6-37
PROBLEM 6-23A
a.
Account Title
Debit
Credit
Accounts Receivable
1,800
Cash
1,800
PROBLEM 6-24A
a.
Austin Co.
General Journal
Event
Account Titles
Credit
1.
Petty Cash
Cash
300
2.
No Entry
3.
Postage Expense
Miscellaneous Expense
Meals Expense
Transportation Expense
Maintenance Expense
Cash Short and Over
Cash*
279
1.
2.
3.
6-39
PROBLEM 6-24A (cont.)
d.
Effect of Events on the Financial Statements
No.
Assets
=
Liab.
+
Stk. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Cash
+
Petty Cash
=
+
Ret. Ear.
1.
(300)
+
300
=
NA
+
NA
NA
−
NA
=
NA
NA
2.
NA
+
NA
=
NA
+
NA
NA
−
NA
=
NA
NA
3.
(279)
+
NA
=
NA
+
(279)
NA
−
279
=
(279)
(279) OA
6-40
PROBLEM 6-25A
1. Neither the CPA firm, a CPA of the firm, nor family members of the
2. The CPA is not an employee of the firm that he/she is auditing.
3. Payment of the audit fee cannot be based upon the outcome of the
audit.
4. The CPA’s primary responsibility is to the public and not to the
5. The CPA has a legal responsibility to members of the public who
6-41
ATC 6-1
a. Ernst & Young, LLP
b. An “unqualified” opinion was issued for 2013 and 2012.
6-42
ATC 6-2
a. (1)
Bank Reconciliation
June 30, 2016
Peach Co.
Apple Co.
Pear Co.
Unadjusted Bank Balance, 6/30
$48,632
$37,176
$24,894
Add: Deposits in Transit
2,500
3,200
4,800
Less: Outstanding Checks
(1,345)
(2,478)
(2,540)
True Cash Balance, 6/30
$49,787
$37,898
$27,154
Unadjusted Book Balance, 6/30
$45,620
$32,450
$23,467
Add: Credit memo for notes collected
4,500
5,600
3,800
Credit memo for interest earned
42
68
12
Less: NSF Check
(325)
(145)
(90)
Service Charge
(50)
(75)
(35)
True Cash Balance, 6/30
$49,787
$37,898
$27,154
a. (2)
Peach Co.
General Journal Entries
Event
Account Titles
Debit
Credit
Credit Memos
Cash
4,542
Notes Receivable
4,500
Interest Revenue
42
Debit Memos
Accounts Receivable
325
Service Charge Expense
50
Cash
375
6-43
ATC 6-2 (cont.)
a. (2)
Apple Co.
General Journal Entries
Event
Account Titles
Debit
Credit
Credit Memos
Cash
5,668
Notes Receivable
5,600
Interest Revenue
68
Debit Memos
Accounts Receivable
145
Service Charge Expense
75
Cash
220
Pear Co.
General Journal Entries
Event
Account Titles
Debit
Credit
Credit Memos
Cash
3,812
Notes Receivable
3,800
Interest Revenue
12
Debit Memos
Accounts Receivable
90
Service Charge Expense
35
Cash
125
b. The unadjusted cash balance and the ending bank statement balance will generally be different because of the
timing of transactions occurring for the books and when they actually clear the bank account. Some of the most
common bank adjustments are outstanding checks and deposits in transit. Some of the more common book
adjustments are for interest earned on the account and service charges. Other book adjustments include NSF
checks, charge for printed checks and other similar items.
6-44
ATC 6-3
To ensure proper internal controls, Google’s management should have the following policies:
• Ensure separation of duties among employees. Those who order
goods and services from vendors should not be allowed to authorize
payment without the review of others.
6-45
ATC 6-4
1. The overstatement of revenue by Major Co. probably is material, but it is a close call. If the $6,000
2. The overstatement of cash by Willis Co. probably is immaterial. If compared only to total cash, the error
3. The problem at Adams Co. is material not because of the amounts involved, but because of the nature
of the problem. If the president of the company would inappropriately take $5,000 from the company for
6-46
ATC 6-5
a. Ms. Kimpton is failing to consider the liabilities of Trident Co.
b. The CPA report does not interpret the statements. The report simply attests to their accuracy of being prepared in
6-47
ATC 6-6
Some of the procedures that should be suggested include:
• Separation of duties.
6-48
ATC 6-7
a. John’s scheme affects Southeast Industries’ balance sheet in two ways. Since cash was erroneously paid for Mr.
Tyler after his termination, Southeast’s cash account has a smaller balance than it should. Consequently, both
current and total assets are understated when compared to their rightful totals. Second, as a result of John’s
scheme, wage expenses were inflated and therefore Southeast reported less net income than it otherwise would
have. When the reduced net income is closed to Southeast’s balance sheet the result is an understatement of the
6-49
ATC 6-7 (cont.)
6-50
ATC 6-8
This solution is based on Smucker’s From10-K for year ended April 30, 2013.
a. Note A on page 47 defines cash and cash equivalents as: