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This simulation presents the Keystone Computers & Networks, Inc. (Keystone) Cash Work Memo for the general account and petty cash prepared by two members of your audit teamyour responsibility is to evaluate various statements included in that document, considering the various exhibits. Background financial and other information on Keystone is included in Appendix 6C of Chapter 6.

The controller of Keystone Computers & Networks, Inc. (Keystone), a nonissuer, prepared six exhibits relating to Keystones General Account cash position at year 5 year-end. A new audit assistant with your CPA firm has begun the audit of cash but has a number of questions and comments based on a quick examination of the exhibits, now included in the working papers, and a discussion of some matters with the controller of Keystone.

Required:

Your job as senior on the engagement is to review the various points made by the assistant, including consideration of the exhibits. For each of the sentences called out in the points on the document, determine if the current language is appropriate as is, should be removed altogether, or replaced with any of the provided alternatives. Links to each of the exhibits are provided in the document, but are available in the list below for convenience.

Callouts Determination 1. "...although pass adjustment due to immateriality." 2. "No adjusting entry is needed as of 12/31/year 5." 3. "The comment is a boilerplate disclaimer of liability that definitely does not affect the reliability of the information we obtained." 4. "The deposit in transit seems properly handled on the bank reconciliation (Exhibit 2) with a debit to cash." 5. "This is because it was not written until 1/1/year 6." 6. "...be deleted from the outstanding check list; no adjusting journal entry seems necessary." 7. "No further audit response is necessary related to check 2027." 8. "Check 2032 appears to result in the cash being recorded in both accounts per books as of year-end and thus overstates total cash by $1,500 at year-end."

EXHIBIT 1 Adj. 12/31/ year 5 A/C Cr. Keystone Computers & Networks, Inc. Cash Lead Schedule 12/31/year 5 Unadj. Description Prior Year 12/31/year 5 Dr. Genl. Acct. $ 42,754.00 $66,034.15 Special Acct. $ 9,960.00 $10,150.00 Cash in Register $ 1,200.00 $ 1,200.00 Petty Cash $ 50.00 $ 50.00* TOTAL $ 53,964.00 $77,434.15 1000.10 1000.20 1000.30 1000.40 $66,034.15 $ 10,150.00 $ 1,200.00 $ 50.00* $77,434.15 *At year-end, $41 of cash and a receipt for $9.00 for postage. Staff Associate. EXHIBIT 2 Keystone Computers & Networks, Inc. Bank ReconciliationGeneral Account 12/31/year 5 Balance per bank @ 12/31/year 5 Deposit in transit Outstanding checks Account Receivable proceeds collected by bank on 12/29* Bank service charge Balance per books @ 12/31/year 5 $ 74,636.73 15,2 10.50 (17,822.08) (6,000.00) 9.00 $ 66,034.15 *Examined bank statement and identified receivable proceeds deposited in account by bank on 12/29; traced entry to entry in cash receipts journal on 1/2/year 6 when Keystone found out about the deposit made by the bank (Keystone entry: debit Cash, credit Accounts Receivable). Staff Associate EXHIBIT 3 Keystone Computers & Networks, Inc. Standard Bank Confirmation 12/31/year 5 STANDARD FORM TO CONFIRM ACCOUNT BALANCE INFORMATION WITH FINANCIAL INSTITUTION ORIGINAL To be mailed to accountant Financial Institution's Name and Address First National Bank 1601 E. Broadway Tempe, AZ 85282 Keystone Computers & Networks, Inc. CUSTOMER NAME We have provided to our accountants the following information as of the close of business on 12/31/ years, regarding our deposit and loan balances. Please confirm the accuracy of the information, noting any exceptions to the information provided. If the balances have been left blank, please complete this form by furnishing the balance in the appropriate space below. Although we do not request nor expect you to conduct a comprehensive, detailed search of your records, if during the process of completing this confirmation additional Information about other deposit and loan accounts we may have with you comes to your attention, please Include such information below. Please use the enclosed envelope to return the form directly to our accountants 1. At the close of business on the date listed above, our records indicated the following deposit balance(s): ACCOUNT NAME ACCOUNT NO. INTEREST RATE BALANCE GENERAL 4344-7834 -0- $74,636.73 2. We were directly liable to the financial institution for loans at the close of business on the date listed above as follows: ACCOUNT NO DESCRIPTION BALANCE DATE DUE DATE THROUGH WHICH INTEREST IS PAID INTEREST RATE DESCRIPTION OF COLLATERAL Judith Hamilton 12/29/year (Customer's Authorized Signature) (Date) The information presented above by the customer is in agreement with our records. Although we have not conducted a comprehensive, detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below. Will Jones 01/05/year (Financial Institution Authorized Signature) (Date) Assistant Controller (Title) EXCEPTIONS AND/OR COMMENTS Information is not guaranteed to be accurate nor current and may be a matter of opinion. W.J. Please return this form directly to our accountants: T Ordinarily, balances are intentionally left blank if they are not available at the time the form is prepared. Gill & Co, CPA's 2552 E. Camelback Road Phoenix, AZ 85002 EXHIBIT 4 Keystone Computers & Networks, Inc. Deposit in Transit 12/31/year 5 Copy of Deposit Slip for Deposit in Transit DEPOSIT SLIP 7510.00 500.50 Keystone Computers & Networks, Inc. Currency PO Box 2833353 Coin Tempe, AZ 85282 Checks Jones 146750 Adams 9022 Date: 12/31, year 5 Total From DEPOSITS MAY NOT BE Other Side AVAILABLE FOR IMMEDIATE WITHDRAWAL 4,000.00 3,200.00 TOTAL DEPOSIT TICKET USE OTHER SIDE FOR ADDITIONAL LISTINGS Less Cash TOTAL ITEMS NET DEPOSIT 15,2 10.50 Exhibit 2 f BE SURE EACH ITEM IS PROPERLY ENDORSED First National Bank 1601 E. Broadway Tempe, AZ 85282 31133544: 954..54323533 Deposit received by bank on 1/10/year 6. Amount and details consistent. Staff Associate. EXHIBIT 5 Check # 1237 2028 2029 2030 2031 2032 2033 2035 Keystone Computers & Networks, Inc. Outstanding Checks-General Account 12/31/year 5 Date 1/6/year 5 12/15/year 5 12/15/year 5 12/22/year 5 12/29/year 5 12/31/year 5 12/30/year 5 12/31/year 5 Amount $ 200.00 2.50 1,000.00 14,757.36 40.00 1,500.00 22.22 300.00 $17,822.08 Note: Check No. 2034 not listed because it was issued on 1/1/year 6. EXHIBIT 6 Keystone Computers & Networks, Inc. Bank Transfer Schedule-General Account 12/31/year 5 Disbursing Bank Receiving Bank (General Account) (Special Account) Amount Books Bank Books Bank $1,500 12/31/year 5 1/1/year 6 12/31/year 5 12/31/year 5 $1,650 1/1/year 6 1/1/year 6 1/1/year 5 12/31/year 5 $1,200 1/3/year 6 1/3/year 6 1/3/year 6 1/3/year 6 Check No. 2032 2034 2041

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