978-1337276337 Test Bank Chapter 6 Part 4

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161. A(n) __________ is a form used by the receiving department to account for the quantity and condition of

merchandise received from a supplier.

162. A(n) __________ is a form the accounting department uses before making payment to document the accuracy of all

information about a purchase.

Matching

Latahmer Corporation is reconciling its May bank account. For each item listed, state how it would be handled on the

bank reconciliation.

a. Addition to the bank balance

b. Deduction from the bank balance

c. Addition to the book balance

d. Deduction from the book balance

e. Would not appear on the May reconciliation

DIFFICULTY: Moderate

REFERENCES: pp. 278-283

LEARNING OBJECTIVES: FACC.PONO.18.06-02 – LO: 06–02

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-10-Internal Control

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

163. A check written from the company’s account and paid by the bank is returned with the bank statement

164. A check written from the company’s account in May that does not appear on the bank statement

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165. Service charge on the May bank statement for new checks

166. Interest earned on the checking account for May

167. Customer’s NSF check is returned with the bank statement

168. Customer’s check which was deposited on May 31 is not listed on the bank statement

Match the term with the statement that best defines it.

a. Accounting controls

b. Accounting system

c. Administrative controls

d. Audit committee

e. Board of directors

DIFFICULTY: Easy

REFERENCES: pp. 284-287 and pp. 287-289

LEARNING OBJECTIVES: FACC.PONO.18.06-03 – LO: 06–03

FACC.PONO.18.06-04 – LO: 06–04

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-10-Internal Control

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Remembering

169. Provides direct contact between the stockholders and the independent auditing firm.

170. Consists of all methods and records used to accurately report an entity’s transactions.

171. Controls that are focused more on efficient operation of the business than with the accurate reporting of information.

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Match the action with the category of internal control procedures.

a. One department should act as a check on the work of another

b. The internal audit staff ensure all is working as intended

c. Accounting and cash collection is properly separated

d. Blank checks are locked at all times when not in use

e. Origination of initial entry into the accounting system

f. Specific authority is given by management for the performance of activities.

DIFFICULTY: Easy

REFERENCES: pp. 287-289

LEARNING OBJECTIVES: FACC.PONO.18.06-04 – LO: 06–04

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-10-Internal Control

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Remembering

173. Proper authorization

174. Segregation of duties

175. Independent verification

176. Safeguarding of assets and records

177. Design and use of business documents

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Match the following terms with the best definitions.

a. Purchase requisition

b. Receiving report

c. Vendor invoice

d. Check

e. Control procedures

f. Inventory count

g. Segregation of duties

h. Source documents

DIFFICULTY: Moderate

REFERENCES: pp. 287-289 and pp. 289-296

LEARNING OBJECTIVES: FACC.PONO.18.06-04 – LO: 06–04

FACC.PONO.18.06-05 – LO: 06–05

NATIONAL STANDARDS: United States – BUSPROG: Communication – Communication

ACCREDITING STANDARDS: ACBSP: APC-10-Internal Control

AICPA: FN-Reporting

KEYWORDS: Blooms: Application

178. The practice of not combining physical custody of assets with the function of accounting for those same assets.

179. A form used to initiate a request to order merchandise.

180. A form sent by the seller to the buyer as evidence of a sale.

181. Actions that company personnel take to make sure that policies set forth by management are followed.

182. An example of independent verification.

183. May be generated by computer or completed manually and include items such as employee’s time card and a sales

invoice.

184. Typically sent along with a remittance advice.

185. A form used for verification that the items originally requested have been received.

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Subjective Short Answer

186. Euro Corp. began the year with $19,000 in cash and another $1,000 in cash equivalents. During the year, operations

generated $132,000 in cash. Net cash used in investing activities during the year was $213,000, and the company raised a

net amount of $168,000 from financing activities.

Required

Determine the year-end balance in cash and cash equivalents.

ANSWER:

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187. Lakeland Enterprises invested its excess cash in the following instruments during December 2017:

Certificate of deposit, due January 31, 2020 $ 85,000

Certificate of deposit, due March 30, 2018 120,000

Commercial paper, original maturity date February 28, 2018 105,000

Deposit into a money market fund 45,000

Investment in stock 55,000

90-day Treasury bills 110,000

Treasury note, due December 1, 2045 400,000

Required

Determine the amount of cash equivalents that should be combined with cash on the company’s balance sheet at

December 31, 2017, and for purposes of preparing a statement of cash flows for the year ended December 31, 2017.

