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170. A company had the following transactions during January:
Jan. 2 Purchased merchandise, invoice price of $20,000, with terms 2/10, n/30.
4 Received a credit memorandum for $4,000, the invoice price on merchandise returned
from the purchase of January 2.
12 Purchased merchandise, invoice price of $15,000, with terms 3/15, n/30.
26 Paid for the merchandise purchased on January 12.
30 Paid for the merchandise purchased on January 2.
Using the net method of recording purchases, prepare the journal entries to record these January
transactions.
171. A company records invoices at net amounts. On March 5, the company recorded
merchandise purchased, invoice price $17,000, terms 2/15, n/60. On March 24, this company
discovered that the invoice had been incorrectly filed and the discount had been lost. The invoice
was paid on April 1. Prepare journal entries to record these events.
172. The following information is available to reconcile Litner Co.'s book balance of cash with
its bank statement cash balance as of April 30. The April 30 cash balance according to the
accounting records is $78,356, and the bank statement cash balance for that date is $83,525.
a. The bank erroneously cleared a $480 check against the account in April that was not issued by
Litner. The check documentation included with the bank statement indicates the check was
actually issued by Lightning Co.
b. On April 30, the bank issued a credit memorandum for $53 interest earned on Litner's
account.
c. When the April checks are compared with entries in the accounting records, it is found that
Check No. 1828 had been correctly drawn for $1,530 to pay for advertising but was erroneously
entered in the accounting records as $1,350
d. A credit memorandum indicates that the bank collected $10,000 cash on a note receivable for
Litner, deducted a $30 collection fee, and credited the balance to the company's Cash account.
Litner did not record this transaction before receiving the statement.
e. A debit memorandum of $895 is enclosed with the bank statement for an NSF check for $870
received from a customer. The bank assessed a $25 fee for processing it.
f. Litner's April 30 daily cash receipts of $5,102 were placed in the bank's night depository on
that date, but do not appear on the April 30 bank statement.
g. Litner's April 30 cash disbursements journal indicates that Check No. 1837 for $584 and
Check No. 1840 for $1,219 were both written and entered in the accounting records, but are not
among the canceled checks.
1. Prepare the bank reconciliation for this company as of April 30.
2. Prepare the journal entries necessary to bring the company's book balance of cash into
conformity with the reconciled cash balance as of April 30.
173. The following account balances are taken from Mesky Sports at December 31.
Calculate the number of days' sales uncollected for both years. According to this analysis, is the
company's collection of receivables improving? Explain.
2014
2013
Accounts receivable
180,230
280,450
Net sales
1,600,750
1,457,600
174. A company had the following transactions during January:
Oct. 10
Purchased merchandise at a $8,900 price, invoice dated October 10, terms
1/10, n/30.
13
Received a $900 credit memorandum (at full invoice price) for the return of
merchandise that it purchased on October 10.
18
Purchased merchandise at a $8,500 price, invoice dated October 18, terms
2/10, n/30.
27
Paid for the merchandise purchased on October 18, less the discount.
31
Paid for the merchandise purchased on October 10. Payment was delayed
because the invoice was mistakenly filed for payment today. This error
caused the discount to be lost.
Using the net method of recording purchases, prepare the journal entries to record these January
transactions.
175. A company established a petty cash fund in April of the current year and experienced the
following transactions affecting the fund during April. Prepare journal entries to establish the
fund on April 1, to replenish it on April 25, and to record the increase in the fund on April 25.
April 1
Prepared a company check for $400.00 to establish the petty cash fund.
25
Prepared a company check to replenish the fund for the following
expenditures made since April 1.
a. Paid $124.50 for cleaning services
b. Paid $84.00 for postage expense.
c. Paid $153.15 for office supplies.
d. Counted $33.35 remaining in the petty cash box
25
The company decides to increase the fund by $100.
