Chapter 07 – Internal Control and Cash
DATE CREATED:
10/5/2017 4:28 PM
ANSWER:
Allowing the custom frame specialist to take orders, fulfill them, and collect the cash
is an internal control weakness. Also, allowing them to be solely responsible for
ordering their own supplies is another weakness.
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
FNMN.WAJO.19.07-03 – LO: 07–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.BB.03 – Legal
BUSPROG: Ethics
DATE CREATED:
10/5/2017 4:25 PM
DATE MODIFIED:
10/16/2017 5:17 PM
191. Nebraska Fields Co. records all cash receipts from data on the cash register tapes. Nebraska discovered during June
that one of its sales clerks had stolen some cash. However, the amount is not known. The sales clerk was responsible for
taking cash deposits to the bank. To determine the amount stolen, the following data have been obtained for June:
Cash in bank according to the general ledger $ 21,530
Cash according to the June 30 bank statement 25,620
Outstanding checks at June 30 4,800
Bank service charge for June 30
Notes receivable collected by bank 2,000
Interest collected on note receivable 80
No deposits were in transit on June 30.
(a) Determine the amount of cash stolen by the clerk.
(b) Suggest accounting controls that would have prevented or detected the theft.
ANSWER:
(a)
The adjusted bank balance is $20,820 ($25,620 – $4,800). The adjusted
balance on the customer’s books is $23,580 ($21,530 – $30 + $2,000 + $80).
The difference of $2,760 represents the amount the sales clerk stole.
(b)
The control that should be in place is the anyone receiving cash, such as the
sales clerk, should not be the person responsible for depositing or for
accounting for it.
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-02 – LO: 07–02
FNMN.WAJO.19.07-03 – LO: 07–03
FNMN.WAJO.19.07-05 – LO: 07–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.BB.03 – Legal
BUSPROG: Ethics
Chapter 07 – Internal Control and Cash
BUSPROG: Analytic
DATE CREATED:
10/5/2017 5:09 PM
DATE MODIFIED:
1/3/2018 2:59 PM
Cash balance according to bank statement
Adjustments:
Deposits in transit not recorded by bank
Outstanding checks
715
Total adjustments
(b)
If a balance sheet were prepared for Inges Corp. on August 31, what amounts should be reported for cash?
ANSWER:
(a)
Inges Corp.
Bank Reconciliation
August 31
Cash balance according to bank statement
$16,
Adjustments:
Outstanding checks
$(1,020)
Deposit in transit, August 31
2,750
Total adjustments
Adjusted balance
$17,
Cash balance according to company’s records
$14,
Adjustments:
Error in recording Ck. 2490 as $1,540 instead of $1,450
$90
Proceeds of note collected by bank: face value
3,000
Proceeds of note collected by bank: interest
200
Bank service charge
(40)
Total adjustments
Adjusted balance
$17,
(b)
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Challenging
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-05 – LO: 07–05
ACCREDITING STANDARD
ACCT.ACBSP.APC.11 – Bank Reconciliation
Chapter 07 – Internal Control and Cash
Adjusted balance
$4,995
Cash balance according to company’s records
$5,080
Adjustments:
Bank service charge
$45
Error in recording July 3 deposit as $540 instead of $500
40
Total adjustments
85
Adjusted balance
$5,165
(a)
Identify the errors in the bank reconciliation. Assume that both cash balances before adjustment
are correct.
(b)
Prepare a corrected bank reconciliation.
ANSWER:
(a) Outstanding checks should be deducted from the bank statement balance,
making total adjustments to the bank statement balance $305. The adjusted bank
statement balance is $4,995.
The service charge and the error in recording should be subtracted from the balance
according to the company records, making the adjustment a negative $85. The
adjusted balance per company records is also $4,995.
(b)
Maestro Corp.
Bank Reconciliation
July 31
Cash balance according to bank statement
$4,690
Adjustments:
Deposits in transit not recorded by bank
$1,020
Outstanding checks
(715)
Total adjustments
(305)
Adjusted balance
$4,995
Cash balance according to company’s records
$5,080
Adjustments:
Bank service charge
$(40)
Error in recording July 3 deposit as $540 instead of $500
(45)
Total adjustments
(85)
Chapter 07 – Internal Control and Cash
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Page 94
Cash
$32,500
$30,100
Short-term investments
9,400
10,200
Operating expenses
72,800
70,400
Depreciation expense
12,000
11,200
What is the days’ cash on hand for each year?
a.
Year 2: 251.5; Year 1: 248.5
b.
Year 2: 210.1; Year 1: 208.9
c.
Year 2: 258.1; Year 1: 265.1
d.
Year 2: 215.6; Year 1: 222.9
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-08 – LO: 08
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic- Analytic – BUSPROG – Analytic
DATE CREATED:
10/5/2017 5:31 PM
DATE MODIFIED:
10/16/2017 5:17 PM
199. Selected financial statement data for two years ended December 31 for Carey Co. follow. Assets are reported at their
year-end value.
Year 2
Year 1
Cash
$32,500
$30,100
Short-term investments
9,400
10,200
Operating expenses
72,800
70,400
Depreciation expense
12,000
11,200
Calculate the days’ cash on hand for the two years, rounding all calculations to one decimal place.
ANSWER:
Year 2 days’ cash on hand: 251.5; Year 1 days’ cash on hand: 248.5
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.07-08 – LO: 08
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/5/2017 5:41 PM
DATE MODIFIED:
10/16/2017 5:17 PM