Chapter 07 – Internal Control and Cash
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Page 51
DIFFICULTY:
Moderate
Difficulty: Moderate
Bloom’s: Remembering
QUESTION TYPE:
Matching
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-05 – LO: 07–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.11 – Bank Reconciliation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:21 PM
DATE MODIFIED:
10/16/2017 5:17 PM
131. outstanding checks
ANSWER:
d
POINTS:
1
132. bank service charge
ANSWER:
b
POINTS:
1
133. deposit in transit
ANSWER:
c
POINTS:
1
134. NSF check
ANSWER:
b
POINTS:
1
135. EFT deposit from a customer
ANSWER:
a
POINTS:
1
136. charges for some other company’s safe deposit box were posted to your account
ANSWER:
c
POINTS:
1
137. a $1,000 note from one of your customers was collected by the bank
ANSWER:
a
POINTS:
1
138. interest revenue earned by the note above
ANSWER:
a
POINTS:
1
139. Identify each of the following as relating to (a) the control environment, (b) risk assessment, or (c) control
procedures.
1. Mandatory vacations
2. Personnel policies
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Page 52
3. Report of outside consultants on future market changes
ANSWER:
1. (c) control procedures
2. (a) the control environment
3. (b) risk assessment
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:21 PM
DATE MODIFIED:
10/16/2017 5:17 PM
140. List the objectives of internal control and give an example of how each is implemented.
ANSWER:
Internal control provides reasonable assurance that
assets are safeguarded and used for business purposes
business information is accurate
employees and managers comply with laws and regulations
Examples are
duties are separated
duties are rotated
reports are submitted to management
There are many other examples that would be correct.
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Understanding
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:21 PM
DATE MODIFIED:
10/16/2017 5:17 PM
141. You began your new job as the accountant at Bolivar Industries during the month of December. During your first
month, you found several interesting issues.
1) While looking through the invoices, you found Invoices 213–242, 245–271, and 275–290. It appears that invoices
243, 244, 272, 273, and 274 are missing.
2) During the month, Clerk # 3 issued $250 in refunds as compared to Clerks #1, #2, and #4 who issued less than
$50 each.
3) The daily cash receipts and bank deposits reconcile, except on Tuesdays during the month.
Chapter 07 – Internal Control and Cash
DATE MODIFIED:
10/16/2017 5:17 PM
4) Business is generally brisk during the holiday season, but two weeks before Christmas there was a sudden
increase in slow payments.
Part A: What kind of warning signs could be associated with these issues?
Part B: What control could you put in place regarding cash refunds mentioned in Part A (2)?
ANSWER:
Part A:
1) Missing invoices or gaps in transaction numbers could mean that the invoices
are being used for fraudulent transactions.
2) An unusually high number of refunds for Clerk #3 could mean that the
individual is creating fictitious refunds and pocketing the cash.
3) The difference could mean that receipts are being pocketed before being
deposited. Maybe there is a person responsible for making the deposits on
Tuesdays that is the culprit.
4) A sudden increase in slow payments could mean that an employee is
pocketing the payments.
Part B:
Surveillance cameras at customer service area.
Place supervisor as a second authorizer on refund transactions.
Prohibit cash refunds and require exchanges of merchandise instead.
Provide employee training.
Incorporate special alerts for critical dollar thresholds through company software.
Require information about the original transaction to be part of the refund process.
POINTS:
1
DIFFICULTY:
Challenging
Bloom’s: Analyzing
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:21 PM
Chapter 07 – Internal Control and Cash
(4)
Monitoring. Monitoring locates deficiencies in the internal control
system and improves control effectiveness.
POINTS:
1
Bloom’s: Understanding
(3)
A bill for services rendered to Cole Co. was erroneously posted to the account of
Coleman Co. in the customer‘s ledger.
(4)
No entry was made in the accounting records for services rendered to a customer.
(b)
Both cash and credit charges for services rendered are recorded on prenumbered invoices.
At the end of the day, all invoices are accounted for before the duplicate copies of the
invoices are routed to the accounting department for entry into the accounts and the cash is
sent to the cashier‘s department for deposit.
(1)
Some charge customers complained that the monthly statements of account did not
add all amounts correctly.
(2)
Some clerks used incorrect hourly rates in preparing invoices.
(3)
Some clerks destroyed duplicate copies of cash invoices and misappropriated the
cash.
(4)
Some charge customers complained that the monthly statement of account did not
indicate credits for payments made.
ANSWER:
(2)
(3)
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Understanding
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:21 PM
DATE MODIFIED:
10/16/2017 5:17 PM
143. List and define each of the five elements of internal control.
ANSWER:
(1)
Control Environment. The control environment is the overall attitude
of management and employees about the importance of internal
controls.
(2)
Risk assessment. Risk assessment is the identification of risks faced
by an organization so that management can take necessary actions to
control them.
(3)
Control Procedures. The control procedures are the policies and
procedures designed to provide reasonable assurance that the business
goals are met and fraud is prevented.
Chapter 07 – Internal Control and Cash
DATE CREATED:
7/22/2017 6:21 PM
DATE MODIFIED:
10/16/2017 5:17 PM
(a) At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages
in their registers.
(b) At the end of the day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the
deposit receipt obtained from the bank.
(c) After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the
check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher
and supporting documentation to the accounts payable clerk for filing.
(d) Along with the petty cash receipts for postage, office supplies, etc., several postdated employee
checks are in the petty cash fund.
ANSWER:
(a) This is a weakness. Requiring cash register clerks to make up any cash
shortages from their own funds gives the clerks an incentive to shortchange
customers. That is, the clerks will want to make sure that they don’t have a
shortage at the end of the day. In addition, one might also assume that the
clerks can keep any overages. This would again encourage clerks to
shortchange customers. The shortchanging of customers will create customer
complaints, etc.
The best policy is to report any cash shortages or overages at
the end of each day. If there is consistently a cash short or over, then
corrective action (training, removal, etc.) could be taken.
(b) This is a strength.
(c) This is a strength.
(d) This is a weakness. Employees should not be allowed to use the petty cash
fund to cash personal checks. In any case, postdated checks should not be
accepted. In effect, postdated checks represent a receivable from the
employees.
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Analyzing
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
FNMN.WAJO.19.07-03 – LO: 07–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.BB.01 – Industry
Copyright Cengage Learning. Powered by Cognero.
Page 58
148. The actual cash received during the week ended October 31 for cash sales was $23,447 and the amount indicated by
the cash register total was $23,457. Journalize the entry to record the cash receipts and cash sales.
Journal
Date
Description
Post. Ref.
Debit
Credit
ANSWER:
Journal
Date
Description
Post. Ref.
Debit
Credit
Oct. 31
Cash
23,447
Cash Short and Over
10
Sales
23,457
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-03 – LO: 07–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:21 PM
DATE MODIFIED:
10/16/2017 5:17 PM
149. Consider the following information from the cash account. Assume cash payments were 84% of collections.
Cash
??
Beg. balance
$245,000
Collections
??
Disbursements
$80,275
End balance
How much was the beginning balance of the cash account?
ANSWER:
$245,000 × 84% = $205,800
Beg. Cash = $41,075 ($80,275 + $205,800 – $245,000)
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-04 – LO: 07–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.15 – Current Assets Reporting
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement