Securities and Exchange Commission

1. Sarbanes Oxley is a major fraud case that motivated Congress to establish rules governing internal control. This statement is
True
False
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2. Internal control is a process designed to ensure

reliable financial reporting.
effective and efficient operations.
compliance with applicable laws and regulations.
Internal control is designed to ensure all of the items described in the answers.
 
  
3. The framework that is used to assess the effectiveness of a company’s internal control was established by the

Securities and Exchange Commission.
Financial Accounting Standards Board.
Committee of Sponsoring Organizations of the Treadway Commission.
American Institute of Certified Public Accountants.
 
4. The Committee of Sponsoring Organizations (COSO) framework for the evaluation of internal controls contains which of the following interrelated components?

Risk assessment
Information and communication
Monitoring
All of the answers are components of the COSO framework
 
 
 
5. Which of the following is not a commonly accepted internal control activity?

Hiring only college graduates
Separation of duties
Requiring employee absences
Using prenumbered documents
 
6. The implementation of an effective internal control system eliminates the possibility of fraud. This statement is

 true.
false.
 
 
 
7. Which of the following is not an internal control procedure designed to safeguard cash?

Keep cash in locations that are accessible by multiple employees
Record receipts of cash in the company’s accounting system immediately
Provide customers with prenumbered receipts
Deposit cash in external financial institutions immediately
 
8. A bank statement is presented from the customer’s point of view. Therefore, a customer deposit reduces the bank’s liabilities. These statements are

true.
false.
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9. To determine the true cash balance

add deposits in transit to and subtract outstanding checks from the unadjusted bank balance.
subtract deposits in transit from and add outstanding checks to the unadjusted bank balance.
add deposits in transit and outstanding checks to the unadjusted bank balance.
subtract deposits in transit and outstanding checks from the unadjusted bank balance.
 
10. To determine the true cash balance

add bank collections of depositors’ accounts receivable to the unadjusted book balance.

subtract bank service charges from the unadjusted book balance.

add interest earned from bank to the unadjusted book balance.

All of the answers describe adjustments that must be made to the unadjusted book balance in order to determine the true cash balance.

11. Rex Company’s bank statement shows a $200 NSF check. To determine the true cash balance the

amount of the NSF check must be added to the unadjusted bank balance.
amount of the NSF check must be subtracted from the unadjusted book balance.
amount of the NSF check must be added to the unadjusted book balance.
amount of the NSF check must be subtracted from the unadjusted bank balance.
 
12. Kelly Company's unadjusted bank balance on May 31 is $9,500. An analysis of the bank statement revealed $1,400 of deposits in transit and $900 of outstanding checks. In addition, the bank statement showed a $200 NSF check. Based on this information, Kelly’s true cash balance is

$9,000.
$9,800.
$10,000.
$10,200.
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