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Exam 6: Cash, fraud, and Internal Controls

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Question 31

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Clayborn Company' bank reconciliation as of May 31 is shown below. $\begin{array}{|l|r|l|r|}\hline \text { Bank balance } & \$ 15,80 &\text { Book balance } & \$ 17,025 \\\hline \text { Deposit in transit } & 5,200&\text { Bank service fees } &-25 \\\hline \text { Outstanding checks } & -4,60& \mathrm{dNSF} \text { returned } &-600 \\\hline \text { ated hant } & \$ 16,400&\text { Adjusted book balance } & \$16,400\\\hline\end{array}$ One of the adjusting journal entries that Clayborn must record as a result of the bank reconciliation includes:

A) A debit to Cash of $625
B) A debit to Cash of $5,200
C) A credit to Cash of $4,600
D) A credit to Cash of $600
E) A debit to cash of $25

F) C) and E)
G) A) and B)

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Question 32

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The number of days' sales uncollected is used to:

A) Measure how many days of sales remain until the end of the year.
B) Determine the number of days that have passed without collecting on accounts receivable.
C) Identify the likelihood of collecting sales on account.
D) Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.
E) Measure the amount of cash sales during a period.

F) C) and D)
G) A) and B)

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Question 33

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The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

A credit memorandum on a bank statement indicates:

A company's internal control system:

An invoice is an itemized statement of goods prepared by the customer listing the customer's name,items sold,sales prices,and terms of sale.

On a bank statement,deposits are listed as credits because the bank increases its liability to the depositor when the deposit is made.

Collusion is a form of fraud where individuals collaborate to thwart separation of duties.

Basic bank services do not include:

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

A company established a petty cash fund in April of the current year and experienced the following transactions affecting the fund during April.Prepare journal entries to establish the fund on April 1,to replenish it on April 25,and to record the increase in the fund on April 25. $\begin{array} { | l | l | } \hline \text { April } 1 & \text { Prepared a company check for } \$ 300.00 \text { to establish the petty cash fund } \\\hline & \text { Prepared a company check to replenish the fund for the following } \\25 & \text { expenditures made since April } 1 . \\\hline& \text { Paid } \$ 84.50 \text { for cleaning services. } \\\hline& \text { Paid } \$ 84.00 \text { for postage expense. } \\\hline& \text { Paid } \$ 103.15 \text { for office supplies. } \\\hline & \text { Counted } \$ 23.35 \text { remaining in the petty cash box. } \\\hline 25 & \text { The company decides to increase the fund by } \$ 100\\\hline \end{array}$

The checklist of steps necessary for approving an invoice for recording and payment,also known as the check authorization,is the:

The following information is available for Fenton Manufacturing Company at June 30: $\begin{array} { |l | r } \hline \text { Cash in bank account } & \$ 11,455 \\\hline \text { Inventory of postage stamps } & \$ 74 \\\hline \text { Money market fund balance } & \$ 10,400 \\\hline \text { Petty cash balance } & \$ 350 \\\hline \text { NSF checks from customers returned by bank } & \$ 867 \\\hline \text { Postdated checks received from customers } &\$791 \\\hline \text { Money orders } & \$ 290\\\hline \begin{array} { l } \text { A nine-month certificate of deposit maturing on December } 31 \text { of } \\\text { current year }\end{array} & \$ 6,000 \\\hline\end{array}$ Based on this information,Fenton Manufacturing Company should report Cash and Cash Equivalents on June 30 of:

A sales system with pre-numbered,controlled sales slips is an example of the internal control principle of ________.

The following account balances are taken from Everest Events at December 31. $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 6 } & \mathbf { 2 0 1 5 } \\\hline \text { Accounts receivable } & 170,230 & 260,450 \\\hline \text { Net sales } & 1,500,750 & 1,450,600 \\\hline\end{array}$ Calculate the number of days' sales uncollected for both years.According to this analysis,is the company's collection of receivables improving? Explain.

Cash equivalents:

Define an internal control system and describe its purpose.

The following information is available for Birch Company at December 31: $\begin{array} { | l | r | } \hline \text { Money market fund balance } & \$ 2,790 \\\hline \text { Certificate of deposit maturing June 30 of next year } & \$ 10,000 \\\hline \text { Postdated checks from customers } & \$ 1,475 \\\hline \text { Cash in bank account } & \$ 21,430 \\\hline \text { NSF checks from customers returned by bank } & \$ 650 \\\hline \text { Cash in petty cash fund } & \$ 200 \\\hline \text { Inventory of postage stamps } & \$ 24 \\\hline \begin{array} { l } \text { U.S. Treasury bill purchased on December 15 and maturing on February } \\\text { 28 of followingyear }\end{array} & \$ 5,000 \\\hline\end{array}$ Based on this information,Birch Company should report Cash and Cash Equivalents on December 31 of:

A voucher system establishes procedures for verifying,approving,and recording obligations for eventual cash disbursement.