Chapter 7 – Internal Control and Cash
149. Green Valley Bank sent Comstock Industries its end-of-month bank statement for July. The end of month balance by
the bank is $11,237. The statement shows that a deposit for $4,250 is in transit at the end of the statement period. The
statement also revealed that checks for $87, $105, and $95 are outstanding. Green Valley collected a $4,000 note
receivable plus $120 of interest revenue. The bank charges $20 for the collection service. The bank charges a monthly
account fee of $35. The end-of-month balance per company books is $11,135.
Prepare a bank/account reconciliation and write any necessary journal entries for the reconciliation.
Chapter 7 – Internal Control and Cash
Cash balance according to bank statement
Adjusted balance
Cash balance according to Comstock Industries
Adjusted balance
Jul. 31
Miscellaneous Expense
Miscellaneous Expense
150. The cash account for Santiago Co. on May 31 indicated a balance of $20,915. The March bank statement indicated
an ending balance of $25,645. Comparing the bank statement, the canceled checks, and the accompanying memos with
the records revealed the following reconciling items:
a.
Checks outstanding totaled $5,975.
b.
A deposit of $3,796 had been made too late to appear on the bank statement.
c.
A check for $1,482 returned with the statement had been incorrectly recorded by the
company as $482. The check was originally issued to pay on account.
d.
The bank collected $4,515 on a note left for collection of which $515 was interest revenue.
e.
Bank service charges for May amounted to $70.
f.
A check for $894 was returned by the bank because of insufficient funds.
Prepare a bank reconciliation as of May 31. Journalize the necessary entries.
Chapter 7 – Internal Control and Cash
Santiago Co.
Bank Reconciliation
May 31
Journal
Date
Description
Post. Ref.
Debit
Credit
Chapter 7 – Internal Control and Cash
May 31
Cash
31
Accounts Payable
Miscellaneous Expense
Accounts Receivable
151. The bank statement for Jeffrey Co. indicates a balance of $8,785 on October 31. After the journal entries for October
had been posted, the cash account had a balance of $8,998.
(a)
Cash sales of $945 had been erroneously recorded in the cash receipts journal as $495.
(b)
Deposits in transit not recorded by bank, $778.
(c)
Bank debit memo for service charges, $40.
(d)
Bank credit memo for note collected by bank, $23,985 plus $885 interest.
(e)
Bank debit memo for $756 NSF (not sufficient funds) check from Calin Sams, a customer.
(f)
Checks outstanding, $1,860.
Record the appropriate journal entries that would be necessary for Jeffrey Co.
Cash
Accounts Receivable—Calin Sams
Miscellaneous Expense
Chapter 7 – Internal Control and Cash
152. The bank statement for Gatlin Co. indicates a balance of $7,735 on June 30. After the journal entries for June had
been posted, the cash account had a balance of $4,098.
(a)
Cash sales of $742 had been erroneously recorded in the cash receipts journal as $724.
(b)
Deposits in transit not recorded by bank, $425.
(c)
Bank debit memo for service charges, $35.
(d)
Bank credit memo for note collected by bank, $2,475 including $75 interest.
(e)
Bank debit memo for $256 NSF (not sufficient funds) check from Janice Smith, a customer.
(f)
Checks outstanding, $1,860.
Record the appropriate journal entries that would be necessary for Gatlin Co.
Cash
Accounts Receivable—Janice Smith
Miscellaneous Expense
153. Journalize the entries to record the following:
March 1
Established a petty cash fund of $300.
March 31
The amount of cash in the petty cash fund is now $64. The fund is replenished based
on the following receipts: office supplies, $137; selling expenses, $112.
Record any discrepancy in the cash short and over account.
Journal
Date
Description
Post.
Ref.
Debit
Credit
Chapter 7 – Internal Control and Cash
154. On April 2, Granger Sales decides to establish a $125.00 petty cash fund to relieve the burden on Accounting.
(a) Journalize the establishment of the fund.
(b) On April 10, the petty cash fund has receipts for mail and postage of $43.50, contributions and donations of
$29.50, meals and entertainment of $38.25, and $13.55 in cash. Journalize the replenishment of the fund.
(c) On April 11, Granger Sales decides to increase petty cash to $200.00. Journalize this event.
Chapter 7 – Internal Control and Cash
155. The last custodian of the petty cash fund was hospitalized and you have been asked to take stock of the fund and
replenish it. When you receive the fund, it has $299 in cash and receipts as follows:
Office supplies
$295
Advertising
120
Transportation by Taxi
75
The petty cash fund was established to have $800 in it.
Based on what you have found, what journal entry should be recorded to replenish the fund?
156. Journalize the entries to record the following:
June 1 Established a petty cash fund of $200.
30 The amount of cash in the petty cash fund is now $57. The fund is replenished based on the following receipts:
postage, $25; entertainment, $100; and miscellaneous, $20.
Journal
Date
Description
Post. Ref.
Debit
Credit
June 1
Petty Cash
Postage Expense
Entertainment Expense
Chapter 7 – Internal Control and Cash
157. On April 3, Snappy Sales decides to establish a $135.00 petty cash fund to relieve the burden on Accounting.
(a) Journalize the establishment of the fund.
(b) On April 11, the petty cash fund has receipts for mail and postage of $32.75, contributions and donations of
$25.25, meals and entertainment of $68.00, and $9.75 in cash. Journalize the replenishment of the fund.
