Problem 8-5B (Concluded)
Part 3
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) 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.
(4) Occasionally, a check will reach the bank but the bank will incorrectly
charge the check to the wrong account. When the bank detects the
error, it will return the check separately with a note of explanation to
the depositor.
SERIAL PROBLEM — SP 8
Serial Problem — SP 8, Success Systems (50 minutes)
Part 1
SUCCESS SYSTEMS
Bank Reconciliation
March 31, 2014
Bank statement balance ………...
$77,354
Book balance …………………………….…………………………
$77,845
Add
Add
Bank error ………………………………...
Deposits in Transit …………………..
500
0
Bank interest …………………………..
33
______
77,854
77,878
Deduct
Deduct
Outstanding Check…………………
128
Safety deposit rental ….. $ 50
______
Charge for checks………. 102
152
Adjusted bank balance …………..
$77,726
Adjusted book balance …………………………..
$77,726
Part 2
Miscellaneous Expenses …………………………….……….
677
50
Cash ……………………………………………………....
101
50
To record safety deposit box rental.
Miscellaneous Expenses …………………………….……….
677
102
Cash ……………………………………………………....
101
102
To record charge for printing checks
Cash …………………………………………………………..……….
101
33
Interest Revenue …………………………………..……….
404
33
To record interest earned.
Reporting in Action — BTN 8-1
1.
($ in thousands)
Balance
December
31, 2011
Cash and
equivalents
as % of:
Balance
December
31, 2010
Cash and
equivalents
as % of:
Cash and cash
equivalents ……………
$ 325,336
—
$ 393,927
—
Current assets ………..
878,676
37.0%
808,145
48.7%
Current liabilities …….
615,531
52.9
584,210
67.4
Stockholders’ equity .
500,056
65.1
370,991
106.2
Total assets …………….
1,228,024
26.5
1,061,647
37.1
Analysis comment: Cash and cash equivalents have decreased as a
2. Per the statement of cash flows for year ended December 31, 2011
($ thousands):
Cash and equivalents, beginning-year …………. $393,927
Per the statement of cash flows for year ended December 31, 2010
($ thousands):
Cash and equivalents, beginning-year ………….. $140,240
Reporting in Action (Concluded)
3. Days’ Sales Uncollected ($ thousands)
Days’ sales uncollected = x 365
The number of days of uncollected sales in accounts receivable has
decreased from 16.37 days to 15.84 days. This decrease of 0.53 days
indicates that the company’s assets are tied up in receivables for a
shorter period of time.
4. Solution depends on the annual report information obtained.
Accounts receivable
Net sales
Comparative Analysis — BTN 8-2
Days’ sales uncollected = x 365
Polaris ($ thousands)
Arctic Cat ($ millions)
Current Year: $23,732/$363,015 x 365 = 23.86 days
Comparative Analysis: Arctic Cat’s decrease in days’ sales uncollected is
21.51%, which is a marked favorable trend. Polaris’s days’ sales
Accounts receivable
Net sales
Ethics Challenge — BTN 8-3
1. In a small business office it is very important that the owner of the
2. Unfortunately, due to collusion of the employees, the bank
3. Despite the collusion, the scheme is not foolproof. For example, some
ways in which the scheme might be uncovered or prevented include the
following:
• A bank employee may become suspicious and call Dr. Conrad and
ask if she is aware that occasionally her employees cash patient
checks for cash.
4. Dr. Conrad should review her salary schedules for employees to make
sure that she is at least offering market pay. She may want to consider
Communicating in Practice — BTN 8-4B
Memorandum
To: “Owner”
From: “Consultant”
Date: __________
Subject: Advice on monitoring purchase discounts
[Instructor’s Note: The response should acknowledge the owner’s concern and
recommend the net method of recording purchases. It should explain how this method
results in the recording of “Discounts Lost,” which will flow through to the income
statement, thus providing the information desired. The memo might look something like
the following.]
The net method gives management an advantage in controlling and
monitoring purchase discounts. When invoices are recorded at gross
amounts, the amount of discounts taken is deducted from the balance of
the Merchandise Inventory account.
This means that the amount of any discounts lost is not reported in any
lost, such as oversight, carelessness, or unfavorable terms.
This practice gives management better control over persons responsible
Taking It to the Net — BTN 8-5
[Instructor Note: These answers were taken from the 2010 Report to the Nation.]
1. The median loss caused by occupational frauds was $160,000.
3. Companies lose 5% of their annual revenues to fraud; this 5% figure
translates to a potential total fraud loss of more than $2.9 trillion.
5. Less than 30% of victim organizations conducted surprise audits,
however these organizations have lower fraud losses and detect fraud
more quickly than those without surprise audits.
8. Corruption schemes comprised 33% of cases with a median loss of
$250,000.
Teamwork in Action — BTN 8-6
Common internal controls visible in a typical retail store include:
1. Door locks and roll–down screens for after-hours lock-up.
6. Separate cash drawers or transaction codes to identify clerks at
registers.
10. A security safe on the premises.
Entrepreneurial Decision — BTN 8-7
1. Seven principles of internal control along with examples are:
a. Establish responsibilities. The clerks at the counter should be
responsible for handling cash. The other employees should be
doors, etc.
b. Maintain adequate records. The clerks at the counter should enter
all sales on the cash registers. The cash registers should include a
c. Insure assets and bond key employees. The owner should acquire
d. Separate recordkeeping from custody of assets. The employee
e. Divide responsibility for related transactions. The employee
f. Apply technological controls. The owner should invest in
theft.
g. Perform regular and independent reviews. The owner should
implement regular reviews of all operating and control procedures.
2. As the business grows, controls will become more important. The
owner will have more employees and will have to delegate more
Hitting the Road — BTN 8-8
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
particularly the case with respect to popular college service/product
centers. Common controls found in college units include:
1. Door locks and roll–down screens for after-hours lock-up.
7. A security safe on the premises.
Global Decision — BTN 8-9
1.
(EUR thousands)
Current
year
balance
Cash as
percent
of:
Prior
year
balance
Cash as
percent
of:
Cash (and equivalents) …………
151,887
—
154,859
—
Current assets …………..………
509,708
29.8%
575,897
26.9%
Total assets ……………….………
1,520,184
10.0
1,545,722
10.0
Current liabilities ……….………
644,277
23.6
616,166
25.1
Shareholders’ equity ….………
446,218
34.0
442,890
35.0
Analysis comment: Cash has increased as a percent of current assets
compared to the prior year. Cash has decreased as a percent of current
liabilities and stockholders’ equity as compared to the prior year. Cash
Global Decision (Concluded)
2. Cash, beginning-year (EUR thousands)……………………………………. 154,859
3. Days’ Sales Uncollected Formula (EUR thousands)
Days’ sales uncollected = x 365
The number of days of uncollected sales in accounts receivable has
Accounts receivable
Net sales
1,485,351