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Exam 8: Fraud, Internal Control, and Cash

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Question 71

Multiple Choice

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A petty cash fund is generally established in order to

A) pay for all merchandise purchased on account.
B) pay employees' wages.
C) make loans internally to employees.
D) pay relatively small expenditures.

E) A) and B)
F) C) and D)

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Question 72

Multiple Choice

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The control principle related to not having the same person authorize and pay for goods is known as

A) establishment of responsibility.
B) independent internal verification.
C) segregation of duties.
D) rotation of duties.

E) B) and C)
F) C) and D)

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Question 73

True/False

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Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

A check returned by the bank marked "NSF" means

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

Entries are made to the Petty Cash account when

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

A petty cash fund should not be used for

A petty cash fund should be replenished

Identify the internal control procedures applicable to cash receipts for Ferguson Company in each of the following cases. 1. All cashiers are bonded. 2. The treasurer compares the total cash receipts to the bank deposit daily. 3. The bookkeeper records cash receipts which are held by the treasurer. 4. Only the treasurer holds cash receipts. 5. Deposit slips are completed for each deposit.

The cash records of Landis Company show the following four situations. 1. The June 30 bank reconciliation indicated that deposits in transit total $1,080. During July the general ledger account Cash shows deposits of $23,620, but the bank statement indicates that only $23,400 in deposits were received during the month. 2. The June 30 bank reconciliation also reported outstanding checks of $1,020. During the month of July, Landis Company books show that $25,800 of checks were issued. The bank statement showed that $24,600 of checks cleared the bank in July. 3. In September, deposits per the bank statement totaled $40,100, deposits per books were $38,100, and deposits in transit at September 30 were $3,150. 4. In September, cash disbursements per books were $35,550, checks clearing the bank were $37,500, and outstanding checks at September 30 were $3,150. There were no bank debit or credit memoranda. No errors were made by either the bank or Landis Company. Instructions Answer the following questions. (a) In situation (1), what were the deposits in transit at July 31? (b) In situation (2), what were the outstanding checks at July 31? (c) In situation (3), what were the deposits in transit at August 31? (d) In situation (4), what were the outstanding checks at August 31?

Using _______________ documents is a control measure which helps in accounting for all documents in a series and also prevents a document from being recorded more than once.

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

When making a payment from the petty cash fund for postage stamps, the following journal entry is made.

Listed below are seven errors or problems which might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write "None." If you think more than one principle is appropriate, list all principles that apply. Possible Errors or Problems 1. An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise. 2. A small fire destroys 3 days of cash receipts. 3. The official designated to sign checks is able to steal blank checks and issue them without fear of detection. 4. A salesclerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer. 5. Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand. 6. Each cashier counts his own register drawer each day and verbally reports the results to the supervisor. 7. Cashiers with over 5 years' experience are not bonded.

Checks received through the mail should

A __________________ fund is used to pay relatively small expenditures.

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

At June 30, Mareska Company has the following bank information: cash balance per bank $3,600; outstanding checks $280; deposits in transit $550; credit memo for interest $10; bank service charge $20. What is Mareska's adjusted cash balance on June 30?