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Exam 4: Internal Controls, Accounting for Cash, and Ethics

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Question 1

True/False

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Indicate whether each of the following statements regarding internal control is true or false. -Administrative controls are concerned with the reliability of a business's financial statements

A) True
B) False

Correct Answer

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False

Question 2

Essay

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The May 31, 2014, balance per bank statement for Upton Company was $7,200. The cash balance per books was $9,500. Outstanding checks amounted to $800, and deposits in transit were $2,400. The bank statement contained an NSF check for $500, a service charge for $25, and a debit memo for direct payment of the telephone bill of $175. Required: Prepare a bank reconciliation to determine the true cash balance at May 31, 2014.

Correct Answer

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\(\begin{array}{lc} \text { Balance per bank } & \$ 7,200 \\ \text { Add: Deposit in transit } & 2,400 \\ \text { Less: Outstanding checks } & (800)\\ \text { True cash balance }&\$ 8,800\\\text { Balance per books } & \$ 9,500 \\ \text { Less, NSF check } & (500) \\ \text { Service charge } & (25) \\ \text { Debit memo } & (175)\\\text { True cash balance }&\$8,800 \end{array}\)

Question 3

Multiple Choice

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Which of the following is an internal control procedure used to safeguard a company's assets?

Indicate whether each of the following statements about a bank statement is true or false. -The confidentiality rules of the AICPA's code of ethics for CPAs only applies to audit engagements

Indicate whether each of the following statements is true or false. -Deposits in transit appear on the bank statement as credit memos

The April 30, 2014 bank statement for Tuttle Corporation shows an ending balance of $34,451. The unadjusted cash account balance was $28,350. The accountant for Tuttle gathered the following information: 1) April's deposit in transit was $4,240 2) The bank statement reports a service charge of $39 3) A credit memo included in the bank statement shows interest earned of $95 4) Outstanding checks totaled $10,935 5) The bank statement included a customer's $650 NSF check deposited in April What is the true cash balance as of April 30, 2014?

In preparing bank reconciliations, typical adjustments to the bank balance include

Effective internal controls for cash include:

Which of the following is not considered an accounting control?

The confidentiality rules in the AICPA's code of ethics for CPAs prohibits accountants

Which of the following statements about materiality is true.

How will a certified check be treated in a company's bank reconciliation?

What is an outstanding check?

Indicate whether each of the following statements is true or false. -Service fees charged by a bank appear on bank statements as debit memos

The bank statement for Ronson Company included a debit memo for a bank service charge of $58. Required: a) Show the effects of recognizing the bank service charge on the financial statements by recording appropriate amounts in the financial statements model provided. Include dollar amounts of increases and decreases; for cash flow, indicate whether it is an operating activity, investing activity, or financing activity. b) Is the recognition of the bank service charge an asset source, use, or exchange transaction?

The Sarbanes-Oxley Act

For internal control purposes, what is meant by "separation of duties?"

Indicate whether each of the following statements about cash receipts is true or false. -A record of all cash collections should be made immediately upon receipt

Indicate whether each of the following statements regarding internal controls is true or false. -The design of the internal control system varies from company to company

Indicate whether each of the following statements about cash receipts is true or false. -Cash that a business collects late in the day should be deposited with the next day's cash receipts