Question 1

The days' sales uncollected ratio measures a company's ability to manage its debt.

Accepted Answer

A) True 
 B)False

Question 2

____________ are short-term, highly liquid investment assets that are readily convertible to a known amount of cash.

Accepted Answer

The answer of ____________ are short-term, highly liquid investment assets...

Question 3

For each of the independent cases below, identify the principle of internal control that is violated, and recommend what should be done to remedy the violation.
1. In order to save money, Regal Company has decided to drop its property insurance on assets; and stop bonding the cashiers who handle about $10,000 in cash each day.
2. Halton Company records each sale on a preprinted invoice. Since sometimes invoices are damaged in the process of being prepared, the invoices are not prenumbered, but the sales clerk writes the next number onto each invoice.
3. Marion Company is a very small business. Bob Lepley, one of the two office clerks, opens the mail each day and removes the cash receipts that come in the mail. Bob then records the receipts in the cash records and the customer's account and deposits the cash in the bank.
4. Gerald McNichols, the owner of McNichols Company prides himself on hiring only the most competent employees. McNichols believes that since these employees are highly competent and to show that he trusts them completely, he feels there is no need for anyone to check up on the employees' performance.
5. Service Products is a small business with only 3 accounting employees. Each employee is well-trained and so can perform any of the accounting tasks, including handling cash receipts and cash disbursements, and preparing the bank reconciliation.

Accepted Answer

The answer of For each of the independent cases below,...

Question 4

Merchandise with an invoice price of $2,000 was purchased on October 3, terms 1/15, n/60. The company uses the net method to record purchases. The entry to record the cash payment of this purchase obligation on October 17 is:

Accepted Answer

A)  Debit Accounts Payable $1,980; credit Cash $1,980. 
B)  Debit Accounts Payable $2,000; credit Cash $2,000. 
C)  Debit Accounts Payable $1,980; credit Discounts Lost $20; credit Cash $2,000. 
D)  Debit Accounts Payable $2,000; credit Merchandise Inventory $20; credit Cash $1,980. 
E)  Debit Accounts Payable $2,000; credit Merchandise Inventory $40; credit Cash $1,960.

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

A company using the net method of recording purchases failed to take advantage of a discount available. When they pay the full (gross) amount of an invoice at the end of the credit period the journal entry will include a debit to:

Accepted Answer

A)  Merchandise Inventory. 
B)  Sales Discounts. 
C)  Discounts Lost. 
D)  Cash. 
E)  Accounts Receivable.

Question 7

Separation of duties divides responsibility for a transaction or a series of related transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.

Accepted Answer

A) True 
 B)False

Question 8

A properly designed internal control system:

Accepted Answer

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

Question 9

Martha Company has an established petty cash fund in the amount of $500. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts:  If, in addition to these receipts, the petty cash fund contains $301 of cash, the journal entry to reimburse the fund on December 31 will include:

Accepted Answer

A)  A debit to Transportation-In of $73. 
B)  A debit to Transportation-Out of $73. 
C)  A credit to Office Supplies of $66. 
D)  A credit to Cash Over and Short of $10. 
E)  A debit to Cash Over and Short of $10.

Question 10

On a bank statement, deposits are shown as _________________, because the depositor's account is a liability on the bank's records.

Accepted Answer

The answer of On a bank statement, deposits are shown...

Question 11

Control of cash disbursements is important for companies as most large thefts occur from payment of fictitious invoices.

Accepted Answer

A) True 
 B)False

Question 12

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount, and have maturities of one year.

Accepted Answer

A) True 
 B)False

Question 13

Internal control policies and procedures have limitations including:

Accepted Answer

A)  Human error. 
B)  Human fraud. 
C)  Cost-benefit principle. 
D)  Collusion. 
E)  All of these.

Question 14

A company purchased merchandise inventory costing $15,000 with credit terms of 2/10, n/30 on November 7. On November 15, the company paid 1/3 of the amount due. The remaining balance was paid on December 7.
Required:
a. Record the journal entries related to this transaction using the gross method of recording purchases.
b. Record the journal entries related to this transaction using the net method of recording purchases.

Accepted Answer

The answer of A company purchased merchandise inventory costing $15,000...

Question 15

At the end of the current period, a company reported $475,000 in net credit sales and $75,000 in ending accounts receivable. Calculate this company's days' sales uncollected at the end of the current period.

Accepted Answer

The answer of At the end of the current period,...

Question 16

A voucher is an internal file:

Accepted Answer

A)  Prepared after an invoice is received. 
B)  Used as a substitute for an invoice. 
C)  Used to accumulate information needed to control cash disbursements and to ensure that transactions are properly recorded. 
D)  Takes the place of a bank check. 
E)  Prepared before the company orders goods.

Question 17

The number of days' sales uncollected:

Accepted Answer

A)  Is used to evaluate the liquidity of receivables. 
B)  Is calculated by dividing accounts receivable by sales. 
C)  Measures a company's ability to pay its bills on time. 
D)  Measures a company's debt to income. 
E)  Is calculated by dividing sales by accounts receivable.

Question 18

An internal control system consists of all of the following policies and procedures except ones designed to:

Accepted Answer

A)  Protect assets. 
B)  Ensure reliable accounting. 
C)  Guarantee a return to investors. 
D)  Urge adherence to company policies. 
E)  Promote efficient operations.

Question 19

The _____________ requires the managers and auditors of companies whose stock is traded on an exchange (called public companies) to document and certify the system of internal controls.

Accepted Answer

The answer of The _____________ requires the managers and auditors...

Question 20

Preparing a bank reconciliation on a monthly basis is an example of:

Accepted Answer

A)  Establishing responsibility. 
B)  Separation of duties. 
C)  Protecting assets by proving accuracy of cash records. 
D)  A technological control. 
E)  Poor internal control.

Exam 8: Cash and Internal Controls

The days' sales uncollected ratio measures a company's ability to manage its debt.

____________ are short-term, highly liquid investment assets that are readily convertible to a known amount of cash.

Merchandise with an invoice price of $2,000 was purchased on October 3, terms 1/15, n/60. The company uses the net method to record purchases. The entry to record the cash payment of this purchase obligation on October 17 is:

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.

A company using the net method of recording purchases failed to take advantage of a discount available. When they pay the full (gross) amount of an invoice at the end of the credit period the journal entry will include a debit to:

Separation of duties divides responsibility for a transaction or a series of related transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.

A properly designed internal control system:

On a bank statement, deposits are shown as _________________, because the depositor's account is a liability on the bank's records.

Control of cash disbursements is important for companies as most large thefts occur from payment of fictitious invoices.

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount, and have maturities of one year.

Internal control policies and procedures have limitations including:

At the end of the current period, a company reported $475,000 in net credit sales and $75,000 in ending accounts receivable. Calculate this company's days' sales uncollected at the end of the current period.

A voucher is an internal file:

The number of days' sales uncollected:

An internal control system consists of all of the following policies and procedures except ones designed to:

The _____________ requires the managers and auditors of companies whose stock is traded on an exchange (called public companies) to document and certify the system of internal controls.

Preparing a bank reconciliation on a monthly basis is an example of: