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Problem 6-5B (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
error, it will return the check separately with a note of explanation to
the depositor.
Financial & Managerial Accounting, 5th Edition
406
SERIAL PROBLEM — SP 6
Serial Problem — SP 6, 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 ................................
$77,726
Part 2
Mar. 25
Miscellaneous Expenses ............................................
677
50
Cash ................................................................
101
50
To record safety deposit box rental.
26
Miscellaneous Expenses ............................................
677
102
Cash ................................................................
101
102
To record charge for printing checks
31
Cash ..............................................................................
101
33
Interest Revenue ...................................................
404
33
To record interest earned.
Reporting in Action — BTN 6-1
1.
($ 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
percent of the various bases over this period. Looking just at this
measure, it is probably safe to say that Polaris’s liquidity position has
slighty deteriorated.
2. Per the statement of cash flows for year ended December 31, 2011
($ thousands):
Cash and equivalents, beginning-year ............. $393,927
Reporting in Action (Concluded)
3. Days' Sales Uncollected ($ thousands)
Days’ sales uncollected = x 365
total assets. Polaris's receivables are historically low because much of
their sales are made to an intermediary finance company that extends
longer-term credit to their end customers.
4. Solution depends on the annual report information obtained.
Accounts receivable
Net sales
Comparative Analysis — BTN 6-2
Days’ sales uncollected = x 365
Polaris ($ thousands)
Arctic Cat ($ millions)
Current Year: $23,732/$363,015 x 365 = 23.86 days
Accounts receivable
Net sales
Ethics Challenge — BTN 6-3
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
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
bonding her employees to insure herself against material losses. Dr.
Communicating in Practice — BTN 6-4B
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
account or on the income statement. Consequently, discounts lost are
unlikely to come to the attention of management. However, when
purchases are recorded at net amounts, a discounts lost expense is
brought to management’s attention as an operating expense on the income
statement. Management can then seek to identify the reason for discounts
lost, such as oversight, carelessness, or unfavorable terms.
This practice gives management better control over persons responsible
for paying bills on time to take advantage of favorable discounts. This also
means it’s less likely that favorable discounts are lost.
Taking It to the Net — BTN 6-5
[Instructor Note: These answers were taken from the 2010 Report to the Nation.]
1. The median loss caused by occupational frauds was $160,000.
2. Nearly one-quarter of fraud cases involved losses of at least $1 million
in losses.
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.
4. The typical length of fraud schemes was 18 months from the time the
fraud began until it was detected.
5. Less than 30% of victim organizations conducted surprise audits,
6. Asset misappropriation schemes were most common at 90% of cases
with a median loss of $135,000.
7. Financial statement fraud schemes made up less than 5% of cases with
a median loss of more than $4 million.
8. Corruption schemes comprised 33% of cases with a median loss of
$250,000.
9. Less than 15% of the perpetrators had convictions prior to committing
their frauds.
Teamwork in Action — BTN 6-6
Common internal controls visible in a typical retail store include:
1. Door locks and roll-down screens for after-hours lock-up.
2. Electronic detection devices stationed at entrances or anti-theft
3. Security cameras.
4. Security guards.
5. Cash registers.
6. Separate cash drawers or transaction codes to identify clerks at
registers.
7. Bar coding on merchandise.
8. Limited number of apparel items allowed in a dressing room.
9. Dressing room attendants.
10. A security safe on the premises.
11. Timeclocks.
Entrepreneurial Decision — BTN 6-7
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
responsible for preparing the orders and helping customers. There
also should be employees assigned responsibilities such as
procedures. Other records should include those for inventories,
supplies, payroll time records, and so on.
c. Insure assets and bond key employees. The owner should acquire
insurance for the employees and the physical facilities. Insurance
should also be acquired for potential casualties such as a
e. Divide responsibility for related transactions. The employee
responsible for ordering inventory should be separate from the
employee controlling inventory who should also be separate from
the employee who pays for inventory.
f. Apply technological controls. The owner should invest in
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 6-8
No formal solution exists for this activity. It is usually interesting for the
1. Door locks and roll-down screens for after-hours lock-up.
2. Electronic detection devices stationed at entrances or anti-theft devices
on merchandise that must be removed by a cashier.
3. Security cameras.
4. Security guards.
5. Cash registers.
6. Bar coding on products and assets.
7. A security safe on the premises.
Global Decision — BTN 6-9
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
as a percent of total assets has remained constant compared to the
prior year. All changes were nominal and suggest that Piaggio’s
liquidity (cash) position has not changed drastically from the prior year.
Global Decision (Concluded)
2. Cash, beginning-year (EUR thousands)........................................... 154,859
3. Days' Sales Uncollected Formula (EUR thousands)
Current Year: x 365 = 15.8 days
Prior year: x 365 = 22.2 days
The number of days of uncollected sales in accounts receivable has
Accounts receivable
65,560
1,516,463
90,421
1,485,351
