Chapter 04 – Cash and Internal Controls
2.
True
3.
False
4.
True
5.
False
6.
True
Chapter 4
Cash and Internal Controls
EXERCISES
Exercise 4-1
Exercise 4-2
1.
True
2.
False
3.
False
4.
True
5.
True
6.
True
1.
True
Chapter 04 – Cash and Internal Controls
Exercise 4-3
1.
False
False
3.
True
4.
True
5.
True
6.
False
8.
True
9.
False
Exercise 4-4
1.
Reconciliations
Separation of duties
3.
Proper authorization
4.
Performance reviews
5.
Physical controls
6.
None
Exercise 4-5
Currency located at the company
$1,500
Short-term investments that mature within three months
Balance in savings account
Checks received from customers but not yet deposited
750
Coins located at the company
250
Balance in checking account
Total cash
900
Chapter 04 – Cash and Internal Controls
Exercise 4-6
Exercise 4-7
The petty cash fund of $10,000 is too large. Employees should not be allowed to both
Exercise 4-8
Exercise 4-9
Requirement 1
Spielberg Company
Bank Reconciliation
July 31, 2018
Bank’s Cash Balance
Company’s Cash Balance
Before reconciliation
$15,100
Before reconciliation
$12,800
After reconciliation
After reconciliation
Requirement 2
Debit
Credit
Service Fee Expense
100
Exercise 4-10
Requirement 1
The Dean Acting Academy
Bank Reconciliation
August 31, 2018
Bank’s Cash Balance
Company’s Cash Balance
Before reconciliation
$11,275
Before reconciliation
$10,500
After reconciliation
After reconciliation
$10,525
Exercise 4-10 (concluded)
Requirement 2
Debit
Credit
Cash
75
Interest Revenue
75
Service Fee Expense
Cash
Exercise 4-11
Requirement 1
Damon Company
Bank Reconciliation
October 31, 2018
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
Interest earned
reconciliation
$13,567
reconciliation
$13,567
Requirement 2
Debit
Credit
Cash
5,320
Notes Receivable
5,000
Interest Revenue
Service Fee Expense
Cash
Exercise 4-12
September 4
Debit
Credit
Petty Cash
200
Cash
September 30
Debit
Credit
Entertainment Expense
120
Repairs and Maintenance Expense
320
Postage Expense
430
Delivery Expense
240
Petty Cash
Accounts Payable
September 30
Petty Cash
120
Cash
Exercise 4-13
April 3
Debit
Credit
Petty Cash
200
Cash
April 30
Debit
Credit
Utilities Expense
620
Postage Expense
Repairs and Maintenance Expense
510
Petty Cash
Cash
Chapter 04 – Cash and Internal Controls
April 30
Debit
Credit
Petty Cash
150
Exercise 4-14
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
f. Purchase supplies for cash.
Yes
Outflow
Exercise 4-15
Requirements 1 and 2
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.
d. Pay utilities on building, $1,820.
Operating
f. Pay employee salaries, $8,300.
Operating
Financing
+$40,630
Requirement 3
Exercise 4-16
a. Cash used for purchase of office supplies
−$2,100
b. Cash provide from consulting to customers
e. Cash used for payment of employee salaries
f. Cash used for payment of office rent
i. Cash used to pay office utilities
−$3,200
Exercise 4-17
c. Cash used for purchase of mining equipment
−$59,400
g. Cash provided from sale of equipment purchased in c. above
j. Purchase of company vehicle
−$15,600
−$52,300
Exercise 4-18
d. Cash provided from long-term borrowing
+$48,000
h. Cash used to repay a portion of the long-term borrowing in d. above
Exercise 4-19
Requirement 1
1.
+$70,000
3.
−$10,000
4.
5.
6.
Requirement 2
1.
+$80,000
2.
−$40,000
3.
−$10,000
4.
6.
+$14,000
Requirement 3
Operating activities include cash transactions involving revenue and expense events
Exercise 4-20
Based on the trend in operating cash flows, Sullivan’s operations are more volatile and
therefore riskier. Riskier companies are more likely to incur negative economic shocks
to their operations. As a result, they tend to hold more cash to make sure they are able