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Exam 6: Internal Control and Accounting for Cash

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Question 21

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On September 30 the bank statement of Fine Company showed a balance of $7,800.The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: (1) Deposits in transit amounted to $3,150 (2) Outstanding checks amounted to $6,200 (3) A $550 check was incorrectly drawn on Fine's account (4) NSF checks returned by the bank were $750 (5) The bank service charge was $29 (6) Credit memo for $75 for the collection of one of the company's account receivable What is the true cash balance?

A) $5,346
B) $5,300
C) $4,596
D) $7,096

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Question 22

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On April 30,Midwest Company established a petty cash fund of $1,000.On May 1,a disbursement of $355 was made from the fund for payment of delivery expense.What is the effect of the May 1 disbursement on the financial statements?

A) Delivery expense increases and cash decreases by $355
B) Petty cash increases and cash decreases by $355
C) Delivery expense increases and petty cash decreases by $355
D) The disbursement has no effect on the financial statements

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Question 23

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Chester Company has established internal control policies and procedures in order to achieve the following objectives: 1) Effective evaluation of management performance. 2) Assure that the accounting records contain reliable information. 3) Safeguard the company's assets. "4) Assure that employees comply with company policy. Which of these objectives are achieved by accounting controls?"

Blake Company established a petty cash fund in the amount of $400.At the end of the accounting period,the petty cash box contained receipts for expenditures amounting to $180 and $215 in cash.If the company records both the disbursements and replenishments to the fund,what effect will replenishing the fund have on total assets and expenses? $\begin{array}{lcccc} &{\text { Total Assets }} &{\text { Expenses }} \\\text { A } & -\$ 180 & +\$ 185 \\\text { B. } & -\$ 185 & +\$ 185 \\\text { C. } & -\$ 185 & +\$ 180 \\\text { D. } & -\$ 180 & +\$ 180\end{array}$

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?

While performing the monthly bank reconciliation,Avon Company adjusted for a bank service charge of $20.Which of the following correctly shows how the adjustment for the bank service charge affects the financial statements?

[The following information applies to the questions displayed below.] 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?

[The following information applies to the questions displayed below.] A review of the bank statement and accounting records of Blake Company revealed the following items: $\begin{array}{|c|l|}\hline \text { Item No. } & \text { Description } \\\hline \text { 1) } & \text { Three outstanding checks } \\\hline \text { 2) } & \text { A debit memo showing a bank service charge } \\\hline \text { 3) } & \text { A deposit in transit } \\\hline \text { 4) } & \text { An NSF check written by one of Blake's customers } \\\hline \text { 5) } & \text { A certified check written by Blake that remains outstanding } \\\hline \text { 6) } & \text { A credit memo reflecting interest revenue earned by Blake } \\\hline\end{array}$ -Which of the following describes an activity that increases a company's bank account balance?

Which of the following is not a primary role of an independent auditor?

If the financial statements cannot be relied upon because they contain one or more material departures from GAAP,what type of opinion will the auditor issue?

While performing its monthly bank reconciliation,the bookkeeper for Grace Corporation noted that a deposit of $990 (received from a customer on account) was recorded in the company books as $900.Which of the following shows the effect of correcting the error on the financial statements?

What is the most favorable audit opinion that a company can receive on its financial statements?

Which of the following procedures are typically used when a petty cash fund is established?

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

To ensure proper segregation of duties,after the check is signed,an employee should record the check in the accounting records and review the appropriate supporting documents.

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

What is an outstanding check?

After the adjustments identified on the bank reconciliation have been recorded,the ending cash (book)balance reflected in the company's records will equal the true cash balance.

While performing its monthly bank reconciliation,the bookkeeper for Mosaic Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241.Which of the following shows the effect of correcting the error on the financial statements?

Even a good system of internal controls can be circumvented by collusion among employees.