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Exam 4: Cash and Internal Controls

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Question 21

Multiple Choice

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Common examples of cash equivalents include all of the following except:

A) Money market funds.
B) Treasury bills.
C) Certificates of deposit.
D) Accounts receivable.

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

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Question 22

Multiple Choice

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After preparing a bank reconciliation, a check outstanding for the payment of advertising would be recorded with:

A) A debit to Advertising Expense.
B) A debit to Cash.
C) A credit to Advertising Expense.
D) No entry is needed.

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

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Question 23

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Management needs to monitor the internal control system, just like any other system. Any control deficiencies spotted by employees should be reported immediately to management.

Allowing the employee who authorizes purchases to also prepare the check is an example of good internal control.

Peterson Company's general ledger shows a cash balance of $7,850 on May 31, 2012. May cash receipts of $1,250, included in the general ledger balance, are placed in the night depository at the bank on May 31 and processed by the bank on June 1. The bank statement dated May 31 shows an NSF check for $200 and a service fee of $50. The bank processes all checks written by the company by May 31 and lists them on the bank statement, except for one check totaling $1,640. The bank statement shows a balance of $7,990 on May 31. Prepare a bank reconciliation to calculate the correct ending balance of cash on May 31, 2012.

A bank reconciliation matches the balance of cash in the bank account with the balance of cash in the company's own records.

During the current year, a company provides services on account for $100,000. By the end of the year, $60,000 of this amount had been received. In addition, cash payments for the year were employees' salaries, $50,000; office supplies, $10,000; and utilities $20,000. Determine the amount of operating cash flows the company will report in the current year.

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 company's bank statement shows a cash balance of $4,170. Comparing the company's cash records with the monthly bank statement reveals several additional cash transactions such as checks outstanding of $2,110, NSF check of $200, interest earned of $30, service fee of $40, and a check for $150 recorded twice by the company. Calculate the correct balance of cash.

Investing activities include transactions designed to raise cash or finance the business.

A company's Cash account shows a balance of $5,680 at the end of the month. Comparing the company's Cash account with the monthly bank statement reveals several additional cash transactions such as deposits outstanding ($1,250), checks outstanding ($2,380), bank service fees ($40), an NSF check from a customer ($150), a customer's note receivable collected by the bank ($500), and interest earned ($60). Prepare the necessary entries to adjust the balance of cash.

Fraudulent reporting by management could include:

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term by placing the letter designating the term in the space provided. Terms: -____ PCAOB establishes standards related to the preparation of audited financial reports.

What key piece of legislation was passed in response to corporate accounting scandals by Enron, WorldCom, and others?

A customer purchased a $2,000 item at ApplianceWorld, paying with a credit card. ApplianceWorld is charged a 2% fee by the credit card company. When recording this sale, ApplianceWorld would:

Which of the following is considered cash for financial reporting purposes?

Which of the following best describes the goal of internal controls?

A company's cash is reported in two financial statements - income statement and statement of cash flows.

Which of the following is an example of detective controls?

Terastar Corp. reports the following amounts for 2012 and 2013: $\begin{array} { | c | c | c | c | c | } \hline & \begin{array} { c } \text { Net } \\\text { Income }\end{array} & \begin{array} { c } \text { Operating } \\\text { Cash Flows }\end{array} & \begin{array} { c } \text { Investing } \\\text { Cash Flows }\end{array} & \begin{array} { c } \text { Financing } \\\text { Cash Flows }\end{array} \\\hline 2012 & \$ 10,000 & \$ 15,000 & - \$ 8,000 & \$ 10,000 \\\hline 2013 & 12,000 & 19,000 & - \$ 10,000 & - 6,000 \\\hline\end{array}$ What is the amount of Terastar's free cash flows for 2013?