Exercise 6-14B (Concluded)
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].
10
Accounts Payable ………………………………………………..
490
Merchandise Inventory ……………………………….…..
490
To record credit memo for returns
[$500 – ($500 x .02)].
*13
Discounts Lost ………………………………………………..…..
50
Accounts Payable …………………………………………..
50
To record the discount lost [($3,000 – $500) x.02].
17
Merchandise Inventory …………………………………….…..
5,292
Accounts Payable …………………………………………..
5,292
To record merchandise purchases less
discount [$5,400 – ($5,400 x .02) = $5,292].
27
Accounts Payable ………………………………………………..
5,292
Cash ………………………………………………………….…..
5,292
To record payment for merchandise.
31
Accounts Payable ………………………………………………..
2,500
Cash ………………………………………………………….…..
2,500
To record payment for merchandise less returns
($2,940 – $490 + $50).
PROBLEM SET A
Problem 6-1A (20 minutes)
1. Violates separation of duties. The company should implement a policy
2. Violates the principle of establishing responsibility. Only Julia should
have access to the petty cash fund since she is the custodian. The
3. Violates the proper application of technological controls. While the
daily backup is a very good internal control, the tape needs to be taken
4. Violates regular and independent review. Benedict Shales needs to
5. Violates the insuring of assets and the bonding of key employees. We
do not have enough information to know if the company can afford the
Problem 6-2A (20 minutes)
Part 1
May 1
Petty Cash ……………………………………………………….
300.00
Cash …………………………………………………………..….
To establish the $300 petty cash fund.
May 15
Janitorial Expenses ………………………………………….….
88.00
Miscellaneous Expenses ………………………………….….
53.68
Postage Expenses ……………………………………………….
53.50
Advertising Expense ………………………………………..….
47.15
Cash Over and Short …………………………………..….
Cash …………………………………………………………..….
To reimburse the petty cash fund.
May 16
Petty Cash ……………………………………………………….
200.00
Cash …………………………………………………………..….
To increase the petty cash fund to $500.
May 31
Postage Expenses ……………………………………………….
147.36
Mileage Expense ………………………………………………….
23.50
Delivery Expense ……………………………………………..….
34.75
Cash Over and Short ………………………………………..….
6.19
Cash …………………………………………………………..….
To reimburse the petty cash fund.
May 31
Cash ………………………………………………………………..….
100.00
Petty Cash ………………………………………………….….
To decrease the petty cash fund to $400.
Part 2
Problem 6-3A (30 minutes)
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
Postage expense
Feb. 12
Express delivery of contract …………………….…….
$ 7.95
Feb. 27
Purchased postage stamps ……………………..……
54.00
61.95
Merchandise inventory (transportation–in)*
Feb. 9
COD charges on purchases ……………………..……
32.50
Feb. 25
COD charges on purchases ……………………..……
13.10
45.60
Office supplies expense
Feb. 5
Purchased paper for copier ……………………..……
14.15
Feb. 20
Purchased stationery ……………………………….…………..
67.77
81.92
Total
$277.47
* Transportation-in costs are included in Merchandise Inventory under a perpetual system.
Part 3
Feb. 28
Delivery Expense ……………………………………….………..
20.00
Mileage Expense ………………………………………..………..
68.00
Postage Expense ……………………………………….………..
61.95
Merchandise Inventory ……………………………….………..
45.60
Office Supplies Expense …………………………….………..
81.92
Cash Over and Short ………………………………….………..
2.11
Cash …………………………………………………….…
279.58
To reimburse the petty cash fund.
Feb. 28
Petty Cash ……………………………………………………….
100.00
Cash …………………………………………………….…
100.00
To increase the petty cash fund to $500.
Problem 6-4A (30 minutes)
Part 1
BRANCH COMPANY
Bank Reconciliation
July 31, 2015
Bank statement balance …..
$27,233
Book balance …………………….…….
$27,497
Add
Add
Deposit of July 31 ………….
11,514
38,747
Proceeds of note less
collection charge ………….……………….
7,955
35,452
Deduct
Deduct
Checks No. 3031 …. $1,482
NSF check …………… $ 805
3065 …. 382
Service charge …….. 25
3069 …. 2,281
4,145
Error (Check 3056) . 20
850
Adjusted bank balance …….
