Chapter 4
Cash and Internal Controls
1. True
2. False
3. True
4. True
5. False
6. False
EXERCISES
Exercise 4-1
1. False
2. True
3. True
4. False
5. True
6. True
Exercise 4-2
1. True
2. False
3. False
4. True
5. True
6. False
7. True
8. True
9. False
Exercise 4-3
1. Performance reviews
2. Physical controls
3. Separation of duties
4. Reconciliations
5. None
6. Proper authorization
Exercise 4-4
Currency located at the company $1,500
Short-term investments that mature within three months 900
Balance in savings account 6,300
Checks received from customers but not yet deposited 750
Coins located at the company 250
Exercise 4-5
Spielberg Company
Bank Reconciliation
July 31, 2012
Bank’s Cash Balance Company’s Cash Balance
Before reconciliation $15,100 Before reconciliation $12,800
Deposits outstanding + 2,300 Service fees − 100
Requirement 2
Debit Credit
Service Fee Expense 100
Exercise 4-6
Cash should be recorded and deposited more than once per week (on Friday). The
Exercise 4-7
The petty cash fund of $10,000 is too large. Employees should not be allowed to both
place a receipt in the fund and withdraw cash. Employees should obtain permission
Exercise 4-8
Jim should not deposit the checks and also record them.
Exercise 4-9
Requirement 1
The Dean Acting Academy
Bank Reconciliation
August 31, 2012
Bank’s Cash Balance Company’s Cash Balance
Before reconciliation $11,275 Before reconciliation $10,500
Deposits outstanding + 2,700 Service fees − 50
Requirement 2
Debit Credit
Cash 75
Service Fee Expense 50
Exercise 4-11
Exercise 4-10
Requirement 1
Exercise 4-10 (concluded)
Damon Company
Bank Reconciliation
October 31, 2015
Bank’s Cash Balance Company’s Cash Balance
Per bank statement $11,727 Per general ledger $ 8,397
Deposits outstanding + 3,025 Note received +5,000
Checks outstanding − 1,485 Interest earned + 320
Debit Credit
Cash 5,320
Notes Receivable 5,000
Service Fee Expense 150
September 4 Debit Credit
Petty Cash 550
September 30 Debit Credit
Entertainment Expense 150
Repairs and Maintenance Expense 90
Postage Expense 110
Delivery Expense 105
Requirement 1
Requirement 2
Exercise 4-12
September 30 Debit Credit
Petty Cash 455
April 3 Debit Credit
Petty Cash 750
April 30 Debit Credit
Utilities Expense 155
Entertainment Expense 85
Postage Expense 75
Repairs and Maintenance Expense 210
April 30 Debit Credit
Petty Cash 525
Exercise 4-13
Transaction
Cash
involved?
(yes or no)
If yes, is it
operating, investing,
or financing?
Inflow or
outflow?
a. Pay dividends to stockholders. Yes Financing Outflow
b. Receive utilities bill but do not
pay.
No
c. Receive cash from customers
for services previously
provided.
Yes Operating Inflow
a note payable.
Transaction Cash flow
Operating,
investing, or
financing?
a. Issue common stock for cash, $168,000. +$168,000 Financing
b. Purchase building and land with cash, $120,000. −$120,000 Investing
c. Provide services to customers on account, $27,000. 0
d. Pay utilities on building, $1,820. −$1,820 Operating
Exercise 4-14
Exercise 4-15
Requirements 1 and 2
a. Cash used for purchase of office supplies −$2,100
b. Cash provide from consulting to customers +$36,800
c. Cash used for purchase of mining equipment (Investing)
d. Cash provided from long-term borrowing (Financing)
c. Cash used for purchase of mining equipment −$59,400
d. Cash provided from long-term borrowing +$48,000
Requirement 3
December 31, 2012: $5,000 + $40,630 = $45,630
Exercise 4-16
j. Purchase of company vehicle (Investing)
Exercise 4-17
Exercise 4-18
1. +$70,000
2. −$35,000
3. −$10,000
4. 0
5. −$11,000
1. +$80,000
2. −$40,000
3. −$10,000
4. −$4,000
Operating activities include cash transactions involving revenue and
expense events during the period. In other words, operating activities
From year 1 to year 4, Glasco saw net income increases 27% (from
$370 to $470), while free cash flow increased 75% (from $400 to
From year 1 to year 4, Sullivan saw net income increases 30% (from $250 to $325),
Exercise 4-19
Requirement 1
Requirement 2
Requirement 3
Exercise 4-20
The prediction is that Glasco will have a larger increase in net income in year 5 and