Achievement Test 4: Chapters 7 and 8 Name ______________________________

Accounting Principles, Second Canadian Ed. Instructor ___________________________

Weygandt, Kieso, Kimmel, & Trenholm Section # __________ Date ____________

Part I II III IV V VI VII Total

Points 18 25 12 10 15 10 10 100

Score

PART I — MULTIPLE CHOICE (18 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. The use of a cash register for cash receipts is an example of the internal control
principle of
a. documentation procedures.
b. physical, mechanical, and electronic controls.
c. independent internal verification.
d. segregation of duties.

____ 2. Cash includes all of the following items except

a. cheques.
b. currency.
c. money orders.
d. all of the above are included.

____ 3. The objectives of internal control are to

a. prevent unintentional errors and irregularities.
b. safeguard assets and enhance the accuracy and reliability of the accounting
records.
c. enhance the accuracy and reliability of financial statements.
d. safeguard assets and prevent thefts.

____ 4. When a petty cash fund is in use,

a. an entry must be made to the appropriate expense, asset, etc. account when a
disbursement is made.
b. the size of the fund should be such that it can be used to cash employees' bi-
monthly payroll cheques.
c. entries are generally made to Petty Cash only when it is initially set up or the
stipulated amount of the fund is changed.
d. an entry is made to Petty Cash when the fund is replenished to its original amount.
AT4 - 2 Test Bank for Accounting Principles, Second Canadian Edition

____ 5. Lack of agreement between the cash balance per bank and the cash balance per
books is due to
a. errors and poor internal control.
b. errors and bank memoranda.
c. time lags and bank memoranda.
d. time lags and errors.

____ 6. The bank statement that a depositor receives from the bank includes
a. notification of amounts deducted by the bank to cover such things as the cost of a
supply of new cheques ordered by the depositor.
b. a designation of which cheques are still outstanding at the end of the month.
c. a designation of which deposits are in transit at the end of the month.
d. notification of errors made by the depositor in recording cheques written during the
month in the depositor's accounts.

____ 7. Which of the following is an advantage of using subsidiary ledgers?

a. Makes possible a division of labour in posting.
b. Helps locate errors in individual accounts.
c. Shows transactions affecting one customer or one creditor in a single account.
d. All of the above.

____ 8. In a special journal, the individual entries in a specific column but not that column's
total are posted daily if the column represents a
a. general ledger account that is not a control account.
b. general ledger account that is a control account.
c. sundry or "other" group of accounts, none of which are control accounts.
d. none of the above.

____ 9. Other controls include

a. internal verification.
b. bonding of all employees who handle cash.
c. documentation procedures.
d. segregation of duties.
 Achievement Test 4 AT4 - 3

PART II — JOURNAL ENTRIES (25 points)

The ledger accounts given below, with an identification number for each, are used by Kelso
Company.
Instructions: Prepare appropriate entries for the month of August by placing the appropriate
identification number(s) in the debit and credit columns provided and the dollar amounts
pertaining to each account in the adjoining columns. The company uses a periodic inventory
system.
1. Cash 7. Sales Returns and Allowances
2. Accounts Receivable 8. Purchases
3. Office Supplies 9. Purchase Returns and Allowances
4. Notes Receivable 10. Sales
5. Land 11. Freight Out
6. Accounts Payable 12. Freight In
———————————————————————————————————————————
Account(s) Account(s) Debit Credit
Entry Information Debited Credited Amount(s) Amount(s)
_____________________________________________________________________________
0. Aug. 1 Sold merchandise for cash $300. 1 11 $300 $300
1. Aug. 2 Purchased merchandise from XYZ Co.
on account for $5,000
2. Aug. 4 Sold excess land for $7,000 accepting
a 2-year, 8% note. The land was
purchased for $7,000 last year.
3. Aug. 6 Sold merchandise to D. Sutton on
account for $930.
4. Aug. 8 Accepted a sales return of defective
merchandise from D. Sutton—credit
granted was $280.
5. Aug. 11 Purchased merchandise from
Shannon Hardware on account for
$1,800.
6. Aug. 12 Paid freight of $200 on the shipment
from XYZ Co.
7. Aug. 15 Received payment in full from D.
Sutton.
8. Aug. 19 Paid XYZ Co. in full.
9. Aug. 20 Paid Shannon Hardware in full.
10. Aug. 23 Made cash refunds to cash customers
for defective merchandise $70.
11. Aug. 27 Purchased office supplies for $250
cash.
AT4 - 4 Test Bank for Accounting Principles, Second Canadian Edition

PART III — INTERNAL CONTROL OVER CASH RECEIPTS AND DISBURSEMENTS (12 points)

Six internal control principles related to cash transactions are discussed in the textbook. These
principles, with code letters, are:

Code Internal Control Principle

A Authorization
B Segregation of duties
C Documentation
D Safeguard assets and records
E Independent verification
F Other controls

Instructions: Match the above principles to the following applications related to cash receipts
and cash disbursements by placing the code in the space provided. Each code letter can be used
once, more than once, or not at all.

