6-32
SOLUTIONS TO EXERCISES – SERIES B – CHAPTER 6
EXERCISE 6-1B
a. SOX refers to the Sarbanes-Oxley Act of 2002.
b. COSO stand for The Committee of Sponsoring Organizations of the
1. Control Environment. The integrity and ethical values of the
2. Risk Assessment. Management’s process of identifying
3. Control Activities. These are the activities usually thought of as
“the internal control.” They include such things as separation of
4. Information and Communication. The internal and external
5. Monitoring. Assessing the quality of a company’s internal
control over time and taking actions as necessary to ensure it
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6-34
EXERCISE 6-2B
a. The two categories of internal controls are accounting controls and
administrative controls.
6-35
EXERCISE 6-3B
Some of the internal control features that should be included in the memo
to Stand Oden:
• Have as much separation of duties as possible. The manager should
6-36
EXERCISE 6-4B
a. The discrepancy was most likely caused by theft by Sally Knox, the
parts department manager. It is unlikely that sloppy recordkeeping
could account for this much of a difference. The manager could have
6-37
EXERCISE 6-5B
• Receipts should be promptly written for all cash received and the funds
deposited timely in a bank or other financial institution.
6-38
EXERCISE 6-6B
1. Quality of Employees
2. Bonded Employees
3. Authority and Responsibility
4. Physical Controls
5. Performance Evaluations
6-39
EXERCISE 6-7B
a. & c.
Hibbert Supplies
Statements Model
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
Cash
+
Acct. Rec.
=
+
(a) (300)
+
300
=
NA
+
NA
NA
−
NA
=
NA
(300) OA
(c) 325
+
(300)
=
NA
+
25
25
−
NA
=
25
325 OA
b. Asset exchange.
c. See financial statements model above. The $25 fee is miscellaneous
income.
d. Asset Exchange is $300 and Asset Source is $25.
e.
Event
Account Titles
Debit
Credit
a.
Accounts Receivable
300
Cash
300
c.
Cash
325
Accounts Receivable
300
Miscellaneous Income
25
6-40
EXERCISE 6-8B
Reconciling Items
Book
Balance
Adjusted?
Added or
Subtracted?
Automatic Debit for Utility Bill
Yes
−
Charge for Printing New Checks
Yes
−
NSF Check from Customer
Yes
−
ATM Fee
Yes
−
Outstanding Checks
No
NA
Interest Revenue Earned on the Account
Yes
+
Deposits in Transit
No
NA
Service Charge
Yes
−
6-41
EXERCISE 6-9B
Reconciling Items
Bank Balance
Adjusted?
Added or
Subtracted?
Credit Memo
No
NA
ATM Fee
No
NA
Petty Cash Voucher
No
NA
NSF Check from Customer
No
NA
Interest Revenue
No
NA
Bank Service Charge
No
NA
Outstanding Checks
Yes
−
Deposits in Transit
Yes
+
Debit Memo
No
NA
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EXERCISE 6-10B
a.
Bank Reconciliation
Unadjusted Bank Balance 5/31/2016
$26,100
Add: Deposit in Transit
6,981
Less: Outstanding Check
(5,720)
True Cash Balance 5/31/2016
$27,361
Unadjusted Book Balance 5/31/2016
$27,350
Add: Credit Memo for Interest Earned
36
Less: Debit Memo for Service Charge
(25)
True Cash Balance 5/31/2016
$27,361
b.
Date
Account Titles
Debit
Credit
Adj 1
Cash
36
Interest Revenue
36
Adj 2
Bank Service Charge Expense
25
Cash
25
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EXERCISE 6-11B
Unadjusted Bank Balance, 8/31
$35,200
Plus: Deposits in Transit
3,750
Less: Outstanding Check
(2,120)
True Cash Balance, 8/31
$36,830
EXERCISE 6-12B
Unadjusted Book Balance, 4/30
$8,120
Add: Interest Earned
$ 31
Note Collected by Bank
500
531
Less: NSF Check
200
Service Charges
50
(250)
True Cash Balance, 4/30
$8,401
EXERCISE 6-13B
6-45
EXERCISE 6-14B
a.
Payton, Inc.
Statements Model
Assets
=
S. Equity
Rev.
−
Exp.
=
Net Inc.
Statement
No.
Cash
+
Petty
Cash
=
Ret. Earn.
of
Cash Flows
1.
(150.00)
+
150.00
=
NA
NA
−
NA
=
NA
NA
2.
NA
+
NA
=
NA
NA
−
NA
=
NA
NA
3.
(141.80)*
+
NA
=
(141.80)
NA
−
141.80
=
(141.80)
(141.80) OA
*$150.00 − $8.20 = $141.80
b.
Payton, Inc.
General Journal Entries
Event No.
Account Titles
Debit
Credit
1.
Petty Cash
150.00
Cash
150.00
2.
No Entries
3.
Postage and Office Expense
76.30
Entertainment Expense
36.50
Maintenance Expense
25.00
Cash Short and Over
4.00
Cash
141.80
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EXERCISE 6-15B
$171.40, the amount of the vouchers; cash short and over will be
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EXERCISE 6-16B
The memo should contain some of the following information:
Something is considered material if knowing about the problem would
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PROBLEM 6-17B
a. Separation of duties would have helped to prevent this type of act.
The authority function, check writing function, and check delivery
function should have been separated.
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PROBLEM 6-18B
a.
Lewis Supply Co.
Bank Reconciliation
October 31, 2016
Unadjusted Bank Balance, October 31, 2016
$21,400
Add: Deposit in Transit
2,600
Less: Outstanding Checks
(2,075)
True Cash Balance, October 31, 2016
$21,925
Unadjusted Book Balance, October 31, 2016
$18,400
Add: Error in recording check for repairs
3,600
Less: Debit Memo for new checks
(75)
True Cash Balance, October 31, 2016
$21,925
b.
General Journal
Ref.
Account Titles
Debit
Credit
1.
Cash
3,600
Repairs Expense
3,600
2.
Office Supplies Expense
75
Cash
75
6-50
PROBLEM 6-19B
Woods Sports Inc.
Bank Reconciliation
April 30, 2016
Unadjusted Bank Balance, April 30, 2016
$13,750
Add: Deposits in Transit
$3,600
Bank Error
800
4,400
Less: Outstanding Checks #1901
265
#1920
650
#1921
1,200
(2,115)
True Cash Balance, April 30, 2016
$16,035
Unadjusted Book Balance, April 30, 2016
$15,295*
Add: Credit memo for note collected by bank
1,100
Less: Collection Fee
50
Bank Service Charge
45
Error in recording payment for office
supplies expense
90
NSF Checks
175
(360)
True Cash Balance, April 30, 2016
$16,035
*Unadjusted cash balance per books is computed as follows:
x + $1,100 − $360 = $16,035
x = $15,295
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PROBLEM 6-20B
China Imports
General Journal
Event
Account Titles
Debit
Credit
a.
Cash
60
Interest Revenue
60
b.
Supplies
80
Cash
80
c.
Bank Service Charge Expense
45
Cash
45
d.
Theft Loss
800
Cash
800
e.
No Entry
f.
Cash
4,000
Accounts Receivable
4,000
g.
No Entry
h.
No Entry
i.
Accounts Receivable
525
Cash
525