ACCT 2101 Exam 3 Study Guide (Chapters 7 – 9)
Chapter 7
1.Schwinn Company assembled the following information in completing its March bank
reconciliation:
Balance per bank $15,280
Outstanding checks $3,100
Deposits in transit $5,000
NSF check $320
Bank service charge $100
Cash balance per books $17,600
As a result of this reconciliation, Schwinn will
a. reduce its cash account by $1,900.
b. reduce its cash account by $100.
c. increase its cash account by $220.
d. reduce its cash account by $420. (NSF & Bank Charge)
2.The following information was taken from Mitchell Company cash budget for the month of
July:
Beginning cash balance $100,000
Cash receipts 96,000
Cash disbursements 136,000
If the company has a policy of maintaining end of the month cash balance of $100,000,
the amount the company would have to borrow is
a. $40,000. (100000+96000-136000=60000; 100000-60000=40000)
b. $20,000.
c. $60,000.
d. $24,000.
3.The following credit sales are budgeted by Garcia Company:
January $255,000
February 375,000
March 525,000
April 450,000
The company’s past experience indicates that 70% of the accounts receivable are
collected in the month of sale, 20% in the month following the sale, and 8% in the
second month following the sale. The anticipated cash inflow for the month of March is
a. $462,900. (525000March*70%=367500; 375000Feb*20%=75000;
255000Jan*8%=20400; 367500+75000+20400=462900)
b. $420,000.
c. $450,000.
d. $441,000.
4.Higgins Company gathered the following reconciling information in preparing its October bank
reconciliation:
Cash balance per books, 10/31 $12,600
Deposits in transit 450
Notes receivable and interest collected by bank 2,550
Bank charge for check printing 60

Outstanding checks 6,000
NSF check 510
The adjusted cash balance per books on October 31 is
a. $14,130.
b. $12,030.
c. $8,580.
d. $14,580. (12600+2550-60-510)
5.All of the following are examples of internal control procedures except
a. using prenumbered documents.
b. reconciling the bank statement.
c. customer satisfaction surveys.
d. insistence that employees take vacations.
6.Internal control is defined, in part, as a plan that safeguards
a. all balance sheet accounts.
b. assets.
c. liabilities.
d. capital stock.
7.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.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.
9.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. separation of duties.
d. rotation of duties.
10.Physical controls to safeguard assets do not include
a. cashier department supervisors.
b. vaults.
c. safety deposit boxes.
d. locked warehouses.
11.A deposit made by a company will appear on the bank statement as a
a. debit.
b. credit.
c. debit memorandum.

d. credit memorandum.
12.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 authorized to sign checks.
13.Deposits in transit
a. have been recorded on the company's books but not yet by the bank.
b. have been recorded by the bank but not yet by the company.
c. have not been recorded by the bank or the company.
d. are customers’ checks that have not yet been received by the company.
14.If a check correctly written and paid by the bank for $626 is incorrectly recorded on the
company's books for $662, the appropriate treatment on the bank reconciliation would
be to
a. add $36 to the book's balance.
b. subtract $36 from the book's balance.
c. deduct $36 from the bank's balance.
d. deduct $626 from the book's balance.
15.Which of the following bank reconciliation items would not result in an adjusting entry?
a. Service charge.
b. Deposits in transit.
c. NSF check of customer.
d. Collection of a note by the bank.
16.James Company had checks outstanding totaling $16,200 on its June bank reconciliation. In
July, James Company issued checks totaling $116,700. The July bank statement shows
that $78,900 in checks cleared the bank in July. A check from one of James Company's
customers in the amount of $900 was also returned marked "NSF." The amount of
outstanding checks on James Company's July bank reconciliation should be
a. $37,800.
b. $54,000. (16200 + 116700 – 78900)
c. $53,100.
d. $21,600.
17.Nilson Company gathered the following reconciling information in preparing its August bank
reconciliation:
Cash balance per books, 8/31 $7,000
Deposits in transit 300
Notes receivable and interest collected by bank 1,700
Bank charge for check printing 40
Outstanding checks 4,000
NSF check 340
The adjusted cash balance per books on August 31 is
a. $8,320. (7000 +1700 – 40 – 340)
b. $8,020.
c. $4,620.

ACCT 2101 Exam 3 Study Guide (Chapters 7 � 9)

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