$34,602
Adjusted book balance ……..……………………
$34,602
Part 2
July 31
Cash ……………………………………………………………….…..
7,955
Collection Expense ……………………………………………..
45
Notes Receivable ……………………………………….…..
8,000
To record note collection less fees.
July 31
Accounts Receivable—E. Shaw ……………………….….
805
Cash ………………………………………………………….…..
805
To charge account for NSF check plus fees.
July 31
Miscellaneous Expenses ……………………………………..
25
Cash ………………………………………………………….…..
25
To record bank service fee.
July 31
Rent Expense ………………………………………………….…..
20
Cash ………………………………………………………….…..
20
To correct an entry error.
Problem 6-4A (Concluded)
Part 3
a. If the company’s Cash account balance of $27,497 is listed on the
bank reconciliation as $27,947 then:
(i) The final balance that results from adjusting the bank statement
b. The bank’s collection of the $8,000 note less the $45 collection fee
Problem 6-5A (50 minutes)
Part 1
CHAVEZ COMPANY
Bank Reconciliation
September 30, 2015
Bank statement balance ……..
$18,453.25
Book balance …………………………..
$17,404.20
Add
Add
Interest earned $ 12.50
Deposit of Sept. 30 …………..
1,682.75
20,136.00
Proceeds of note
less $15 fee … 1,485.00
1,497.50
18,901.70
Deduct
Deduct
Checks No. 5893 …. $494.25
NSF check………… 600.25
5906 …… 982.30
Error (Check 5904) 30.00
5908 …. 388.00
1,864.55
630.25
Adjusted bank balance ………
$18,271.45
Adjusted book balance …..
$18,271.45
Part 2
Sept. 30
Cash ……………………………………………………….
12.50
Interest Earned …………………………..…………………..
12.50
To record interest earned.
30
Cash ……………………………………………………….
1,485.00
Collection Expense ………………………………….…………..
15.00
Notes Receivable ……………………………….…………..
1,500.00
To record note collection less fee.
30
Accounts Receivable— S.Nilson …………………………..
600.25
Cash ………………………………………………….……
600.25
To charge account for NSF check plus fee.
30
Computer Equipment ……………………………….…………..
30.00
Cash ………………………………………………….……
30.00
To correct an entry error.
Problem 6-5A (Concluded)
Part 3
(1) Some of the checks in the numbered sequence may have cleared the
(2) Some of the checks in the numbered sequence may remain
(3) The issuer of the checks may have voided one or more of the checks
(4) Occasionally, a check will reach the bank but the bank will incorrectly
PROBLEM SET B
Problem 6-1B (20 minutes)
1. 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
2. Violates applying technological controls. The theater’s system needs to
3. Violates segregation of duties. The company needs to have three
4. Violates applying technological controls. The use of the check protector
5. Violates segregation of duties. It is good internal control to separate
duties for cash receipts and cash disbursements. Moreover, an
Problem 6-2B (20 minutes)
Part 1
Jan. 3
Petty Cash …………………………………………………………..
150.00
Cash ……………………………………………………………...
150.00
To establish the petty cash fund.
Jan. 14
Office Supplies Expense ……………………………………...
14.29
Merchandise Inventory* ……………………………………....
19.60
Repairs Expense—Computer ……………………………....
38.57
Miscellaneous Expenses ……………………………………..
12.82
Cash Over and Short …………………………………………...
2.44
Cash ……………………………………………………………...
87.72
To reimburse the petty cash fund.
* Transportation-in costs are included in Merchandise Inventory
under a perpetual system.
Jan. 15
Petty Cash …………………………………………………………..
50.00
Cash ……………………………………………………………...
50.00
To increase the petty cash fund.
Jan. 31
Advertising Expense …………………………………………...
50.00
Postage Expenses ……………………………………………....
48.19
Delivery Expense ………………………………………………...
78.00
Cash Over and Short …………………………………………...
6.46
Cash ……………………………………………………………...
182.65
To reimburse the petty cash fund.**
Jan. 31
Petty Cash …………………………………………………………..
