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.

Exhibit 2:

Keystone Computers & Networks Incorporated

Bank ReconciliationGeneral Account

12/31/year 5

Balance per bank @ 12/31/year 5$ 74,636.73

Deposit in transit15,210.50

Outstanding checks(17,822.08)

Account Receivable proceeds collected by bank on 12/29*(6,000.00)

Bank service charge9.00Balance per books @ 12/31/year 5 $66,034.15

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:

Bank Reconciliation (Exhibit 2): The account receivable collected by the bank was paid by a client directly to the bank on December 29, year 5. Keystone recorded the entry for the proper amount on January 2, year 6. No adjusting entry is needed as of 12/31/year 5. (Callout #2)

2. "No adjusting entry is needed as of 12/31/year 5."

Answer Options:

Retain the original text.

Delete entire point 2.

Replace with "We should propose an adjusting entry as of 12/31/year 5 debiting cash and crediting accounts receivable for $6,000."

Replace with "We should propose an adjusting entry as of 12/31/year 5 debiting cash and crediting miscellaneous revenues as net income is understated as of 12/31/year 5."

Replace with "We should increase our assessed level of fraud risk due to this situation and propose no adjusting entry as of 12/31/year 5."