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

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Question 1

True/False

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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.

A) True
B) False

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Question 2

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The primary focus of financial statement audits is the discovery of fraud.

A) True
B) False

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Question 3

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In preparing a bank reconciliation, typical adjustments to the book balance include bank service charges, customer NSF checks, and certified checks.

Separation of duties in an organization should be required to reduce the likelihood of theft.

In preparing a bank reconciliation, typical adjustments to the bank balance are deposits in transit and outstanding checks.

Preparing a bank reconciliation is a requirement to obtain an unqualified audit opinion, but is not an important internal control for a business.

While performing its monthly bank reconciliation, the bookkeeper for the Mosaic Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241. Which of the following shows the effect of the correcting entry on the financial statements?

Which of the following statements about materiality is not true?

Certified public accountants are obligated to act in a way that serves the public interest.

For which of the following bank reconciliation adjustments would an adjusting journal entry not be necessary?

The true cash balance can only be determined if both the unadjusted bank balance and the unadjusted cash balance are known.

Which of the following statements concerning internal controls is true?

Rainey Company's true cash balance at October 31 is $5,710. The following information is available for the bank reconciliation: Outstanding checks, $600 Deposits in transit, $450 Bank service charges, $90 The bank had collected an account receivable for Rainey Company, $1,000 The bank statement included an NSF check written by one of Ramsey's customers for $600. Based on this information Rainey's unadjusted book balance at October 31 is:

Most companies strive to receive an unqualified audit opinion.

The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.

Keatts Company's bank statement included an NSF check written by one of its customers. What effect will the entry to recognize the NSF check have on the company's financial statements?

Chester Company has established internal control policies and procedures in order to achieve the following objectives: 1) Effective evaluation of management performance. 2) Assure that the accounting records contain reliable information. 3) Safeguard the company's assets. "4) Assure that employees comply with company policy. Which of these objectives are achieved by accounting controls?"

Jasper Company accepted a check from Harp Company as payment for services rendered. Jasper's bank statement revealed that the Harp check was an NSF check. What effect will the entry to record the NSF check have on the accounting equation of Jasper Company?

After adjusting entries have been made related to a bank reconciliation, the book balance will be equal to the true cash balance.

While performing its monthly bank reconciliation, the bookkeeper for the Grace Corporation noted that a deposit of $990 (received from a customer on account) was recorded in the company books as $900. Which of the following shows the effect of the correcting entry on the financial statements?