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Exam 8: Cash and Internal Controls

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Question 61

Multiple Choice

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A properly designed internal control system:

A) Requires the use of non-computerized systems.
B) Lowers the company's risk of loss.
C) Eliminates the need for an audit.
D) Insures profitable operations.
E) Is not necessary if the company uses a computerized system.

F) A) and D)
G) A) and C)

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Question 62

Multiple Choice

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Cash equivalents meet all of the following criteria except:

A) Have a market value that is not sensitive to interest rate changes.
B) More liquid than cash.
C) Short-term investments purchased within 3 months of their maturity dates.
D) Readily convertible to a known cash amount.
E) Short-term U.S. treasury bills.

F) B) and C)
G) C) and E)

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Question 63

Multiple Choice

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Pelcher Co. maintains a $400 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $110 for office supplies, $140 for merchandise inventory, and $70 for miscellaneous expenses. There is a cash overage of $4. The journal entry to replenish the fund on January 31 is:

Cash equivalents:

It is generally not necessary for businesses to reconcile their checking accounts since banks keep accurate records and provide internal control support for cash.

Harsh penalties exist for violators of the Sarbanes-Oxley Act (SOX)- sentences up to 25 years in prison with severe fines.

Which internal control principle prescribes the use of pre-numbered printed checks?

Spencer Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:

Norman Co. had $5,925 million in sales and $1,155 million in ending accounts receivable for the current period. For the same period, Opal Co. reported $5,885 million in sales and $790 million in ending accounts receivable. Calculate the days' sales uncollected for both companies as of the end of the current period and indicate which company is doing a better job in managing the collection of its receivables.

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Discuss how the principles of internal control apply to cash receipts over-the-counter by giving several examples of good control measures that should be implemented.

An invoice is an itemized statement of goods prepared by the customer listing the customer's name, items sold, sales prices, and terms of sale.

A company wants to decrease its $200 petty cash fund to $175. The entry to reduce the fund is:

Which of the following is not one of the policies and procedures that make up an internal control system?

Cash equivalents:

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

Cash, not including cash equivalents, includes:

When evaluating the days' sales uncollected ratio, generally the higher the receivables balance, the better the ratio.

Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $400. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts: $\begin{array}{|l|l|r|}\hline \text { December } 4 & \text { Freight charge for merchandise purchased } & \$ 62 \\\hline \text { December } 7 & \text { Delivery charge for shipping to customer } & \$ 46 \\\hline \text { December } 12 & \text { Purchase of office supplies } & \$ 30 \\\hline \text { December } 18 & \text { Donation to charitable oigganization } & \$ 51 \\\hline \text { December 18 } & \text { Donation to charitable organization } & \$ 51 \\\hline\end{array}$ If, in addition to these receipts, the petty cash fund contains $201 of cash, the journal entry to reimburse the fund on December 31 will include:

The entry to establish a petty cash fund includes: