should count the number of boxes only. read each box and rely on the box description for the contents. open each box and check that the box contains a monitor. rely on the warehouse records of the number of computer monitors. 10. Internal control over cash receipts will include all of the following except only one authorized person will receive the cash and record the cash receipts. employees are required to take vacation. use of cash registers. only designated personnel are authorized to handle cash receipts. 11. Documentation procedures do not include which of the following? source documents sent promptly to the accounting department pre-numbered documents all controls written down and kept updated alarms set at the close of the business day 12. Which one of the following statements is correct? A merchandiser buys inventory and a manufacturer produces its inventory. A manufacturer buys inventory and a merchandiser produces its inventory. A merchandiser and a manufacturer produce their inventory. A merchandiser and a manufacturer buy their inventory. 13. If the net realizable value declines to an amount lower than cost, the Cost of Goods Sold account will increase. decrease. be adjusted to the cost amount. stay the same. 14. A petty cash fund of $101 is replenished when the fund contains $7 in cash and receipts for $86. The entry to replenish the fund would include a credit to Miscellaneous Revenue for $8. debit to Miscellaneous Expense for $8. credit to Cash Over and Short for $8. debit to Cash Over and Short for $8. 15. A debit balance in Cash Over and Short is reported as a contra asset. miscellaneous revenue. miscellaneous expense. miscellaneous asset. 16. The selection of an appropriate inventory cost formula for an individual company is made by the external auditors. the accounting standards for private companies. the International Financial Reporting Standards for public companies. management. 17. All of the following are considered to be cash except debit card receipts. cheques. nonbank credit card slips. money orders. 18. A bank overdraft occurs after a bank reconciliation. when a cheque is written for more than the amount in the bank account. when a previously deposited customer cheque bounces. when an error is discovered. 19. Under a consignment arrangement, the consignor has ownership until goods are sold to a customer. consignor has ownership until goods are shipped to the consignee. consignee has ownership when the goods are in the consignee's possession. consigned goods are included in the inventory of the consignee. 20. If ending inventory is understated in 2021, and no further errors are made in 2022, the 2022 ending owner’s equity will be understated. overstated. correct. Owner’s equity is never affected by an inventory error. 21. The factor that determines whether or not goods should be included in a physical count of inventory is physical possession. legal title. management's judgement. whether or not the purchase price has been paid. 22. Two companies report the same cost of goods available for sale but each employs a different cost formula. If the price of goods has increased during the period, then the company using weighted average will have the higher ending inventory. FIFO will have the higher cost of goods sold. FIFO will have the higher ending inventory. weighted average will have the lower cost of goods sold. 23. Revaluation of inventories to net realizable value should occur only if the amount is material. at year end only. in the period during which the decline occurs. at management’s discretion. 24. The two inventory cost formulas will result in the following comparative effects on profit during a period when prices are rising: FIFO Weighted Average Higher No effect Higher Lower Lower Higher No effect No effect 25. The managers of Tong Company receive performance bonuses based on the profit of the firm. Which cost formula are they likely to favour in periods of declining prices? estimating inventory method weighted average FIFO physical inventory method 26. During its December 31, 2021 year-end inventory count, Bonita Company failed to count items in transit to which it had legal title. As a result of this error, ending inventory was understated by $31900. Assuming the company makes no errors in 2022, Googly’s owner’s equity at the end of December 2022 will be overstated by $31900. understated by $31900. overstated by $63800. correct. 27. Which of the following transactions are not covered by the term “electronic funds transfer”? prepaid smart cards debit and credit card transactions electronic bill payments using on-line banking mail-in cheques 28. A bank overdraft would be reported as accounts receivable. part of the current asset cash account. restricted funds. a current liability. 29. Which of the following is not considered a control activity over cash receipts? Different individuals approve and make payments. Only designated personnel are authorized to handle cash receipts. Use remittance advices, cash register tapes, and deposit slips. Supervisors count cash receipts daily. 30. All of the following parties are involved when bank credit cards are used to make a retail sale, except the retailer. the customer. the customer’s supplier. the bank credit card company. 31. A petty cash fund should be replenished once a year. at the end of every accounting period. every day. as soon as an expense is paid from the fund. 32. The daily cash count of cash register receipts made by department supervisors is an example of documentation procedures. establishment of responsibility. internal independent check of performance. segregation of duties. 33. Stamping paid invoices “PAID” is an example of which of the following controls? segregation of duties documentation procedures human resource controls independent checks of performance 34. When customers make purchases with a bank credit card, the retailer receives cash equal to the full price of the merchandise sold from the credit card company. absorbs any losses from uncollectible accounts. is not involved in the collection process. is responsible for maintaining customer accounts. 35. Which of the following would not be reported on the balance sheet as a cash equivalent? 60-day guaranteed investment certificate money market fund three-month treasury bill restricted funds for plant expansion in two years 36. Proper control for over-the-counter cash receipts includes a cash register with totals visible to the customer. placing each customer deposit in a safety deposit box. using electronic cash registers with no tapes. placing each customer deposit in a separate envelope. 37. The evidence required for a reversal of a previous inventory writedown would be a decline in selling prices. an increase in selling prices. an increase in products/ merchandise sold. a decrease in products/ merchandise sold. 38. Of the following companies, which one would not likely employ the specific identification method for inventory costing? art gallery farm implements dealership antique shop drug store 39. Selection of an inventory cost formula by management does not usually depend on the fiscal year end. income statement effects. balance sheet effects. tax effects. 40. Inventories are estimated more frequently under a periodic inventory system than a perpetual inventory system. using the wholesale inventory method. more frequently under a perpetual inventory system than a periodic inventory system. using the net method. 41. LCNRV is an acronym for lower of count and net realizable value. lower of cost and net realizable value. lower of cost and non-realistic value. lower of cost and net retail value. 42. Which of the following has the greatest internal control? payments made by cash payments made by electronic funds transfer payments made by cheque payments made by credit card 43. A bank reconciliation should be prepared to explain any difference between the depositor's balance per books with the balance per bank. whenever the bank refuses to lend the company money. by the person who is authorized to sign cheques. when an employee is suspected of fraud. 44. Internal control over cash receipts will include all of the following except employees are required to take vacation. only one authorized person will receive the cash and record the cash receipts. use of cash registers. only designated personnel are authorized to handle cash receipts. 45. Internal control helps an organization achieve all of the following except compliance with relevant laws and regulations. effective and efficient operations. reliable financial reporting. absolute assurance that fraud will not occur. 46. When two or more people get together for the purpose of circumventing prescribed controls, it is called collusion. a fraud committee. a division of duties. bonding of employees. 47. The use of automatic pre-authorized monthly bill payments reduces the effectiveness of an organization’s internal control system. substantially increases the amount of paperwork required by the accounting department. has declined significantly in Canada over the past several years. is a form of electronic funds transfer. 48. Documentation procedures do not include which of the following? alarms set at the close of the business day source documents sent promptly to the accounting department pre-numbered documents all controls written down and kept updated 49. Control over cash payments is generally more effective when all purchases are made by one individual. payments are made by cheque. payments are made by the accounts payable subsidiary clerk. all bills are paid when due. 50. Documentation procedures over cash payments include all of the following EXCEPT accounting for the numerical sequence of all cheques. using pre-numbered cheques. ensuring each cheque has an approved invoice. reconciling bank statements monthly. 51. A journal entry is not required for bank service charges. outstanding cheques. NSF cheques. EFT collections.