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Exam 4: Internal Controls, Accounting for Cash, and Ethics

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Question 41

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Internal controls that assess degree of compliance with company policies are classified as accounting controls.

A) True
B) False

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Question 42

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What are the primary roles of the independent auditor?

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1) Conduct a financial audit
2) Assumes ...

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Question 43

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The usual form for a bank reconciliation begins with the ending cash balance shown on the bank statement and reconciles it to the ending cash balance on the company's books.

For the month of July 2014, Wheeler Company's bank statement contained the following information: 1) The bank had collected a $3,000 account receivable for the company. 2) The bank charged Wheeler $45 for various service fees during the month. 3) The checking account earned $28 in interest during the month. Required: Indicate how each of the three items listed would affect Wheeler's financial statements. Show dollar amounts of increases and decreases; enter "NA" if a given element of the financial statements is not affected by the item. Indicate whether each cash flow is an operating (OA), investing (IA), or financing (FA) activity.

The unadjusted cash account balance for Few Company at December 31, 2014 is $21,380. The bank statement showed an ending balance of $27,388 on that date. The following information is available: $\begin{array} { l l } \text { Bank service charge } & \$ 29 \\\text { Outstanding checks } & \$ 7,700 \\\text { NSF check from customer } & \$ 540 \\\text { Deposit in transit } & \$ 1,321\end{array}$ Check #433 for the purchase of inventory was written correctly and paid by the bank correctly for $234, but was recorded on the books at $432. Few uses the perpetual inventory system. Required: Prepare a bank reconciliation as of December 31, 2014.

What were some of the major provisions of the Sarbanes-Oxley Act of 2002?

Indicate whether each of the following statements regarding internal control is true or false. -A fidelity bond is liability insurance that protects a company against certain lawsuits filed by customers

What is a deposit in transit?

Indicate whether each of the following statements about a bank statement is true or false. -The confidentiality rules of the AICPA's code of ethics for CPAs prohibit auditors from seeking legal counsel prior to disclosing information obtained in an accountant-client relationship

Indicate which of the following items is added to or subtracted from a company's unadjusted book balance to calculate the true cash balance in preparing a bank reconciliation. Place a + by those items that are added to the book balance, a - by those items that are subtracted, and NA by items that are not added to or subtracted from the book balance. $\begin{array} { | l | l | } \hline \text { Reconciling Item } & \text { Added, Subtracted, or NA } \\\hline \text { Deposit in transit } & \\\hline \text { Debit memo } & \\\hline \text { Bank service charge } & \\\hline \text { Customer's NSF check } & \\\hline \begin{array} { l } \text { Company's account receivable } \\\text { collected by the bank }\end{array} & \\\hline \begin{array} { l } \text { Interest revenue earned on the } \\\text { account }\end{array} & \\\hline \text { Outstanding checks } & \\\hline\end{array}$

Assuming that the unadjusted bank balance was $600, determine the unadjusted book balance.

The three elements that are typically present when fraud occurs are opportunity, pressure, and rationalization.

Indicate whether each of the following statements about internal control and ethics is true or false. -The American Institute of Certified Public Accountants requires its members to comply with the Code of Professional Conduct

Explain why it is impossible to have a foolproof internal control system.

Effective separation of duties in a business allows the work of one employee to serve as a check on the work of other employees.

The most favorable opinion that an auditor can express is the

Indicate whether each of the following statements about internal control and ethics is true or false. -The absence of safety deposit boxes means that the company does not have an effective internal control system

Indicate whether each of the following statements about separation of duties is true or false. -Making one employee responsible for authorization and recording of transactions does not violate the principles of good internal control

Indicate whether each of the following statements regarding internal controls is true or false. -Under proper internal controls, employees who are given authority should not bear the corresponding responsibility

Indicate whether each of the following statements regarding internal control is true or false. -Whenever possible, the functions of authorization, recording transactions, and custody of assets should be exercised by the same dependable employee