____ 1. The duties of receiving and recording cash should be assigned to different individuals.

____ 2. Daily cash counts should be made by cashier department supervisors.

____ 3. Cash receipts should be deposited in the bank in total daily.

____ 4. Cash register tapes should be used for over-the-counter receipts.

____ 5. Each cheque should be compared with approved invoices before being issued.

____ 6. The duties of approving an item for payment and paying the item should be performed
by different individuals.

____ 7. All cheques should be prenumbered.

____ 8. Only the controller should be authorized to sign cheques.

____ 9. All personnel who handle cash should be bonded.

____ 10. Blank cheques should be stored in a safe, and access should be restricted.

____ 11. Only designated personnel should be authorized to handle and have access to cash
receipts.

____ 12. After payment, an invoice should be stamped PAID.

 Achievement Test 4 AT4 - 5

PART IV—MATCHING: ACCOUNTING INFORMATION SYSTEMS TERMINOLOGY (10 points)

Instructions: Match the terms given below with the definitions or descriptions that follow by
placing the appropriate letter in the space provided.

A. Analysis F. Flexibility
B. Control account G. Implementation
C. Cost effectiveness H. Special journal
D. Design I. Subsidiary ledger
E. Follow-up J. Usefulness

_____ 1. An account in the general ledger that controls a subsidiary ledger.

_____ 2. After the system is up and running, it must be evaluated and monitored for
weaknesses and breakdowns; effectiveness and efficiency must be compared to
design and organizational objectives.

_____ 3. Used to group similar types of transactions.

_____ 4. Information must be understandable, relevant, reliable, timely, and accurate.

_____ 5. A group of accounts with a common characteristic linked to the general ledger by a
control account.

_____ 6. Job descriptions are prepared; controls integrated; reports formatted; and equipment
selected.

_____ 7. Determining internal and external information needs, identifying sources of information
and the need for controls, and studying alternatives.

_____ 8. The systems should be able to accommodate a variety of users and changing
information needs.

_____ 9. The benefits obtained from the information disseminated must outweigh the cost of
providing it.

_____ 10. New or revised systems require that documents, procedures, reports, and processing
equipment must be installed and made operational.
AT4 - 6 Test Bank for Accounting Principles, Second Canadian Edition

PART V — BANK RECONCILIATION WITH ENTRIES (15 points)

Instructions: Given the information provided below, prepare (a) a bank reconciliation in proper
format, and (b) the necessary journal entries for the month of September 2001 for Cox Company.

1. Balance per Bank on September 30—$24,070

2. Balance per Books on September 30—$19,500
3. Total outstanding cheques at September 30—$5,100
4. Debit memoranda:
a. NSF cheque from Lee Co.—$540
b. Printing company cheques—$60
c. Payment to bank of $1,800 note owed bank by Cox plus $300 interest.
5. Credit memorandum: Collection of note receivable for $3,500 plus $600 interest less $100
collection fee.
6. Errors:
a. A cheque written this month to Nance Co. for office supplies cleared the bank at the
correct amount of $680, but was recorded by Cox at $860.
b. The bank charged a $210 cheque of Coy Company against Cox's account this month.
7. Deposit in transit on September 30—$1,800.

(a) Bank Reconciliation

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 Achievement Test 4 AT4 - 7

(b) Journal Entries (Note: Assume no interest has been accrued on the notes.)

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AT4 - 8 Test Bank for Accounting Principles, Second Canadian Edition

PART VI — PETTY CASH FUND (10 points)

The ledger accounts given below, with an identification number for each, are used by Quirk
Company. Quirk Company uses a perpetual inventory system.

Instructions: Prepare appropriate entries for the month of March for each of the listed petty cash
fund transactions by placing the appropriate identification number(s) in the debit and credit
columns provided. Write "N/A" if no entry is appropriate.

