(10-20 min.) E 4-29B
Joe Donney
Bank Reconciliation
August 31, 2014
BANK:
Balance, August 31
$ 638
Add: Deposit in transit
1,695
2,333
Less: Outstanding checks
(756)
Adjusted bank balance
$1,577
BOOKS:
Balance, August 31
$1,620
Add: EFT collection — rent
375
1,995
Less:
Service charge
$ 9
NSF checks
137
Charge for printed checks
20
Correction of book error —
recorded $280 check as $28
252
(418)
Adjusted book balance
$1,577
Donney’s actual cash balance is $1,577.
(10-15 min.) E 4-30B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Aug
31
Cash …………………………………………………
375
Rent Revenue ……………………………….
375
EFT collection of rent.
31
Miscellaneous Expense ($9 + $20) ………
29
Cash…………………………………………….
29
Bank service charge and charge
for printed checks.
31
Accounts Receivable …………………………
137
Cash…………………………………………….
137
NSF checks returned by bank.
31
Salary Expense ($280 − $28) ………………
252
Cash…………………………………………….
252
Correction of book error.
(10-15 min.) E 4-31B
TO: Store Manager
FROM: Student
SUBJECT: Evaluation of internal control and plan for improvement
There is a weakness in internal control over cash receipts. The cash
registers do not keep a record of sales. With no record, there is no way
(10-15 min.) E 4-32B
The main internal control weakness is that the payroll department both
(20-30 min.) E 4-33B
Carron Communications, Inc.
Cash Budget
Year Ended December 31, 2015
Millions
Cash balance, December 31, 2014
$ 72
Budgeted cash receipts:
Collections from customers
11,233
Sale of assets
108
11,413
Budgeted cash payments:
Payments for cost of
services and products
$6,129
Payments of operating expenses
2,756
Investment in equipment
1,543
Payment of debt
611
Payment of dividends
316
11,355
Cash available (needed) before financing
58
Budgeted cash balance, December 31, 2015
(65)
Cash available for additional investments, or
(New financing needed)
$ (7)
Carron expects to need new financing of $7 million during 2015.
Quiz
Q4–34
c
Q4–35
a
Q4–36
b
Q4–37
d
Q4–38
b
Q4–39
c
Q4–40
c
Q4–41
d
Q4–42
a
Q4–43
d
Q4–44
Q4–45
c [$14,000 + $81,000 − $44,000 − $34,000 − $25,000 −
$13,000 = ($21,000); arrange financing for this
amount.]
e
Problems
(15-20 min.) P 4-46A
The internal control weaknesses in English Imports’ system are:
1. O’Hara controls the content of the invoices. With no supervision of
2. Luck has both cash handling and accounting duties. With both
responsibilities, Luck could steal incoming cash and cover her theft
1. Make the purchase and pay arrangements with the English artisans
(10-20 min.) P 4-47A
Requirement 1
Requirement 2
Requirement 3
Missing Internal
Control
Characteristic
Possible Problem
Solution
a.
Separation of
duties
Theft of diamonds
— the purchasing agent
could have diamonds
sent to a location he
controls.
Separate
purchasing,
approval, and
check-signing
duties.
b.
Assignment of
responsibility
Lost revenue, because
too many employees
are managing the office
and neglecting their
duties.
Assign a single
employee to
manage the office
when the owner is
absent.
c.
Separation of
duties
Theft of cash.
Separate
accounting and
cash-handling
duties.
(20-30 min.) P 4-48A
Req. 1
Richmond Automotive
Bank Reconciliation
June 30, 2014
BANK:
Balance, June 30, 2014
$ 9,142
Add: Deposits in transit ($982 + $2,804)
3,786
12,928
Less: Outstanding checks —
Check No.
3119
$ 542
3120
987
3121
277
3122
2,406
(4,212)
Adjusted bank balance, June 30, 2014
$ 8,716
BOOKS:
Balance, June 30, 2014
$ 7,298
Add: EFT collection of rent
$ 525
Bank collection of note receivable
1,375
Book error — $1,380 check
recorded as $1,830
450
2,350
9,648
Less: EFT payment of insurance
$ 467
Unauthorized signature check
455
Service charge
10
(932)
Adjusted book balance, June 30, 2014
$ 8,716
(continued) P 4-48A
Req. 2 (entries based on the reconciliation)
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
June
30
Cash …………………………………………………………
525
Rent Revenue ……………………………………….
525
EFT deposit for rent revenue earned.
30
Cash …………………………..…………………………….
1,375
Note Receivable …………………………..……….
1,375
Note receivable collected by bank.
30
Cash …………………………..…………………………….
450
Accounts Payable …………………………………
450
Correction for check #3115 recorded
incorrectly.
30
Insurance Expense …………………………………….
467
Cash …………………………………………………….
467
EFT for payment of insurance.
30
Accounts Receivable …………………………………
455
Cash …………………………………………………….
455
US customer check returned by bank.
30
Miscellaneous Expense ……………………………..
10
Cash …………………………………………………….
10
Bank service charge.
(continued) P 4-48A
Req. 3
A bank account helps control cash by providing a place for safekeeping.
The bank also provides a detailed list of the company’s cash
(30-45 min.) P 4-49A
Dallas Wireless
Cash Budget
2015
Thousands
Cash balance, beginning
$ 1,600
Budgeted cash receipts:
Collections from customers ($61,000 × 1.25)
76,250
Receipt of interest
400
78,250
Budgeted cash payments:
Cash paid for inventory ($46,000 × 1.26)
$57,960
Cash paid for operating expenses
13,200
Purchases of equipment
4,500
Purchases of investments
800
Payment of dividends
500
Payment of long-term debt
200
(77,160)
Cash available (needed) before financing
1,090
Budgeted cash balance, ending
(4,675)
Cash available for additional investments, or
(New financing needed)
$ (3,585)
(15-20 min.) P 4-50B
The internal control weaknesses in Finnish Imports’ system are:
1. Martin controls the content of the invoices. With no supervision of her
2. Moore has both cash handling and accounting duties. With both
responsibilities, Moore could steal incoming cash and cover her theft
1. Make the purchase and pay arrangements with the artisans who
2. Ferguson could assign either cash handling or accounting duties to
Moore and then hire someone else to do the other (accounting or
(10-20 min.) P 4-51B
Requirement 1
Requirement 2
Requirement 3
Missing Internal
Control
Characteristic
Possible Problem
Solution
a.
Separation of duties
Theft of cash or
diamonds by the
purchasing agent.
Have a manager, not
the purchasing agent,
approve invoices for
payment and sign the
checks.
b.
Assignment of
responsibilities
Lost revenue due to
delay of architectural
drawings.
Assign one senior
architect to fulfill
management duties
while Klepper is absent.
Other senior architect
should focus on
producing architectural
drawings.
c.
Separation of duties
Theft of cash.
Keep accounting and
cash handling duties
separate.
(20-30 min.) P 4-52B
Req. 1
Big City Automotive
Bank Reconciliation
July 31, 2014
BANK:
Balance, July 31, 2014
$ 9,693
Add: Deposits in transit ($986 + $2,801)
3,787
13,480
Less: Outstanding checks
Check No.
3119
$ 563
3120
972
3121
265
3122
2,831
(4,631)
Adjusted bank balance, July 31, 2014
$ 8,849
BOOKS:
Balance, July 31, 2014
$ 6,958
Add: EFT collection of rent
$ 850
Bank collection of note receivable
1,350
Book error — $1,390 check recorded
as $1,930
540
2,740
9,698
Less: Unauthorized signature check
$ 417
EFT payment of insurance
407
Service charge
25
(849)
Adjusted book balance, July 31, 2014
$ 8,849
(continued) P 4-52B
Req. 2 (entries based on the reconciliation)
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
31
Cash ………………………………………………………….
850
Rent Revenue ……………………………………….
850
EFT deposit for rent revenue.
31
Cash ………………………………………………………….
1,350
Note Receivable ……………………………………
1,350
Note receivable collected by bank.
31
Cash ………………………………………………………….
540
Accounts Payable …………………………………
540
Correction for check #3115 recorded
incorrectly.
31
Accounts Receivable ………………………………….
417
Cash …………………………..………………………..
417
US customer check returned by bank.
31
Insurance Expense …………………………………….
407
Cash …………………………..………………………..
407
EFT for payment of insurance.
31
Miscellaneous Expense………………………………
25
Cash …………………………..………………………..
25
Bank service charge.
(continued) P 4-52B
Req. 3