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ACCT 001 Lecture Notes - Lecture 29: Money Market Fund, Bank Reconciliation, Petty Cash

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taupesardine275
17 Sep 2020
School
College of The Sequoias
Department
Accounting (ACCT)
Course
ACCT 001
Professor
skaff

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Document Summary

Cash is the most liquid asset, and therefore it is listed as the first asset on the balance sheet. Most companies present only a single cash amount on the balance sheet that represents the total of all their bank and cash fund accounts. A company may have cash in excess of its immediate operating needs. In such cases, the company may invest in highly liquid investments in order to earn interest. U. s. treasury bills, notes issued by major corporations (referred to as commercial paper), and money market funds. Companies that have invested excess cash in cash equivalents usually report cash and cash equivalents as one amount on the balance sheet. Large corporations often disclose the details of their cash and cash equivalents in the notes to the financial statements, an example of which follows: Banks may require companies to maintain minimum cash balances in their bank accounts.

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Related Questions

4)Managers place a high priority on internal control systems because the systems assistmanagers in all of the following except:

A)Protecting assets.

B)Urging adherence to company policies.

C)Promoting efficient operations.

D)Ensuring reliable accounting.

E)Assuring that no loss will occur.

5)A properly designed internal control system:

A)Insures profitable operations.

B)Eliminates the need for an audit.

C)Is not necessary if the company uses a computerized system.

D)Requires the use of non-computerized systems.

E)Lowers the company's risk of loss.

6)A company's internal control system:

A)Eliminates the need for audits.

B)Eliminates the need for managers' certification of controls.

C)Monitors company and employee performance.

D)Eliminates human error.

E)Eliminates the company's risk of loss.

7)The impact of technology on internal controls includes:

A)Elimination of fraud.

B)Elimination of the need to bond employees.

C)Reduced processing errors.

D)Elimination of separation of duties.

E)Elimination of the need for regular audits.

8)Internal control systems are:

A)Required only if a company plans to engage in interstate commerce.

B)Developed by the Internal Revenue Service for all U.S. companies.

C)Required by Sarbanes-Oxley (SOX) to be documented and certified if the

company's stock is traded on an exchange.

D)Developed by the Securities and Exchange Commission for public companies.

E)Developed by the Small Business Administration for non-public companies.

9)Cash equivalents:

A)Include 6-month certificates of deposit.

B)Are short-term, highly liquid investment assets.

C)Include money orders.

D)Include checking accounts.

E)Are recorded in petty cash.

10)Cash equivalents meet all of the following criteria except:

A)Include short-term investments purchased within 3 months of their maturity

dates.

B)Are readily convertible to a known cash amount.

C)Have a market value that is not sensitive to interest rate changes.

D)Include short-term U.S. treasury bills.

E)Are more liquid than cash.

The independent auditor is allowed to use a specialist for evaluating a complicated financial transaction provided the specialist is

knowledgeable and independent of the audit client.
approved by the client's board of directors.
all of the above.
acceptable to the PCAOB.

Inappropriately dating transfers of funds between bank accounts to cover shortages of cash is properly referred to as

lapping.
reconciling.
kiting.
embezzling.

Cash equivalents

represent current assets that can be converted to cash within a year or an operating cycle, whichever is shorter.
include only cash and highly liquid investments that are virtually free of risk.
should be reported as investments and not be included as cash on the balance sheet.
typically exclude money market funds and treasury bills.

A cut-off bank statement primarily is used to

determine whether reconciling items on the year-end bank reconciliation have cleared the bank.
prepare a year-end bank reconciliation.
test for kiting.
confirm the year-end balance of cash.

An imprest cash account

typically is used for many large miscellaneous disbursements.
typically earns large amounts of interest.
is another name for the general cash account of an organization.
is an account containing a stipulated amount of money to be used for a specific purpose.

An auditor may estimate the appropriate amount of interest expense to be recorded by an audit client by multiplying the average debt by the average interest rate. If the auditor's estimate is considerably larger than the client's recorded interest expense this would be evidence of a potential

failure of the client to accrue interest expense at year end.
the violation of significant loan covenants.
overstatement of recorded interest expense.
understatement of long-term debt.

