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Exam 6: Internal Control and Accounting for Cash

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Question 51

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Gross Company established a $250 petty cash fund on January 1. On March 1, the fund contained $160 in receipts for miscellaneous expenses and $85 in cash. If the company records both the disbursements and replenishments to the fund, what effect will it have on the elements of the financial statements?

A) No effect on total assets
B) Decrease stockholders' equity by $160
C) Increase stockholders' equity by $165
D) Decrease total assets by $165

E) None of the above
F) A) and C)

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Question 52

Multiple Choice

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The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300. Assuming that the unadjusted bank balance was $500, what is the unadjusted book balance?

A) $745
B) $455
C) $700
D) $800

E) A) and C)
F) All of the above

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Question 53

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Indicate whether each of the following statements regarding internal controls is true or false. a)________ Cash receipts should be deposited in a bank when they reach a predetermined level of materiality.b)________ To improve operating efficiency, a company should make most of its disbursements using cash.c)________ Supporting documents should be reviewed by the check signer prior to signing the check.d)________ Supporting documentation should not be marked "paid" until the check clears the bank.e)________ All spoiled and voided checks should be shredded.

Which of the following describes an activity that reduces a company's bank account balance?

How do accounting controls differ from administrative controls?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA In preparing the bank reconciliation for Heath Company, an employee found that a certified check that the company had used to settle an account payable remained outstanding.

A savings account that imposes a substantial penalty for early withdrawals should not be classified as Cash on the balance sheet.

Typical adjustments to the unadjusted bank balance on a bank reconciliation include deposits in transit and outstanding checks.

Why would a company establish a petty cash fund?

Why would a merchandising company need good internal controls related to its inventory? List three of the key elements of an internal control system that would apply to inventory, and explain how each of them does relate to inventory.

Why would an auditor issue a disclaimer of opinion with regards to an audit of financial statements? What does this type of opinion mean?. a)________ Internal controls are used to provide reasonable assurance that the objectives of an enterprise will be accomplished.b)________ Internal controls can be divided into accounting controls and administrative controls.c)________ The mechanics of internal control systems do not vary from company to company.d)________ Accounting controls are concerned with the evaluation of performance and the assessment of the degree of compliance with company policies and public laws.e)________ Administrative controls are composed of policies and procedures that are designed to safeguard the assets and to assure that accounting records contain reliable information.

Which internal control procedure is a deterrent to corruption?

Which of the following internal control procedures should be implemented to control cash?

At the time petty cash funds are disbursed, there is no effect on the financial statements.

The true cash balance can only be determined if both the unadjusted bank balance and the unadjusted book balance are known.

List the features of a strong internal control system.

Indicate whether each of the following statements regarding internal controls is true or false. a)________ Segregation of duties is an internal control feature that requires different individuals to perform the following functions: authorization, recording, and custody of assets.b)________ Under proper internal controls, the person who collects customer payments should also maintain the records of cash receipts.c)________ Under proper internal controls, those who are given authority should bear the corresponding responsibility.d)________ One of the basic rules of internal control is to require some employees to take regular vacations.e)________ A fidelity bond is a form of insurance that companies ask employees to buy to protect the company from loss due to employee dishonesty.

List five features of an internal control system that relate to safeguarding cash and reducing the likelihood of theft.

Which of the following describes an activity that increases a company's bank account balance?

Owen Company's unadjusted book balance at June 30 is $10,220. The company's bank statement reveals bank service charges of $65. Two credit memos are included in the bank statement: one for $1,050, which represents a collection that the bank made for Owen, and one for $90, which represents the amount of interest that Owen had earned on its interest-bearing account in June. What is the true cash balance?