Which of the following would result in an increase in the current ratio, but not necessarily the acid-test ratio?

A) Increase in current assets.

B) Increase in quick assets.

C) Decrease in current liabilities.

D) Decrease in current assets.

Answer: A

The mixture of liabilities and stockholders' equity a business uses is called its:

A) Bond contract.

B) Carrying value.

C) Capital structure.

D) Accounting equation.

Answer: C

Which of the following is not a true statement?

A) Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing.

B) As a company's level of debt increases, the risk of bankruptcy increases.

C) Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax-deductible.

D) The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Answer: C

How many of the following transactions increase a company's liquidity?

• Provide services on account.

• Pay workers' salaries in the current period.

• Purchase office supplies with cash.

• Pay dividends to stockholders.

A) 0.

B) 1.

C) 2.

D) 3.

Answer: B

Which of the following is the primary source of corporate equity financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Which of the following is not a primary source of corporate debt financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Which of the following would not result in an increase in both the current ratio and the acid-test ratio?

A) Increase in cash

B) Increase in inventory

C) Increase in accounts receivable

D) Increase in current investments

Answer: B

Which of the following is not a primary source of corporate debt financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Which of the following is the primary source of corporate equity financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Having management periodically determine whether the amount of physical assets of the company match the accounting records is an example of which detective control?

A) Separation of duties.

B) Reconciliations.

C) Performance reviews.

D) Employee management.

Answer: Reconciliations.

Which employees have an impact on the operation and effectiveness of internal controls?

A) Upper management.

B) Mid-level managers.

C) Lower-level employees.

D) All employees.

Answer: All employees.

Allowing only certain individuals to have passwords to conduct online purchases is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) E-commerce controls.

D) Employee management.

Answer: E-commerce controls.

Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Employee management.

Answer: Employee management.

Giving only management the right to make purchases over a certain amount is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Employee management.

Answer: Proper authorization.

Keeping supplies in a locked room with access allowed only to authorized personnel is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Employee management.

Answer: Physical controls.

What is the concept behind separation of duties in establishing internal controls?

A) The company's financial accountant should not share information with the company's tax accountant.

B) Duties of middle-level managers should be clearly separated from those of top executives.

C) Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

D) The external auditors of the company should have no contact with managers while the audit is taking place.

Answer: Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Which of the following is not an example of preventive controls?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Reconciliations.

Answer: Reconciliations.

Which of the following is an example of detective controls?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Reconciliations.

Answer: Reconciliations.

The component of internal control that includes the formal procedures for reporting control deficiencies is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Monitoring.

The components of internal control do not directly include:

A) Risk assessment.

B) Inflation adjustment.

C) Monitoring.

D) Control activities.

Answer: Inflation adjustment.

Separation of duties refers to:

A) Making each manager personally responsible for his/her department.

B) Keeping functions across different departments separate.

C) Preventing top management and lower-level employees from interacting.

D) Individuals who have physical responsibility for assets should not also have access to accounting records.

Answer: Individuals who have physical responsibility for assets should not also have access to accounting records.