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Exam 4: Cash and Internal Controls

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Question 71

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McGregor Company allows customers to pay with credit cards.The credit card company charges McGregor 3% of the sale.When a customer uses a credit card to pay McGregor $200 for services provided,McGregor would:

A) Debit Cash for $200.
B) Credit Service Revenue for $194.
C) Debit Service Fee Expense for $6.
D) Credit Service Revenue for $206.

E) B) and C)
F) None of the above

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Question 72

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A customer purchased a $2,000 item at ApplianceWorld,paying with a credit card.ApplianceWorld is charged a 2% fee by the credit card company.When recording this sale,ApplianceWorld would:

A) Debit Accounts Receivable for $2,000.
B) Credit Sales Revenue for $2,000.
C) Credit Sales Revenue for $1,960.
D) Credit Unearned Revenue for $2,000.

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

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Question 73

Multiple Choice

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Providing services to customers on account is considered a(n) :

During the year,a company issues common stock for $50,000 and repays previously borrowed amounts of $75,000.In addition,the company pays dividends of $5,000 to stockholders.Determine the amount of financing cash flows the company will report in the current year.

What is the link between the balance sheet and the statement of cash flows? Describe the operating,investing,and financing sections of the statement of cash flows.

When customers pay for services with a check,the company should debit Accounts Receivable and credit Service Revenue.

Fraudulent reporting by management could include:

A company's general ledger shows a cash balance of $4,570.Comparing the company's cash records with the monthly bank statement reveals several additional cash transactions such as checks outstanding of $2,840,bank service fees of $110,and interest earned of $15.Calculate the correct balance of cash.

Which of the following would not be considered good internal control for cash receipts?

Cash receipts of the company that have not been added to the bank's record of the company's balance are referred to as checks outstanding. These are referred to as deposits outstanding.

After preparing a bank reconciliation,the service fee charged by the bank would be recorded with:

Auditors of public companies can perform the full range of audit and nonaudit consulting services for their audit clients.

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

Peterson Company's general ledger shows a cash balance of $7,850 on May 31,2012.May cash receipts of $1,250,included in the general ledger balance,are placed in the night depository at the bank on May 31 and processed by the bank on June 1.The bank statement dated May 31 shows an NSF check for $200 and a service fee of $50.The bank processes all checks written by the company by May 31 and lists them on the bank statement,except for one check totaling $1,640.The bank statement shows a balance of $7,990 on May 31.Prepare a bank reconciliation to calculate the correct ending balance of cash on May 31,2012.

Earnings quality is the ability of net income to report the true underlying performance of the company.

At the beginning of the current year,a company issued stock for $100,000 and borrowed $50,000 from the bank.By the end of the year,the company had provided services of $80,000 for cash,paid employee salaries of $30,000,and paid utilities of $10,000.Determine the amount of financing cash flows the company will report in the current year.

An example of a bank error that causes the company's balance and bank's balance of cash to differ is the purchase of supplies with a check. This is an example of a timing difference.

Which of the following is NOT involved in the replenishment of the petty cash fund?

Discuss the events leading up to the passage of the Sarbanes-Oxley Act and its major provisions.

Separation of duties occurs when two or more people act in coordination to circumvent internal controls.