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IIA CIA Exam
Certified Internal Auditor Exam (Page 5 )

Updated On: 12-Jan-2026
Page 5 of 342
PDF with 1702 Questions

Company A is a retailer operating in several cities. The individual store managers deposit daily collections at a local bank in a non-interest bearing checking account. Twice per week, the local bank issues a depository transfer check DTC) to the central bank at headquarters. The controller of the company is considering using a wire transfer instead. The additional cost of each transfer would be US $25. collections would be accelerated by 2 days. and the annual interest rate paid by the central bank is 7.2% 0.02% per day). At what amount of dollars transferred would it be economically feasible to use a wire transfer instead of the DTC? Assume a 360-day year.

  1. It would never be economically feasible.
  2. US $125, 000 or above.
  3. Any amount greater than US $173.
  4. Any amount greater than US $62, 500.

Answer(s): D

Explanation:

Given a US $25 fee and an interest rate of 0.02% per day for 2 days. the breakeven amount is US $62, 500 [$25 transfer fee 2 x .02% interest rate)]. Thus, the interest earned on a transfer of any amount greater than US $62, 500 would exceed the US $25 fee.



An entity has daily rash receipts of US $300, 000 and is interested in acquiring a lockbox service in order to reduce collection time Bank 1's lockbox service cost US $3, 000 per month and will reduces collection time by 3 days. Bank 2's lockbox service costs US $5000 per month and will reduce collection time by 4 days. Bank 3's lockbox service cost US $500 per month and will reduce collection time by 4 days. Bank 2's lockbox service costs US $500 per month and will reduce collection time by 4 days. Bank 3's lockbox service cost US $500 per month and will reduce collection time by 1 day. Bank 4's lockbox service cost US $1, 000 per month and will reduce collection time by 2 days. If money market rates are expected to average 6% during the year, and the entity wishes
to maximize income, which bank should the entity choose?

  1. Bank 1.
  2. Bank 2
  3. Bank 3
  4. Bank 4

Answer(s): D

Explanation:

Because collections made using Bank 4's lockbox service will be accelerated by 2 days at a rate of US $300, 000 per day, the entity will have an additional US $600, 000 to invest. At a rate of 6%, the interest earned will be US $36, 000 per year. However, the bank will charge US $12, 000 12 months x $1, 000 per month) for its services. Thus, the entity will gain US $24, 000 $36, 000 - $12.000).



A corporation has received proposals from several banks to establish a lockbox system to speed up receipts. The corporation receives an average of 700 checks per day averaging US $1, 800 each, and its cost of short-term funds is 7% per year. Assuming that all proposals will produce equivalent processing results and using a 360-day year, which one of the following proposals is optimal for the corporation?

  1. A US $0_50 fee per check.
  2. A flat fee of US $125, 000 per year.
  3. A fee of 0.03% of the amount collected.
  4. A compensating balance of US $1, 750, 000.

Answer(s): D

Explanation:

Multiplying 700 checks by 360 days results in a total of US $252, 000 checks per year. Accordingly, at a US $0.50 fee per check, total annual cost is US $126, 000 $.50 x $252, 000), which is less desirable than the US $125, 000 flat fee. Given that the annual collections equal US $453, 600, 000 $1, 800 x 700 x 360), a fee of 0.03% of the amount collected is also less desirable because the annual fee would be US $136, 080 .03% x $453, 600, 000). The br:.3 option is therefore to maintain a compensating balance of US $1, 750.000 when the cost of funds is 7%, resulting in a total cost of US $122, 500 .07 x $1, 750, 000).



The owner of a newly established janitorial entity is deciding what type of checking to open. The entity is planning to keep a US $500 minimum balance in the account for emergencies and plans to write roughly 80 checks per month. The bank charges US $10 per month plus a US $0.10 per check charge for a standard business checking account with no minimum balance. The entity also has the option of a premium business checking account that requires a US $2, 500 minimum balance but has no monthly fees or per check charges If the entity's cost of funds is 10%. which account should the entity choose?

  1. Standard account, because the savings is US $34 per year.
  2. Premium account, because the savings is US $34 per year.
  3. Standard account, because the savings is US $16 per year.
  4. Premium account, because 'the savings is US $16 per year.

Answer(s): D

Explanation:

The standard account will cost US $10 per month plus US $8 in check charges $.10 x 80 checks), for a total of US $18 per month US $216 per year). The premium account has no check charges. but it will require the depositor to maintain a balance of US $2, 000 more than desired. At a 10% cost of capital, the incremental US $2, 000 minimum deposit will cost US $200 per year. Thus, the premium account should be selected because it is cheaper by US $16 per year.



An entity has daily cash receipts of US $100, 000 and collection time of 2 days. A bank has offered to reduce the collection time on the entity's deposits by 2 days for a monthly fee of US $500. If money market rates are expected to average 6% during the year, the net annual benefit loss) from having this service is

  1. US $3, 000
  2. US $12, 000
  3. US $0
  4. US $6, 000

Answer(s): D

Explanation:

If collection time is 2 days, and average daily receipts are US $ 100, 000, the average cash balance will increase by I). $200, 000 if the bank's system is adopted At a 6% interest rate, US $200, 000 will generate US $12, 000 of interest revenue annually. The US $500 monthly charge by the bank will result in an annual expense of US $6, 000. Thus, the net annual benefit is US $6, 000 $12, 000 ­ 6, 000).



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