Question

Which of the four internal control elements would be involved in a transaction to invest $25,000 in a certificate of deposit (CD) from a local bank for Mrs. Jones trust account? Payment is made by check (check all that apply).

a. Dual Control
b. Segregation of Duties
c. Independent Reconcilements
d. Limited Access

Answer 1

In a transaction involving a $25,000 investment in a certificate of deposit (CD), the internal control elements that apply are Dual Control, Segregation of Duties, Independent Reconcilements, and Limited Access to ensure accuracy and prevent fraud.

Step-by-step explanation:

When investing $25,000 in a certificate of deposit (CD) for Mrs. Jones trust account and payment is made by check, the following internal control elements would likely be involved:

• Dual Control - This involves having more than one person required to complete a task, ensuring checks and balances in the transaction process. For a transaction of this size, typically two individuals are required to authorize the investment.
• Segregation of Duties - Different individuals should handle different parts of the transaction process (e.g., one person authorizes the CD purchase while another issues the check) to prevent fraud and errors.
• Independent Reconcilements - After the transaction, an independent party should reconcile the trust account to ensure that the transaction was carried out properly and reflects in the trust account accordingly.
• Limited Access - Access to funds, financial records, and authorization capabilities should be restricted to authorized personnel only, to protect against unauthorized transactions.

A certificate of deposit (CD) is a financial asset and an interest-bearing loan to a bank, with the bank promising to pay a higher interest rate in exchange for the deposited money being left in the bank for a specified period. If the CD is withdrawn early, there is a substantial penalty for early withdrawal.