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Exam 4: Cash and Internal Controls

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Question 51

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The statement of cash flows reports cash flows from the activities of:

A) Operating,purchasing,and investing.
B) Borrowing,paying,and investing.
C) Financing,investing,and operating.
D) Using,investing,and financing.

E) All of the above
F) A) and D)

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Question 52

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Differences in the company's cash balance and the bank's cash balance occur because of either timing differences or errors.

A) True
B) False

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Question 53

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At the time a $400 petty cash fund is being replenished,the company's accountant finds vouchers totaling $350 and petty cash of $50.The vouchers include: postage,$100; business lunches,$150; delivery fees,$75; and office supplies,$25.Which of the following is not recorded when recognizing expenditures from the petty cash fund?

Common examples of cash equivalents are money market funds,Treasury bills,and certificates of deposit.

A deposit outstanding will cause the bank's cash balance to be higher than the company's cash balance.

Terastar Corp.reports the following amounts for 2012 and 2013: $\begin{array} { | c | c | c | c | c | } \hline & \begin{array} { c } \text { Net } \\\text { Income }\end{array} & \begin{array} { c } \text { Operating } \\\text { Cash Flows }\end{array} & \begin{array} { c } \text { Investing } \\\text { Cash Flows }\end{array} & \begin{array} { c } \text { Financing } \\\text { Cash Flows }\end{array} \\\hline 2012 & \$ 10,000 & \$ 15,000 & - \$ 8,000 & \$ 10,000 \\\hline 2013 & 12,000 & 19,000 & - \$ 10,000 & - 6,000 \\\hline\end{array}$ What is the amount of Terastar's free cash flows for 2013?

The statement of cash flows reports a company's cash inflows and cash outflows related to (1)operating activities,(2)investing activities,and (3)financing activities.

Madison Company's cash ledger reports the following for the month ending March 31,2012. Information from March's bank statement and company records reveals the following additional information: a.The ending cash balance recorded in the bank statement is $6,790. b.Cash receipts of $2,100 from 3/26-3/31 are outstanding. c.Checks 545 and 547 are outstanding. d.The deposit on 3/11 included a customer's check for $400 that did not clear the bank (NSF check). e.Check 543 was written for $2,800 for office supplies in March.The bank properly recorded the check for this amount. f.An automatic withdrawal for March rent was made on March 4 for $1,500. g.Madison's checking account earns interest based on the average daily balance.The amount of interest earned for March is $50. h.Last year,one of Madison's top executives borrowed $4,000 from Madison.On March 24,the executive paid $4,200 ($4,000 borrowed amount plus $200 interest)directly to the bank in payment for the borrowing. i.The bank charged the following service fees: $30 for NSF check,$10 for automatic withdrawal for rent payment,and $20 for collection of the loan amount from the executive. Prepare a bank reconciliation for March 31,2012,and record the necessary cash adjustments.

Which of the following is NOT a reason why a bank reconciliation is necessary?

Cash flows from investing activities do not include:

Companies should set maximum purchase limits on debit cards and credit cards as part of internal controls.

Checks outstanding are checks the company has written that have not been subtracted from the bank's record of the company's balance.

The Public Company Accounting Oversight Board (PCAOB)has the authority to establish standards dealing with auditing,quality control,ethics,independence,and other activities relating to the preparation of audited financial reports.

When preparing a bank reconciliation,a deposit outstanding would be:

Which of the following is an example of detective controls?

Generally,when a company's net income and free cash flows trend in the same direction over time,earnings are believed to have higher quality.

A company establishes a petty cash fund for $400.By the end of the month,employees had made the following expenditures from the fund: supplies,$150; fuel for deliveries,$120; postage,$75; miscellaneous,$35.Record the entry to recognize expenditures from the petty cash fund.

Cash flows from financing activities include:

Allowing the employee who authorizes purchases to also prepare the check is an example of good internal control. A single employee should not perform both of these tasks.

A company's bank statement shows a cash balance of $4,230.Comparing the company's cash records with the monthly bank statement reveals several additional cash transactions such as checks outstanding of $3,880,deposits outstanding of $1,230,NSF check of $300,and service fee of $50.Calculate the correct balance of cash.