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 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.

Keystone Computers & Networks Incorporated
Cash Lead Schedule
12/31/year 5
A/C	Description	Prior Year	Unadjusted 12/31/year 5	Debit	Credit	Adjusted 12/31/year 5
1000.10	General Account	$ 42,754.00	$ 66,034.15			$ 66,034.15
1000.20	Special Account	$ 9,960.00	$ 10,150.00			$ 10,150.00
1000.30	Cash in Register	$ 1,200.00	$ 1,200.00			$ 1,200.00
1000.40	Petty Cash	$ 50.00	$ 50.00*			$ 50.00*
	TOTAL	$ 53,964.00	$ 77,434.15			$ 77,434.15

*At year-end, $41 of cash and a receipt for $9.00 for postage. Staff Associate.

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:

Cash Lead Schedule (Exhibit 1): The companys petty cash (account 101) is stated at $50. But the petty cash custodian acknowledges that there was only $41 in the account as of year-end because a $9.00 expenditure for supplies had been made. This overstates cash by $9.00, although pass adjustment due to immateriality. (Callout #1)

1. "...although pass adjustment due to immateriality."

Answer options:

Retain the original text.

Replace with as, whenever petty cash is spent, a related journal entry debiting the expense and crediting petty cash should be recorded when an imprest account is used; accordingly, we should propose an adjusting entry.

Replace with and indicates we need to perform additional procedures as this imprest account is not being properly used.

Replace with and indicates likely fraudulent financial reporting.

Replace with and indicates likely misappropriation of assets.