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188. The following accounts are listed in a company’s general ledger:

December 31, 2017 December 31, 2016

Accounts receivable $ 12,300 $10,000

Certificates of deposit (three months) 10,000 15,000

Marketable securities 4,500 4,000

Petty Cash fund 800 1,000

Money Market fund 23,200 28,700

Cash in checking account 6,200 5,400

Required

1. Which items are cash and which items are cash equivalents?

2. Explain where items that are not cash equivalents should be classified on the balance sheet.

3. What are the amount and the direction of change in cash and cash equivalents for 2017? Is the company as liquid at the

end of 2017 as it was at the end of 2016? Explain your answer.

2. Accounts receivable and marketable securities should be classified on the balance sheet as current assets and listed in

3.

Cash and Cash Equivalents December 31, 2017 December 31, 2016 Increase (Decrease)

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189. Given the following items, what amount should be reported on the balance sheet as Cash and

cash equivalents?

Cashier’s check $ 5,000

Certificate of deposit (due in 9 months) 12,000

Checking account 5,500

Coins and currency on hand 1,225

IOU from employee 565

Money market account 15,000

Postage stamps 375

Savings account 22,000

Undeposited customer checks 1,750

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190. Blairsville Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for July

2017 indicated the following:

Balance, July 31, 2017 $63,400

Service charge for July 160

Interest earned during July 100

NSF check from Black Corp. (deposited by Blairsville) 1,150

Note ($3,000) and interest ($80) collected for Blairsville from a customer 3,080

An analysis of canceled checks and deposits and the records of Blairsville revealed the following items:

Checking account balance per Blairsville’s books $58,770

Outstanding checks as of July 31 4,630

Deposit in transit at July 31 1,780

Error in recording check #205 issued by Blairsville 90

The correct amount of check #205 is $540, but it was recorded as a cash disbursement of $450. The check was issued to

pay for merchandise purchases. The check appeared on the bank statement correctly.

A) Prepare a bank reconciliation schedule at July 31, 2017, in proper form.

B) What amount would Blairsville report on its balance sheet at July 31, 2017, for cash?

ANSWER: A)

Blairsville Corp.

Bank Reconciliation

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191. Delmont Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for May,

2017, indicated the following:

Balance, May 31, 2017 $29,700

Service charge for May 80

Interest earned during May 120

NSF check from Viacon Corp. (deposited by Delmont) 230

Note ($4,000) and interest ($100) collected for Delmont from a customer 4,100

An analysis of canceled checks and deposits and the records of Delmont Corp. revealed the following items:

Checking account balance per Delmont’s books $26,040

Outstanding checks as of May 31 2,950

Deposit in transit at May 31 3,110

Error in recording check # 4456 issued by Delmont 90

The correct amount of check #4456 is $760, but it was recorded as a cash disbursement of $670 by mistake. The check

was issued to pay for merchandise purchases. The check appeared on the bank statement correctly.

Required

A) Prepare a bank reconciliation schedule at May 31, 2017 in proper form.

B) Explain how checking accounts, bank statements, and bank reconciliations are used by Delmont to control its cash.

ANSWER: A)

Delmont Corp.

Bank Reconciliation

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192. Sarcon Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for

October, 2017, indicated the following:

Balance, October 31, 2017 $7,920

Service charge for October 20

Interest earned during October 30

NSF check from Grey Corp. (deposited by Sarcon) 32

Note ($1,000) and interest ($40) collected for Sarcon from a customer 1,040

An analysis of canceled checks and deposits and the records of Sarcon revealed the following items:

Checking account balance per Sarcon books $7,170

Outstanding checks as of October 31 952

Deposit in transit at October 31 1,310

Error in recording check #313 issued by Sarcon. 90

The correct amount of check #313 is $450, but it was recorded as a cash disbursement of $540. The check was issued to

pay for merchandise purposes. The check appeared on the bank statement correctly.

Required

Prepare a bank reconciliation at October 31, 2017 in proper form.

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193. Sarcon Corp. prepares monthly bank reconciliations of its checking account balance.

Required

1. Explain how checking accounts, bank statements, and bank reconciliations are used by Engel to control its cash.

2. Explain how Engel can control small payments that must be made in cash rather than by check.