(c) On April 12, Snappy Sales decides to increase petty cash to $175.00. Journalize this transaction.
(a) Apr. 3
Petty Cash
(b) 11
Mail and Postage Expense
Contributions and Donations
Meals and Entertainment
(c) 12
Petty Cash
158. Present entries to record the following transactions:
(a)
Established a petty cash fund of $235.00.
(b)
The petty cash fund now has a balance of $42.80. Replenished the fund, based on the
following disbursements as indicated by a summary of the petty cash receipts: office
supplies, $74.50; miscellaneous administrative expense, $92.75; and miscellaneous selling
expense, $18.60.
(c)
Increased the petty cash fund to $300.00.
Chapter 7 – Internal Control and Cash
159. On August 3, Sonar Sales decides to establish a $275.00 Petty Cash Account to relieve the burden on Accounting.
(a) Journalize the establishment of this fund.
(b) On August 11, the petty cash fund has receipts for mail and postage of $124.75, contributions and donations
of $53.25, meals and entertainment of $63.85, and $32.75 in cash. Journalize the replenishment of the fund.
(c) On August 12, Sonar Sales decides to increase petty cash to $400.00. Journalize this transaction.
Chapter 7 – Internal Control and Cash
160. Stephanie Jo Company established a petty cash fund of $300 on May 1. At the end of the month, the petty cash fund
has $42 in cash and receipts for postage, $39; entertainment, $146; and office supplies of $70.
Prepare the needed journal entries, recording any discrepancy in the cash short and over account.
Journal
Date
Description
Post. Ref.
Debit
Credit
161. Journalize the entries to record the following:
Sept. 1 Established a petty cash fund of $350.
30 The amount of cash in the petty cash fund is now $130. The fund is replenished based on the following receipts:
office supplies, $116; postage, $100.
Chapter 7 – Internal Control and Cash
Journal
Date
Description
Post. Ref.
Debit
Credit
Petty Cash
Office Supplies
Postage Expense
Cash Short & Over
162.
(a)
Where are cash equivalents disclosed in the financial statements?
(b)
List three examples of cash equivalents.
(a)
Cash account on the balance sheet
Treasury bills
Chapter 7 – Internal Control and Cash
163. You began your new job as the accountant for Morton Company. You were surprised to find that the company had a
$2,000 petty cash fund, which sits in the break room. The president of the company told you: “Our petty cash system here
works quite smoothly. Since everyone is honest here, everyone has access to the fund for incidentals that might pop up in
the course of the business day. Most of these situations don’t have any receipts tied to them, so I just put the money back
in the fund when my secretary tells me that we have run out of petty cash and we debit the amount to Miscellaneous
Expense.”
(a) Should you implement some controls on petty cash? Why?
(b) If so, what controls could be used for petty cash?
practice that would typically be flagged by the independent auditor.
person of the funds on hand and the payments made by an independent person.
164. Why would a bank require a company to maintain a compensating balance?
Usually a compensating balance is part of a loan agreement or line of credit.
165. Gamma Company and Delta Company have compiled the following data as of the end of the current fiscal year:
Gamma
Delta
Cash
$ 65,700
$302,300
Temporary investments
27,700
125,000
Accounts receivable
2,500
87,000
Inventory
52,400
127,500
Accounts payable
4,500
265,000
Operating expenses
153,000
625,000
Depreciation (one of the operating expenses) for Gamma was $35,000, and for Delta was $65,000.
Chapter 7 – Internal Control and Cash
(1) Calculate days’ cash on hand for Gamma Company and for Delta Company. (Round your answer to one decimal
place.)
(2) Which company has the better liquidity position based on your calculation?
DIFFICULTY:
Bloom’s: Understanding
LEARNING OBJECTIVES:
FNMN.WARR.17.07-ADM – LO: ADM
Match the following elements of internal control:
a.
provides reasonable assurance that business goals will be achieved
b.
used by management for guiding operations and ensuring compliance with requirements
c.
overall attitude of management and employees
d.
used to locate weaknesses and improve controls
e.
identify, analyze and assess likeliness of vulnerabilities
DIFFICULTY:
Easy
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-02 – LO: 07–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.10 – Internal Control
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
166. control environment
167. risk assessment
168. control procedures
Chapter 7 – Internal Control and Cash
169. monitoring
170. information and communication
Match each item to a bank statement adjustment, a company books adjustment, or either.
a.
bank statement adjustment
b.
company books adjustment
c.
either
DIFFICULTY:
Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 – LO: 07–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.11 – Bank Reconciliation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
171. Outstanding checks
172. NSF check
173. Error in recording a check
174. Bank charges
175. Note collected by the bank
176. Interest revenue
177. Deposit in transit
Assign the letter to indicate whether the following items would be added to or subtracted from the company’s books or the
bank statement during the construction of a bank reconciliation.
a.
added to the company’s books
b.
subtracted from the company’s books
c.
added to the bank statement balance
d.
subtracted from the bank statement balance
DIFFICULTY:
Moderate
Difficulty: Moderate
Bloom’s: Remembering
Chapter 7 – Internal Control and Cash
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 – LO: 07–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.11 – Bank Reconciliation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
178. outstanding checks
179. bank service charge
180. deposit in transit
181. NSF check
182. EFT deposit from a customer
183. charges for some other company’s safe deposit box were posted to your account
184. a $1,000 note from one of your customers was collected by the bank
185. interest revenue earned by the note above