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Exam 7: Sarbanes-Oxley,internal Control,and Cash

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Question 41

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Farm Store,Inc.reported the following data in its December 31 annual report. $\begin{array}{llcc} \text { Cash and cash equivalents } & \$ 1,050,000 \\ \text { Negative cash flows from operations } & 420,000\end{array}$ a What is the company's "cash burn" per month? b What is the company's ratio of cash to monthly cash expenses? c Interpret the ratio you computed in part 2.What are the implications for Farm Store,Inc.?

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a. $420,000/12 = $35,000 per month

b. ...

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Question 42

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A business that requires all cash payments be made by check can not use a petty cash system.

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B) False

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Question 43

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On April 2,Granger Sales decides to establish a $125.00 petty cash fund to relieve the burden on Accounting. a Journalize the establishment of the fund. b On April 10,the petty cash fund has receipts for mail and postage of $43.50,contributions and donations of $29.50,meals and entertainment of $38.25,and $13.55 in cash.Journalize the replenishment of the fund. c On April 11,Granger Sales decides to increase petty cash to $200.00.Journalize this event.

The bank reconciliation

Using the following information,prepare a bank reconciliation for Miller Co.for August 31: a The bank statement balance is $4,690 b The cash account balance is $5,080. c Outstanding checks amounted to $715. d Deposits in transit are $1,020. e The bank service charge is $40. f A check for $72 for supplies was recorded as $27 in the ledger.

Two features of internal control are presented in the following sections.Each is followed by a list of four irregularities that occurred in processing data.Identify the one irregularity from each list that would be discovered or prevented by the feature of internal control described. a-The sum of the balances of the accounts in the customer's ledger is compared at the end of each month with the balance of the accounts receivable account in the general ledger by a person who has no responsibility for maintaining either the general ledger or the customer's ledger. 1. Five hours of services were rendered but the customer was only billed for four hours. 2. A cash receipt of $750 was recorded correctly in the accounts receivable controlling account but was posted to the customer's ledger as $75. 3. A bill for services rendered to Cole Co.was erroneously posted to the account of Coleman Co.in the customer's ledger. 4. No entry was made in the accounting records for services rendered to a customer. b- Both cash and credit charges for services rendered are recorded on prenumbered invoices.At the end of the day,all invoices are accounted for before the duplicate copies of the invoices are routed to the accounting department for entry into the accounts and the cash is sent to the cashier's department for deposit. 1. Some charge customers complained that the monthly statements of account did not add all amounts correctly. 2. Some clerks used incorrect hourly rates in preparing invoices. 3. Some clerks destroyed duplicate copies of cash invoices and misappropriated the cash. 4. Some charge customers complained that the monthly statement of account did not indicate credits for payments made.

Most companies who have several bank accounts,petty cash,and cash on hand,would list each separately on the balance sheet.

Why would a bank require a company to maintain a compensating balance?

The debit recorded in the journal to reimburse the petty cash fund is to

Accompanying a bank statement for Marsh Land Properties is a credit memo for payment on a $15,000 1-year note receivable and $900 of interest collected by the bank.Marsh Land Properties had been notified by the bank at the time of collection,but had made no entries.Journalize the entry that should be made by Marsh Land to bring the accounting records up to date.

A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695.What entry is required in the company's accounts?

Money orders are considered cash.

Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records.

The amount of cash to be reported on the balance sheet at June 30 is the

Thompson Corporation gathered the following reconciling information in preparing its October bank reconciliation: $\begin{array}{|l|r|}\hline \text { Cash balance per bank, 10/31 } & \$ 17,000 \\\hline \text { Note receivable collected by bank } & 4,800 \\\hline \text { Outstanding checks } & 6,500 \\\hline \text { Deposits-in-transit } & 3,000 \\\hline \text { Bank service charge } & 50 \\\hline \text { NSF check } & 2,300 \\\hline\end{array}$ Using the above information,determine the cash balance per books before adjustments for the Thompson Corporation.

In preparing a bank reconciliation,the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.

Entries are made to the petty cash account when

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430.What entry is required in the company's accounts?

List the principal advantages of electronic funds transfers.

For efficiency of operations and better control over cash,a company should maintain only one bank account.