This simulation presents the Keystone Computers & Networks, Incorporated (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 Incorporated (Keystone), a non issuer, 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.

Exhibit 5:

Keystone Computers & Networks Incorporated
Outstanding ChecksGeneral Account
12/31/year 5
Check Number	Date	Amount
1237	1/6/year 5	$ 200.00
2028	12/15/year 5	2.50
2029	12/15/year 5	1,000.00
2030	12/22/year 5	14,757.36
2031	12/29/year 5	40.00
2032	12/31/year 5	1,500.00
2033	12/30/year 5	22.22
2035	12/31/year 5	300.00
		$ 17,822.08

Note: Check No. 2034 not listed because it was issued on 1/1/year 6.

Staff prepared the following schedule of transfers from the General Account to the Special Account.

To:	Audit Senior
From:	Audit Assistant
Re:	Keystone Computers & Networks Incorporated General Account Cash Work
Date:	January 11, year 6

I have a number of points related to the auditing procedures I applied to Keystones cash accounts as follows:

6. Outstanding Checks (Exhibit 5): The long-outstanding check for $200 will probably never be cashed as the company has attempted to communicate with the payee and failed. Because the state does not require submission of such funds, we should suggest to the client that the $200 check be deleted from the outstanding check list; no adjusting journal entry seems necessary. (Callout #6)

Question:

6. "...be deleted from the outstanding check list; no adjusting journal entry seems necessary."

Answer options:

Retain the original text.

Delete entire point 6.

Replace with be deleted from the check list, with a possible adjusting journal entry proposed debiting cash and crediting a miscellaneous revenue type account.

Replace with be deleted from the check list, with a debit to bad debt expense and a credit to cash.

Replace with remain on the list of outstanding checks until cashed to keep the account in balance.

Replace with is required to be reissued to a satisfactory charity for disbursement.