Internal controls over fixed assets in a smaller entity

usually include authorization by the board of directors.
typically will be very similar to internal controls over other assets within the entity.
must be the same as in larger entities.
are of little importance since fixed assets are not subject to theft or misuse.

A change in depreciation methods employed by an audit client resulting in a material change in depreciation expense

is not necessarily a violation of generally accepted accounting principles.
requires disclosure by the audit client in the footnotes to the financial statements.
must be noted in the audit opinion due to lack of consistency.
is properly described by all of the listed statements.

Auditors typically assess inherent risk for material accounts requiring significant estimates as

low.
high.
zero.
moderate.

Which of the following loans from an audit client, which is a financial institution, made in accordance with the normal lending practices of the financial institution would impair the CPA's independence?

A loan fully secured by certificates of deposit from the same financial institution.
A credit card loan in which the balance carried forward each month does not exceed $9,000.
An automobile loan secured by the automobile.
A home loan equal to less than 50% of the home's value and collateralized by the home.

A CPA has obtained some original records from a client during the course of an audit engagement. At the completion of her audit according to the proper professional standards the client fired the CPA and demanded that the CPA return all of his original records immediately. Under these circumstances which of the following statements is most correct according to the AICPA Code of Professional Conduct?

The CPA may hold the original records she obtained until the client pays for the services she has completed.
The CPA must return only the original records of the client upon demand regardless of the circumstances.
The CPA must return all original records and all copies of original records of the client upon demand regardless of the circumstances.
This is a matter of state law and not a matter covered by the AICPA Code of Professional Conduct.

balance sheetdata:
Accounts payable $194,300
Accounts receivable 545,000
Accumulated depreciation—officebuildings and equipment 1,580,000
Accumulated depreciation—storebuildings and equipment 4,126,000
Allowance for doubtfulaccounts 8,450
Available-for-sale investments (atcost) 260,130
Bonds payable, 5%, due 2024 500,000
Cash 246,000
Common stock, $20 par
(400,000 shares authorized; 100,000shares issued, 94,600 outstanding) 2,000,000
Dividends:
Cash dividends for commonstock 155,120
Cash dividends for preferredstock 100,000
Goodwill 500,000
Income tax payable 44,000
Interest receivable 1,125
Investment in Pinkberry Co. stock(equity method) 1,009,300
Investment in Dream Inc. bonds(long term) 90,000
Merchandise inventory (December 31,2016),
at lower of cost (FIFO) ormarket 778,000
Office buildings and equipment 4,320,000
Paid-in capital from sale oftreasury stock 13,000
Excess of issue price overpar:
-Common 886,800
-Preferred 150,000
Preferred 5% stock, $80 par
(30,000 shares authorized; 20,000shares issued) 1,600,000
Premium on bonds payable 19,000
Prepaid expenses 27,400
Retained earnings, January 1,2016 9,319,725
Store buildings and equipment 12,560,000
Treasury stock
(5,400 shares of common stock atcost of $33 per share) 178,200
Unrealized gain (loss) onavailable-for-sale investments (6,500)
Valuation allowance foravailable-for-sale investments (6,500)

Prepare a balance sheet in report form as of December 31,2016 from the date given above. You are not required to present thedetails of Preferred and Common Stock (i.e., number of sharesauthorized, issued and outstanding).

• Available-for-sale investmentsshould be reported as a single asset on the balance sheet,regardless of how many accounts exist in the ledger for suchassets.
• Recall that current assets areto be reported in order of liquidity. Available-for-saleinvestments are considered to be more liquid that accountsreceivable.
• Report fixed assets and paid-incapital accounts in account-number order.
• Omit the description of bondsand stocks (i.e., percentage rates, due date, number of shares,etc.)
• Enter all amounts as positivenumbers, with one exception: If an unrealized loss has occurred, itmust be reported as a negative amount on the balancesheet.