Exam 1 Chp 12 & 7

In Sunland Company, land decreased $278100 because of a cash sale for $278100, the equipment account increased $92700 as a result of a cash purchase, and bonds payable increased $309000 from issuance for cash at face value. The net cash provided by investing activities is

$185400.

The issuance of debt to purchase assets would be classified as a(n)

Non-cash investing or financing activity

Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?

Only one individual

An authorization form which is prepared for each expenditure in most medium and large organizations is

Voucher

Which one of the following items would not be considered cash? a) Coins. b) Postdated checks. c) Money orders. d) Currency.

b) Postdated checks.

Which one of the following is not a control procedure used for over-the-counter receipts? a) Providing the customers with an itemized receipt. b) Pre-numbered checks are used to buy supplies. c) A cash register's tape is locked in the register and only a supervisor can access it. d) Use of a cash register where the amount rung up is clearly visible to the customer.

b) Pre-numbered checks are used to buy supplies.

Investing activities include a) obtaining cash from creditors. b) collecting cash on loans made. c) obtaining capital from owners. d) repaying money previously borrowed.

b) collecting cash on loans made.

Which of the following is an effective internal control over cash disbursements? a) The use of prenumbered checks. b) The storage of blank checks in a secure place. c) The separation of authorization of checks and the actual writing of the checks. d) All of these answer choices are correct.

d) All of these answer choices are correct.

The use of prenumbered checks is an example of

documentation procedures

An exception to disbursements being made by check is acceptable when cash is paid

from petty cash

Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of the one best internal control principle that is related to the problem described. A. Establishment of responsibility B. Segregation of duties C. Physical control devices D. Documentation procedures E. Independent internal verification F. Human resource controls 1. The same person opens the incoming mail and posts the accounts receivable subsidiary ledger. 2. Three people handle cash sales from the same cash register drawer. 3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise. 4. The person who is authorized to sign checks approves purchase orders for payment. 5. Some cash payments are not recorded because checks are not prenumbered. 6. Cash shortages are not discovered because there are no daily cash counts by supervisors. 7. The treasurer of the company has not taken a vacation for over 20 years.

1. B 2. A 3. C 4. B 5. D 6. E 7. F

Using the indirect method, calculate the amount of cash flows from operating activities from the following data. Net income $200,000 Beginning accounts receivable 24,800 Ending accounts receivable 28,200 Beginning prepaid insurance 7,900 Ending prepaid insurance 4,400 Beginning accounts payable 17,000 Ending accounts payable 14,900 Depreciation expense 57,000 Amortization of intangible asset 6,600 Dividends declared and paid 11,000

261,600

Internal control is defined, in part, as a plan that safeguards

Assets

Sam's Grocery Store has the following policy. 'Only one cashier can have access to a cash drawer.' What internal control principle supports this policy?

Establishment of responsibilities

Handly Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied?

Establishment of responsibility

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as a check on the other.

False

The payment of a cash dividend would be classified as a(n)

Financing activity

Sara Smith has worked for Bosco Inc. for 20 years without taking a vacation. An internal control feature that would address this situation would be

Human resource controls

The reconciliation of the cash register tape with the cash in the register is an example of

Independent internal verification

The order of presentation of activities on the statement of cash flows is

Operating, investing and financing

Joe is a warehouse custodian and maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

Segregation of duties is violated

A very small company would have the most difficulty in implementing what internal control activities?

Separation of duties

Blank checks

Should be safeguarded

Operating activities include the cash effects of transactions that create revenues and expenses.

True

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

True

Which of the following statements is correct? a) Due to its liquid nature, cash is the easiest asset to steal. b) A good system of internal control will ensure that employees will not be able to steal cash. c) It takes two or more employees working together to be able to steal cash. d) All of these answer choices are correct.

a) Due to its liquid nature, cash is the easiest asset to steal.

Which of the following is an appropriate internal control activity for cash? a) All payments should be made with currency, not checks. b) The amount of cash on hand should be kept to a minimum. c) Banking facilities should be used as little as possible. d) Record keeping and custodianship over cash should be performed by the same person.

b) The amount of cash on hand should be kept to a minimum.

During 2022, Nash's Trading Post, LLC sold equipment with a book value of $67200 for proceeds of $81200. The company purchased new equipment for $179200 by signing a long-term note payable. No other transactions impacted long-term asset accounts during 2022. The investing section of the statement of cash flows will report

net cash inflows of $81200.

Internal controls are concerned with

safeguarding assets