Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 6 Solution Manual Part 1

March 26, 2020
Chapter 6
Cash and Internal Controls
QUESTIONS
1. The seven broad principles are: Establish responsibilities; Maintain adequate records;
2. Internal control procedures become especially critical when the manager of a business
3. Responsibility for related transactions should be divided so that the work of one
department or individual acts as a check on that of another.
4. Separation of custody from recordkeeping of an asset encourages the asset custodian to
5. If individual departments were permitted to deal directly with suppliers, the amount of
6. The limitations of internal control arise from two sources: the human element (human
error or human fraud) and the cost-benefit principle.
9. Depositing all receipts on the day of receipt (1) creates an independent record of the
10. During the year ended September 28, 2013, cash (and equivalents) of $33,774 million is
11. Google’s net income for 2013 was $12,920 million. Further, it reported a net increase in
cash (and equivalents) of $4,120 million. These two figures are different because (1) net
12. Samsung’s cash (liquid assets) at December 31, 2013, equals 16,284,780 (all in KRW
millions). It is the fourth largest current asset and makes up about 14.7% of its current
assets.
13. Samsung’s cash and equivalents decreased by 2,506,680 million during 2013;
(3) ₩4,137,031 used by financing activities.
QUICK STUDIES
Quick Study 6-1 (10 minutes)
1. True
Quick Study 6-2 (10 minutes)
1. a (cash)
Quick Study 6-3 (10 minutes)
a. False
Quick Study 6-4 (10 minutes)
1. (a) Petty Cash .......................................................... 150
Cash ............................................................. 150
To establish the petty cash fund.
2. Answers: a and c. The Petty Cash account is credited when:
Quick Study 6-5 (15 minutes)
Bank or Book Side Add or Subtract Adjusting Entry or Not
a. (1) Book (2) Add (3) Adjusting entry required
Quick Study 6-6 (25 minutes)
NOLAN COMPANY
Bank Reconciliation
June 30, 2015
Bank statement balance.....
$21,332
Book balance ................................
$22,352
Add:
Add:
Quick Study 6-7 (15 minutes)
a. A bank reconciliation is a formal review process that requires the person to
b. A bank reconciliation has the potential to uncover several kinds of frauds
or errors that an online review is unlikely to reveal. Those include the
following:
A company makes a deposit to its account but that deposit is incorrectly
added to another company’s account. A bank reconciliation would
The bank incorrectly pays a common vendor’s bill from the company’s
cash account, when that vendor should have been paid from some other
The bank incorrectly pays a larger amount to a payee than what is written
on the company’s check to that payee. An online review would not
Quick Study 6-8 (15 minutes)
Days' sales uncollected = x 365
Quick Study 6-9A (10 minutes)
Documents prepared as part of a voucher system include: a, c, d.
Accounts receivable
Net sales
Quick Study 6-10B (15 minutes)
Quick Study 6-11 (10 minutes)
a. The purposes and principles of internal control systems are
fundamentally the same for accounting systems reporting under IFRS
EXERCISES
Exercise 6-1 (10 minutes)
Evaluation
(1) The recordkeeper should not have been allowed to sign the company’s
Exercise 6-2 (15 minutes)
1. A cash register (with a locked record) should be used at the sales
standit should also be anchored to the stand. If a cash register
cannot be used, the total sales value of the towels, coolers, and
2. The employee should sign a receipt for the total amount of cash he or
she is given each weekend. Each time the employee makes a
purchase, he or she should obtain a signed sales receipt for the
Exercise 6-3 (10 minutes)
1. A liquid asset refers to an asset that can be readily converted into
another type of asset or be used to satisfy an obligation. A cash
2. Companies usually invest idle cash in cash equivalents to earn a higher
return on these assets.
3. Effective cash management applies the following five principles:
a. Encourages collection of receivables.
Exercise 6-4 (15 minutes)
(a) Internal Control Problems
(1) A major internal control problem is that the recordkeeper (who has
(2) The recordkeeper might also delay recording a cash receipt from a
customer until more cash comes in at a later date from a second
(3) The recordkeeper also could pocket cash and claim that a payment was
(1) If only one person is present when the mail is opened, that person may
steal cash and claim it was never received. If possible, two people
(2) It is important the recordkeeper not have physical control over cash.
Exercise 6-5 (20 minutes)
2.
Sept. 30
Merchandise Inventory* .........................................
40
Exercise 6-6 (20 minutes)
1.
Jan. 1
Petty Cash ...............................................................
200
2.
Jan. 8
Postage Expense ....................................................
74
Merchandise Inventory* .........................................
29
3.
Jan. 8
Postage Expense ....................................................
74
Merchandise Inventory ..........................................
29
Delivery Expense ....................................................
16
Exercise 6-7 (10 minutes)
1. The voucher system of control establishes procedures for: (a) Verifying,
3. The voucher is initially prepared by the accounting department when it
Exercise 6-8 (20 minutes)
Bank Balance
Book Balance
Not Shown on
Add
Deduct
Add
Deduct
Adjust
Reconciliation
1.
NSF check from customer returned
on Sept. 25 but not recorded by this
company.
x
Cr.
4.
Check written by another depositor
but charged against this company's
account.
x
7.
Check written against the company
collected by the bank but not yet
recorded by the company.
9.
Checks written and mailed to payees
on October 2.
x
Exercise 6-9 (25 minutes)
DEL GATO CLINIC
Bank Reconciliation
June 30, 2015
Bank statement balance ..
$10,555
Book balance ................................
$11,589
Exercise 6-10 (10 minutes)
To correct a journal entry error.
To record bank service charge.
Exercise 6-11 (25 minutes)
WRIGHT COMPANY
Bank Reconciliation
May 31, 2015
Exercise 6-12 (15 minutes)
(a) Days' sales uncollected on December 31, 2014:
Days' sales uncollected on December 31, 2015:
(b) Evaluation: The change from 32.5 to 41.0 days' sales uncollected
indicates that the receivables have become less liquid. While the
Exercise 6-13A (10 minutes)
Exercise 6-14B (25 minutes)
a.
Recording inventory at gross amounts
Oct. 2
Merchandise Inventory ................................................
3,000
Accounts Payable ..................................................
3,000

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