1. Cash 7. Office Supplies Expense

2. Petty Cash 8. Postage Expense
3. Accounts Receivable 9. Freight Out
4. Office Supplies 10. Miscellaneous Expense
5. Merchandise Inventory 11. Cash Over and Short
6. Freight In 12. (Other Accounts)
——————————————————————————————————————————
Account(s) Account(s)
Entry Information Debited Credited
——————————————————————————————————————————
Mar. 1 Issued a cheque for $400 to establish a petty cash
fund.
——————————————————————————————————————————
Mar. 3 Disbursed $40 for pizza and drinks for staff
working overtime.
——————————————————————————————————————————
Mar. 5 Paid collect Canada Post bill for goods purchased
for resale $20.
——————————————————————————————————————————
(March 6 - 17 various other disbursements took place.)
——————————————————————————————————————————
Mar. 18 Replenished the petty cash fund by writing a
cheque for $345. On this date the fund consisted
of $55 in cash plus the following petty cash
receipts: Freight in $91, office supplies $95,
postage expense $77, and miscellaneous expense
$79.
——————————————————————————————————————————
Mar. 21 A cheque was written for $200 to increase the
stipulated amount of the fund.
——————————————————————————————————————————
 Achievement Test 4 AT4 - 9

PART VII — SPECIAL JOURNALS (10 points)

Instructions: Indicate in which journal the transactions given below would be recorded by
placing the appropriate journal abbreviation in the space provided.

Abbreviation Journal
J General Journal
CR Cash Receipts Journal
S Sales Journal
CP Cash Payments Journal
P Purchases Journal

_____ 1. Received cash on account from customer.

_____ 2. Customer returned merchandise sold on account.

_____ 3. Sold merchandise to customer for cash.

_____ 4. Owner withdrew cash for personal use.

_____ 5. Paid shipping charges on merchandise purchased on account.

_____ 6. Purchased office equipment on account.

_____ 7. Purchased merchandise for resale on account.

_____ 8. Recorded adjusting entries.

_____ 9. Recorded closing entries.

_____ 10. Sold merchandise to customer on account.

AT4 - 10 Test Bank for Accounting Principles, Second Canadian Edition

Solutions — Achievement Test 4: Chapters 7 and 8

PART I — MULTIPLE CHOICE (18 points)
1. b 3. c 5. d 7. d 9. b
2. d 4. c 6. a 8. c

PART II — JOURNAL ENTRIES (25 points)

Account(s) Account(s) Debit Credit
Debited Credited Amount(s) Amount(s)
0. 1 10 $ 300 $ 300
1. 8 6 5,000 5,000
2. 4 5 7,000 7,000
3. 2 10 930 930
4. 7 2 280 280
5. 8 6 1,800 1,800
6. 12 1 200 200
7. 1 2 650 650
8. 6 1 5,000 5,000
9. 6 1 1,800 1,800
10. 7 1 70 70
11. 3 1 250 250

PART III — INTERNAL CONTROL OVER CASH RECEIPTS AND DISBURSEMENTS (12 points)
1. B 3. D 5. E 7. C 9. F 11. A
2. E 4. C 6. B 8. A 10. D 12. F

PART IV—MATCHING: ACCOUNTING INFORMATION SYSTEMS TERMINOLOGY (10 points)

1. B 6. D
2. E 7. A
3. H 8. F
4. J 9. C
5. I 10. G

PART V — BANK RECONCILIATION WITH ENTRIES (15 points)

(a) Bank Reconciliation Balance per books $19,500
Balance per bank statement $24,070 Add: Collection of note rec. $4,000
Add: Deposit in transit $1,800 Error in recording cheque 180 4,180
Bank error 210 2,010 23,680
$26,080 Less: NSF cheque 540
Less: Outstanding cheques 5,100 Bank service charges 60
Adjusted balance per bank $20,980 Payment of note 2,100 2,700
Adjusted balance per books $20,980
 Achievement Test 4 AT4 - 11

(b) Journal Entries.

1. Accounts Receivable .................................................................... 540

Cash ..................................................................................... 540
To record NSF cheque.

2. Bank Charges Expense ................................................................ 60

Cash ..................................................................................... 60
To record charge for printing company cheques.

3. Note Payable ................................................................................ 1,800

Interest Expense ........................................................................... 300
Cash ..................................................................................... 2,100
To record payment of note to bank.

4. Cash ............................................................................................. 4,000

Bank Charges Expense................................................................. 100
Note Receivable ................................................................... 3,500
Interest Revenue .................................................................. 600
To record collection of note receivable by bank.

5. Cash ............................................................................................. 180

Supplies Expense................................................................. 180
To correct error in recording cheque.

PART VI — PETTY CASH FUND (10 points)

Date Account(s) Debited Account(s) Credited
Mar. 1 2 1
Mar. 3 N/A N/A
Mar. 5 N/A N/A
Mar. 18 4, 6, 8, 10, 11 1
Mar. 21 2 1

PART VII — SPECIAL JOURNALS (10 points)

1. CR 6. P
2. J 7. P
3. CR 8. J
4. CP 9. J
5. CP 10. S