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Exam 7: Internal Control and Cash

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Question 51

True/False

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In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records.

A) True
B) False

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Question 52

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A company's days' cash on hand is computed by dividing:

A) cash and short-term investments by daily cash operating expenses.
B) cash by total cash operating expenses.
C) cash, short-term investments, and accounts receivable by daily cash operating expenses.
D) average cash over the period by daily cash operating expenses.

E) A) and B)
F) A) and D)

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Question 53

Multiple Choice

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Internal control does not consist of policies and procedures that

A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is

You are trying to explain debit and credit memos that appear on bank statements and whether these will increase or decrease your company's bank account balance. Complete the following table to help your new staff understand.

The following data were gathered to use in reconciling the bank account of Savannah Company: $\begin{array} { | l | r | } \hline \text { Balance per bank } & \$ 16,750 \\\hline \text { Balance per company records } & 16,125 \\\hline \text { Bank service charges } & 80 \\\hline \text { Deposit in transit } & 2,195 \\\hline \text { NSF check } & 950 \\\hline \text { Outstanding checks } & 3,850 \\\hline\end{array}$ What is the adjusted balance on the bank reconciliation?

The sum of the money on hand and petty cash receipts in a petty cash fund will always be equal to the balance in the petty cash account.

The bank statement for Jeffrey Co. indicates a balance of $8,785 on October 31. After the journal entries for October had been posted, the cash account had a balance of $8,998. ​ Record the appropriate journal entries that would be necessary for Jeffrey Co.

On August 3, Sonar Sales decides to establish a $275.00 Petty Cash Account to relieve the burden on Accounting. ​

The amount of deposits in transit is included on the bank reconciliation as a(n)

The following procedures were recently implemented at the Health Station, Inc. For each procedure, indicate whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why. (a) All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts. (b) The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer's office for approval. (c) At the end of each day, all cash receipts are placed in the bank's night depository. (d) The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.

Present entries to record the following transactions:

The control environment in an internal control structure is the overall attitude of management and employees about the importance of internal control.

Which of the following related to a company's control procedures? (1) Separating responsibilities for related operations (2) Safeguarding inventory in a locked storeroom (3) Identifying a sudden increase in slow payments (4) Operating style of management (5) Requiring employees to take vacations

Money market accounts, commercial paper, and U. S. Treasury bills are examples of cash equivalents.

The last custodian of the petty cash fund was hospitalized and you have been asked to take stock of the fund and replenish it. When you receive the fund, it has $299 in cash and receipts as follows: The petty cash fund was established to have $800 in it. Based on what you have found, what journal entry should be recorded to replenish the fund? Record any missing funds in the cash short and over account.

Two features of internal control are presented in the following sections. Each is followed by a list of four irregularities that occurred in processing data. Identify the one irregularity from each list that would be discovered or prevented by the feature of internal control described.

The bank reconciliation

In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.

If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded cash overages for the period.