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QA_Ori:
Title: Exercise 8-14B
a. Recording inventory at gross amounts
Oct. 2 Merchandise Inventory...................................................................................... 3,000
Accounts Payable........................................................................................ 3,000
To record merchandise purchases.
10 Accounts Payable.............................................................................................. 500
Merchandise Inventory ............................................................................... 500
To record credit memo for returns.
Title: Exercise 8-14B
b. Recording inventory at net amounts
Oct. 2 Merchandise Inventory...................................................................................... 2,940
Accounts Payable........................................................................................ 2,940
To record merchandise purchases less
discount [$3,000 - ($3,000 x .02) = $2,940].
* This entry could alternatively be recorded on October 31 when the cash payment is made (this is
likely because it is stated that invoice was mistakenly filed for payment on October 31 and, thus,
would probably not be known as of October 13).
Title: Problem 8-1A
Title: Problem 1
QA_Ori: Violates separation of duties. The company should implement a policy whereby the person recording
Title: Problem 2
QA_Ori: Violates the principle of establishing responsibility. Only Julia should have access to the petty cash fund
Title: Problem 3
QA_Ori: Violates the proper application of technological controls. While the daily backup is a very good internal
Title: Problem 4
QA_Ori: Violates regular and independent review. Benedict Shales needs to implement a way to regularly and
Title: Problem 5
QA_Ori: Violates the insuring of assets and the bonding of key employees. We do not have enough information to
Title: Problem 8-2A
Part 1
Feb. 2 Petty Cash......................................................................................................... 400
Cash............................................................................................................ 400
To establish the $400 petty cash fund.
Part 2
Nakashima Gallery
Petty Cash Payments Report (for February)
Delivery expense
Feb. 23 Delivery of customer's merchandise.................................................................. $ 20.00
Mileage expense
Feb. 14 Reimbursement for mileage.............................................................................. 68.00
* Transportation-in costs are included in Merchandise Inventory under a perpetual system.
Part 3
Feb. 28 Delivery Expense.............................................................................................. 20.00
Mileage Expense............................................................................................... 68.00
Feb. 28 Petty Cash......................................................................................................... 100.00
Note: The two Feb. 28 entries can be combined into one.
Title: Problem 8-3A
Part 1
May 1 Petty Cash......................................................................................................... 300.00
May 15 Janitorial Expenses............................................................................................ 88.00
May 16 Petty Cash......................................................................................................... 200.00
Cash............................................................................................................ 200.00
To increase the petty cash fund to $500.
Note: The May 31 entries can be combined into one entry.
May 31 Postage Expenses.............................................................................................. 147.36
To reimburse the petty cash fund.
May 31 Cash.................................................................................................................. 100.00
Part 2
QA_Ori: If the May 31 replenishment is not made and no entry is recorded, then several expenses would not be
Part 2
July 31 Cash.................................................................................................................. 7,955
Collection Expense........................................................................................... 45
Notes Receivable......................................................................................... 8,000
To record note collection less fees.
Part 3
QA_Ori:
a. If the company's Cash account balance of $27,497 is listed on the bank reconciliation as $27,947 then:
b. The bank's collection of the $8,000 note less the $45 collection fee should have been added to the book
balance of cash. Instead, it was added to the bank statement balance. As a result:
Title: Problem 8-5A
Part 1
CHAVEZ COMPANY
Bank Reconciliation
September 30, 2013
Bank statement balance................................... $18,453.25 Book balance.......................................................................................................................................$17,404.20
Add Add
Interest earned..........................$ 12.50
Part 2
Sept. 30 Cash..................................................................................................................12.50
Interest Earned............................................................................................ 12.50
To record interest earned.
Title: Problem 8-5A
Part 3
QA_Ori: There are several possible reasons why some prenumbered checks are missing from the sequence of
canceled checks returned with a bank statement. Reasons include:
(1) QA_Ori: Some of the checks in the numbered sequence may have cleared the bank in a previous period
and were returned with the bank statement in that previous period.
Title: Problem 8-1B
Title: Problem 1
QA_Ori: Violates both applying technological control and effective segregation of duties. It is safe to assume that
Latisha Tally has knowledge of employee passwords since she implemented the system of password protection
Title: Problem 2
QA_Ori: Violates applying technological controls. The theater’s system needs to be backed up at least daily, not
Title: Problem 3
QA_Ori: Violates segregation of duties. The company needs to have three employees handle these functions instead
Title: Problem 4
QA_Ori: Violates applying technological controls. The use of the check protector is a good internal control.
Title: Problem 5
QA_Ori: Violates segregation of duties. It is good internal control to separate duties for cash receipts and cash
Title: Problem 8-2B
Part 1
Mar. 5 Petty Cash......................................................................................................... 250
Cash............................................................................................................ 250
To establish the $250 petty cash fund.
Part 2
Blues Music Center
Petty Cash Payments Report (for March)
Delivery expense
Mar. 11 Delivery of customer's merchandise.................................................................. $ 10.75
Mileage expense
Mar. 30 Reimbursement for mileage.............................................................................. 56.80
* Transportation-in costs are included in Merchandise Inventory under a perpetual system.
Part 3
Mar. 31 Delivery Expense..............................................................................................10.75
Mileage Expense...............................................................................................56.80
