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Exam 4: Cash and Internal Controls

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Question 71

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A company had the following transactions during the year: 1. Paid rent for the next two years, $8,000. 2. Purchased office supplies on account, $2,400. 3. Purchased equipment, paying $12,000 cash and issuing a note payable for $4,000. 4. Borrowed from the bank, $6,000. 5. Paid employee salaries, $7,200. 6. Paid $2,000 on account related to transaction 2 above. 7. Paid dividends to stockholders, $2,800. 8. Sold land for $10,000 that was purchased in a prior year for $7,500. 9. Collected cash from customers for services provided, $25,700. Calculate cash flows from operating activities, investing activities, and financing activities.

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Operating cash flows = $25,7...

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Question 72

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When customers pay for services with a check, the company should debit Accounts Receivable and credit Service Revenue.

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B) False

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Question 73

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A company's Cash account shows a balance of $3,450 at the end of the month. Comparing the company's Cash account with the monthly bank statement reveals several additional cash transactions such as bank service fees ($50), an NSF check from a customer ($300), a customer's note receivable collected by the bank ($1,000), and interest earned ($100). Prepare the necessary entries to adjust the balance of cash.

A company uses the following process for its cash receipts. At the end of each day, the secretary places all cash and checks received from customers in a desk drawer. Each Monday, the secretary totals all amounts received, records this in the accounting records, and deposits the money in the bank account. Then, once every three months, the office manager requests information from the bank necessary to prepare a bank reconciliation. Discuss the company's internal control procedures related to cash receipts.

A framework for designing an internal control system is provided by the:

Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?

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: -____ Audit firm cannot provide a variety of other services to its client, such as consulting.

Differences in the company's cash balance and the bank's cash balance occur because of either timing differences or errors.

The following information pertains to Sooner Company's cash balance and bank reconciliation as of August 31: $\begin{array} { | l | r | } \hline \text { Book balance before reconciliation } & \$ 5,000 \\\hline \text { Checks outstanding } & \$ 2,500 \\\hline \text { Notes collected by the bank } & \$ 2,200 \\\hline \text { Service fee } & \$ 50 \\\hline \text { Deposits outstanding } & \$ 2,000 \\\hline\end{array}$ What is the correct cash balance for Sooner Company?

One benefit of internal control is greater reliance by investors on reported financial statements.

Operating cash flows would exclude:

A framework for designing an internal control system is provided by the Financial Accounting Standards Board (FASB).

Section 404 of the Sarbanes-Oxley Act requires that a company's management document and assess the effectiveness of all internal control processes that could affect financial reporting.

Checking actual outcome of individuals or processes against their expected outcome is an example of which detective control?

The amount of cash reported in a company's balance sheet includes currency, coins, and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received from customers.

The Sarbanes-Oxley Act is also known as Generally Accepted Accounting Principles.

The amount of cash reported in a company's balance sheet includes items acceptable for deposit in bank accounts, such as checks received from customers.

Common examples of cash equivalents are money market funds, Treasury bills, and certificates of deposit.

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

Which of the following would NOT represent good controls over cash disbursements?