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Exam 6: Cash and Internal Controls

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Question 21

True/False

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In order to streamline the purchasing process, department managers should place orders directly with suppliers.

A) True
B) False

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Question 22

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Cash equivalents:

A) Include savings accounts.
B) Include checking accounts.
C) Are readily converted to a known cash amount.
D) Include time deposits.
E) Have no immediate value.

F) A) and B)
G) A) and C)

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Question 23

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On August 25, Barrymore Co. purchased $5,000 worth of merchandise on terms 2/10, n/30; on September 4, the amount due was paid. Using the net method of recording purchases, prepare general journal entries to record (a) the purchase on August 25, and (b) the cash payment on September 4.

Liquidity refers to a company's ability to pay its long-term obligations.

On June 3, Zhang Co. received and recorded a $3,500 invoice for merchandise on which the terms were 2/10, n/60. The company uses the net method to records invoices. On June 17, the company discovered that the invoice had been incorrectly filed and the discount lost. Prepare the June 3 general journal entry to record the purchase, the June 17 entry to record the discount lost, and the August 2 entry to record payment of the invoice.

Deposits made and recorded by the depositor but not yet recorded on the bank statement are called _______________________.

Having external auditors test the company's financial records and evaluate the effectiveness of the internal control system is part of the internal control principle of ___________________.

Akron Company purchased merchandise inventory costing $10,000 with credit terms of 2/10, n/30 on March 7. On March 15, the company paid 1/2 of the amount due. The remaining balance was paid on April 7. Required: a. Record the journal entries related to this transaction using the gross method of recording purchases. b. Record the journal entries related to this transaction using the net method of recording purchases.

Norman Co. had $5,925 million in sales and $1,155 million in ending accounts receivable for the current period. For the same period, Opal Co. reported $5,885 million in sales and $790 million in ending accounts receivable. Calculate the days' sales uncollected for both companies as of the end of the current period and indicate which company is doing a better job in managing the collection of its receivables.

When evaluating the days' sales uncollected ratio, generally the higher the receivables balance, the better the ratio.

Cash registers, check protectors, time clocks and personal identification scanners are examples of technologies that can improve internal control.

A company records purchase invoices at net amounts. On March 5, the company recorded merchandise purchased, invoice price $17,000, terms 2/15, n/60. On March 24, this company discovered that the invoice had been incorrectly filed and the discount had been lost. The invoice was paid on April 1. Prepare journal entries to record these events.

Preparing a bank reconciliation on a monthly basis is an example of:

Two limitations of internal control systems are ______________ and ________________. Answers can appear in any order

Insuring assets and requiring all accounting personnel to have CPA licenses are two important principles of internal control.

An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

A company wants to decrease its $200 petty cash fund to $175. The entry to reduce the fund is:

At the end of the current period, a company reported $725,000 in net credit sales and $100,000 in ending accounts receivable. Calculate this company's days' sales uncollected at the end of the current period.

Define an internal control system and describe its purpose.

Merchandise with an invoice price of $2,000 was purchased on February 3, terms 2/15, n/60. The company uses the net method to record purchases. The entry to record the cash payment of this purchase obligation on February 27 is: