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

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Question 31

Multiple Choice

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Which internal control procedure addresses the idea that the likelihood of employee fraud or theft is reduced if collusion is required to accomplish it?

A) Separation of duties
B) Physical controls
C) Fidelity bonding
D) Use of prenumbered documents

E) All of the above
F) C) and D)

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Question 32

Multiple Choice

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

A) Qualified opinion.
B) Disclaimer.
C) Adverse opinion.
D) Unqualified opinion.

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

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Question 33

Multiple Choice

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Policies and procedures designed to reduce the opportunities for fraud are often called:

Which of the following is not a procedure to maintain internal controls over cash payments?

A review of the bank statement and accounting records of the Blake Company revealed the following items: Which of the item(s) would be added to the unadjusted bank balance to determine the true cash balance?

A review of the bank statement and accounting records of the Blake Company revealed the following items: Which of the item(s) would be subtracted from the company's unadjusted book balance to determine the true cash balance?

Indicate whether each of the following statements regarding internal controls is true or false. _____ a) Separation of duties is an internal control feature that requires different individuals to perform the following functions: authorization, recording, and custody of assets. _____ b) Under proper internal controls, the person who collects customer payments should also maintain the records of cash receipts. _____ c) Under proper internal controls, those who are given authority should bear the corresponding responsibility. _____ d) One of the basic rules of internal control is to require some employees to take regular vacations. _____ e) A fidelity bond is a form of insurance that companies ask employees to buy to protect the company from loss due to employee dishonesty.

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

An error is considered material if it would trigger an IRS audit.

An audit is useful to financial statement users because it:

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?

All entries made related to bank reconciliations include an expense or revenue account.

Which document issued by a bank reflects a transaction that decreases a company's checking account balance?

Following the February bank reconciliation, the accountant made an entry that increased accounts receivable and decreased cash by $150. This entry may have been used to record:

Which of the following is not considered an accounting control?

All adjustments to the unadjusted cash balance on a bank reconciliation require adjusting entries; however, adjustments to the bank statement balance do not require adjusting entries.

Indicate whether each of the following items regarding internal control is true or false. _____ a) Accounting controls are composed of procedures designed to safeguard assets and ensure accounting records contain reliable information. _____ b) Administrative controls concern the reliability of the financial statements and the accuracy of the company's records. _____ c) Whenever possible, the functions of authorization, recording and custody should be exercised by the same dependable employee. _____ d) Cash is most susceptible to embezzlement at the points of receipt and disbursement. _____ e) Even a well-designed internal control system cannot prevent collusion by employees.

The April 30 bank statement for Trimble Corporation shows an ending balance of $34,351. The unadjusted cash account balance was $28,250. The accountant for Trimble gathered the following information: There was a deposit in transit for $4,240. The bank statement reports a service charge of $39. A credit memo included in the bank statement shows interest earned of $95. Outstanding checks totaled $10,935. The bank statement included a $650 NSF check deposited in April. What is the true cash balance as of April 30?

What documentation issued by a bank increases a company's checking account balance at the bank?

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) bank service charge was $29 (6) credit memo for $75 for the collection of one of the company's account receivable Based on the above information, the true cash balance was: