C5-1 (continued)
Req. 9
Net Profit Margin = Net Income
S5–1
1. D
2. A
S5–2
Req. 1
The Home Depot reported $1,929 million of Cash and Cash Equivalents during the year
ended February 2, 2014. Lowe’s reported $391 million of Cash and Cash Equivalents at
S5–3
S5–4
Req. 1
The article refers to asset misappropriation.
Req. 2
Unapproved refunds and voids can be used by dishonest cashiers to eliminate valid
sales that have been made and paid for by customers. By eliminating the sales
revenue, cashiers can then take the cash given by the customer without anyone
5-40 Solutions Manual
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Education.
S5–4 (continued)
Req. 4
The parties most directly affected by inventory theft in this case are Famous Footwear’s
(1) managers, (2) employees, (3) investors, (4) creditors, and (5) honest customers,
who will pay higher prices.
Managers are likely to be paid, in part, based on the financial performance of each
store. If inventory is being taken without full payment for the “sale,” the store’s gross
profit (and net income) will be lower than it should be. This will adversely affect the
S5–5
Req. 1
If you go along with your supervisor’s request, no one is likely to suffer in the short-term.
You will satisfy your supervisor, which may lead to favorable performance evaluations
for you. Your bank will not know about this manipulation, so it is not likely to adversely
affect the bank in the short term. However, there may be several adverse long-term
consequences of this act, as discussed below.
with loan requirements earlier and possibly discover that your dishonest action
contributed to a false impression that your company was financially secure. It is possible
that this situation could lead you to be identified as the culprit responsible for misstating
the financial statements, and conclude with a prison term and fines being levied on you.
If you do not go along with your supervisor’s request, you might suffer in the short term
S5–6
Req. 1
(a) $50 x 12 months = $ 600
(b) $12 x (52 weeks x 5 days per week) = 3,120
(1) Install a tight system of internal control, including the following:
a. Separate cash handling from recordkeeping.
(2) a. Arrange for an annual independent audit on a continuing basis.
Fundamentals of Financial Accounting, 5/e 5-43
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Education.
ANSWERS TO CONTINUING CASES
CC5–1
Req. 1
a. Oct. 13
No journal entry required.
b. Oct. 17
Cash ………………………………………………………………….……..
93
Accounts Receivable ……………………………………………..
93
c. Oct. 22
Equipment ………………………………………………………….……..
765
Supplies …………………………………………………………….……..
240
Accounts Payable …………………………………………..……..
1,005
d. Oct. 30
Accounts Payable ……………………………………………….……..
1,005
Cash …………………………………………………………….……..
1,005
Req. 2
Nicole’s Getaway Spa
Bank Reconciliation
At December 31
Bank Statement
Company’s Books
Ending balance per bank
statement ……………………
$5,500
Ending balance per Cash
account ……………………..
$ 6,000
Additions:
Additions:
12/31 Deposit in transit .
3,480
Interest Received
10
8,980
6,010
Deductions:
Deductions:
NSF check ……………….
Error in recording check
250
270
Outstanding check ……
3,500
Bank service charges …
10
530
Up–to-date cash balance ..
$5,480
Up–to-date cash balance ..
$5,480
CC5-1 (continued)
Req. 3
a) A/R ……………………………………………………………….. 250
Cash ………………………………………………………… 250
b) No journal entry required.
CC5-2
1. b (Option a relates to opportunity not incentive. Option c is not relevant because