8-81
176. The following information is available to reconcile Cloy Company's book balance of cash
with its bank statement cash balance as of June 30. The June 30 cash balance according to the
accounting records is $58,542, and the bank statement cash balance for that date is $68,047.
a. The bank erroneously cleared a $395 check against the account in June that was not issued by
Cloy. The check documentation included with the bank statement indicates the check was
actually issued by Clare Co.
b. On June 30, the bank issued a credit memorandum for $35 interest earned on Cloy’s account.
c. When the June checks are compared with entries in the accounting records, it is found that
Check No. 1727 had been correctly drawn for $1,450 to pay for advertising but was erroneously
entered in the accounting records as $1,540.
d. A credit memorandum indicates that the bank collected $9,000 cash on a note receivable for
Cloy, deducted a $30 collection fee, and credited the balance to the company's Cash account.
Cloy did not record this transaction before receiving the statement.
e. A debit memorandum of $895 is enclosed with the bank statement for an NSF check for $870
received from a customer. The bank assessed a $25 fee for processing it.
f. Cloy's June 30 daily cash receipts of $6,325 were placed in the bank's night depository on that
date, but do not appear on the June 30 bank statement.
g. Cloy’s June 30 cash disbursements journal indicates that Check No. 1737 for $4,830 and
Check No. 1740 for $3,280 were both written and entered in the accounting records, but are not
among the canceled checks.
h. A debit memorandum for $85.00 indicates the bank deducted the annual lock box fee for the
company.
1. Prepare the bank reconciliation for this company as of June 30.
2. Prepare the journal entries necessary to bring the company's book balance of cash into
conformity with the reconciled cash balance as of June 30.
8-82
Fill in the Blank Questions
177. An internal control system refers to the policies and procedures managers use to
__________, ensure reliable accounting, promote efficient operations, and urge adherence to
company policies.
178. An employee is __________ when a company purchases an insurance policy against losses
from theft by that employee.
179. Two sales clerks should not share the same cash register. This is an example of the internal
control principle of _______________________.
180. A sales system with pre-numbered, controlled sales slips is an example of the internal
control principle of _______________________.
181. A person who controls or has access to an asset must not keep that asset's accounting
records. This describes the internal control principle of ________________________.
182. Having external auditors test the company's financial records and evaluate the effectiveness
of the internal control system is part of the internal control principle of ___________________.
183. Two limitations of internal control systems are ______________ and ________________.
184. ____________ are short-term, highly liquid investment assets that are readily convertible to
a known amount of cash.
185. ________________ includes currency, coins, and amounts on deposit in checking accounts
and savings accounts.
186. _________________________ is the use of electronic communication to transfer cash from
one party to another.
187. A __________________________ is a document explaining the payment of a check.
188. On a bank statement, deposits are shown as __________________, because the depositor's
account is a liability on the bank's records.
189. ________________ reflects the liquidity of a company's accounts receivable.
190. The _________________ account is used to record the effects of cash overages and
shortages from errors in making change.
191. A ________ is an internal document (or file) that is used to accumulate information to
control cash disbursements.
192. A ________________ fund is used for the control of small amounts of cash disbursements.
193.________________ are checks written (or drawn) by the depositor, deducted on the
depositor's records, and sent to the payee, but not yet recorded by the bank for payment at the
bank statement date.
194. _______________________ are deposits made and recorded by the depositor but not yet
recorded on the bank statement.
195. A ____________ is a report explaining any differences between the checking account
balance according to the depositor's records and the balance reported on the bank statement.
196. The document the purchasing department sends to the vendor that is used to place an order
is the __________________________.
197. The document that is an itemized statement of goods prepared by the vendor listing the
customer's name, items sold, sales prices, and terms of the sale is the _________________.
198. The internal document that is used to notify the appropriate person that ordered goods have
been received and to describe the quantities and condition of the goods is the _______________.
199. The _____________ of recording purchases records purchases under the assumption that
the cash discount for prompt payment will be taken.
200. The __________ requires the managers and auditors of companies whose stock is traded on
an exchange (called public companies) to document and certify the system of internal controls.
