20 Jan Using the above information,

ACC556 Financial Accounting for Managers

CHAPTER 7 EXERCISE

Question 1 In large companies, the independent internal verification procedure is often assigned to

Answers:

computer operators.

management.

internal auditors.

outside CPAs.

Question 2 Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?

Answers:

Everyone in the organization.

An individual and his/her supervisor.

Only one individual.

The CEO.

Question 3 Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

Answers:

True

False

Question 4 All of the following are true regarding the management and monitoring of cash except

Answers:

companies may have plenty of sales, but insufficient cash to support operations.

the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company.

manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers.

companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.

Question 5 Sam’s Grocery Store has the following policy. ‘Only one cashier can have access to a cash drawer.’ Which internal control principle supports this policy?

Answers:

Documentation procedures.

Segregation of duties.

Physical controls.

Establishment of responsibilities.

Question 6 Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:

Answers:

Accounts Receivable

Cash

Cash

Accounts Receivable

Miscellaneous Expense

Accounts Receivable

No adjusting entry is necessary.

Question 7 Under an effective system of internal control, errors occur only as a result of fraud or dishonesty.

Answers:

True

False

Question 8 A Consequence of separation of duties is that

Answers:

theft by employees becomes impossible.

operations become extremely inefficient because of constant training of employees.

more employees will need to be bonded.

theft is still possible when several employees are involved.

Question 9 Match the items below by entering the appropriate code letter in the space provided.

Prenumbered documents

Prevent a transaction from being recorded more than once.

Custody of an asset should be kept separate from the record-keeping for that asset

Segregation of duties.

Television monitors, garment sensors and burglar alarms are examples

Physical control devices.

Bonding employees

Insurance protection against misappropriation of assets.

Collusion

Two or more employees circumventing prescribed procedures.

Cash

Anything that a bank will accept for deposit.

Cash budget

A projection of anticipated cash flows.

Restricted cash

Cash that is not available for general use, but instead is restricted for a particular purpose.

Invest idle cash

A basic principle of cash management.

Canceled checks

Checks which have been paid by the depositor’s bank.

NSF checks

Checks which have been returned by the maker’s bank for lack of funds.

Outstanding checks

Issued checks that have not been paid by the bank.

Petty cash receipt

Document indicating the purpose of a petty cash expenditure.

Cash equivalents

Highly liquid investments.

Question 10 Which of the following would be added to the balance per bank on a bank reconciliation?

Answers:

Outstanding checks.

Deposits in transit.

Notes collected by the bank.

Service charges.

Question 11 The most important element of the fraud triangle is rationalization.

Answers:

True

False

Question 12 Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Answers:

True

False

Question 13 All of the following are true regarding bank statements except

Answers:

the bank statement will show a credit for deposits received from a company.

the bank statement balance will always agree with the company recorded balance.

the bank statement is a copy of the bank’s records sent to the customer for periodic review.

the bank statement will show a debit if a check is paid for a company issuing the check.

Question 14 Clark Company developed the following reconciling information in preparing its September bank reconciliation:

Cash balance per bank, 9/30 $30,800

Note receivable collected by bank 16,800

Outstanding checks 25,200

Deposits in transit 12,600

Bank service charge 210

NSF check 3,360

Using the above information, determine the cash balance per books (before adjustments) for the Clark Company.

Answers:

$27,370.

$43,400.

$4,970.

$42,000.