50.00
Cash ……………………………………………………………...
50.00
To increase the petty cash fund.**
Part 2
If the January 31 reimbursement is not made and no entry is recorded, then
Problem 6-3B (30 minutes)
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
Postage expense
Mar. 28
Paid postage ……………………………………………..………..
18.00
Merchandise inventory (transportation–in)*
Mar. 6
COD charges on purchases ……………………….….
$12.50
Mar. 27
COD charges on purchases ……………………….….
45.10
57.60
Office supplies expense
Mar. 12
Purchased file folders ………………………………..…………
14.13
Mar. 14
Reimbursement for office supplies …………….…………
11.65
Mar. 18
Purchased paper ……………………………………….…………
20.54
46.32
Total
$189.47
Part 3
Mar. 31
Delivery Expense ……………………………………….………..
10.75
Mileage Expense ………………………………………..………..
56.80
Postage Expense ……………………………………….………..
18.00
Merchandise Inventory ………………………………………..
57.60
Office Supplies Expense …………………………….………..
46.32
Cash Over and Short …………………………….………..
1.00
Cash …………………………………………………….…
188.47
To reimburse the petty cash fund.
Mar. 31
Petty Cash ……………………………………………………….
50.00
Cash …………………………………………………….…
50.00
To increase the petty cash fund to $300.
Note: The two entries on Mar. 31 could be combined into one.
Problem 6-4B (30 minutes)
Part 1
SEVERINO CO.
Bank Reconciliation
December 31, 2015
Bank statement balance ……..
$46,822.40
Book balance ……………………..……
$32,878.30
Add
Add
Deposit of Dec. 31 …………….
9,583.10
Error (Ck 1267) . $ 9.00
56,405.50
Proceeds of note
less $20 fee …. 18,980.00
18,989.00
51,867.30
Deduct
Deduct
Checks No. 1242 …. $ 410.40
NSF check ……… $ 762.50
1273 …. 4,589.30
Printing fee …….. 99.00
1282 …. 400.00
5,399.70
861.50
Adjusted bank balance ………..
$51,005.80
Adjusted book balance …………………………..
$51,005.80
Part 2
Dec. 31
Cash …………………………………………………………………….
9.00
Office Supplies ……………………………………………….
9.00
To correct an entry error.
31
Cash …………………………………………………………………….
18,980.00
Collection Expense ……………………………………..……….
20.00
Notes Receivable …………………………………………….
19,000.00
To record note collection less fees.
31
Accounts Receivable—Titus Industries ………..……….
762.50
Cash ……………………………………………………….
762.50
To charge account for NSF check plus fees.
31
Miscellaneous Expenses ……………………………..……….
99.00
Cash ……………………………………………………….
99.00
To record check printing charge.
Part 3
In a banking context, a debit memo is notification from the bank that it has
debited the depositor’s account. Since the depositor’s account is a liability of the
Problem 6-5B (50 minutes)
Part 1
SHAMARA SYSTEMS
Bank Reconciliation
May 31, 2015
Bank statement balance ………
$21,762.70
Book balance ……………..……………
$15,177.30
Add
Add
Deposit of May 31………………
2,727.30
24,490.00
Proceeds of note less
$50 fee …………………………..
7,350.00
22,527.30
Deduct
Deduct
Checks No. 1780 .. $1,425.90
NSF check …. $431.80
1786 … 353.10
Service charge 14.00
1789 … 639.50
2,418.50
Error (Ck 1788) 10.00
455.80
Adjusted bank balance ………..
$22,071.50
Adjusted book balance .………………………….
$22,071.50
Part 2
May 31
Cash ……………………………………………………………………
7,350.00
Collection Expense …………………………………..…………
50.00
Notes Receivable ……………………………………………
7,400.00
To record note collection less fee.
31
Accounts Receivable—W. Sox …………………..………
431.80
Cash ……………………………………………………….
431.80
To charge account for NSF check plus fee.
31
Miscellaneous Expenses …………………………..
14.00
Cash ……………………………………………………….
14.00
To record bank service fee.
31
Utilities Expense ……………………………………….…………
10.00
Cash ……………………………………………………….
10.00
To correct an entry error.