(30-45 min.) P 4-53B
Tampa Wireless
Cash Budget
2015
Cash balance, beginning
$ 1,500
Budgeted cash receipts:
Collections from customers ($66,000 × 1.25)
82,500
Receipt of interest
100
84,100
Budgeted cash payments:
Cash paid for inventory ($50,000 × 1.24)
$62,000
Cash paid for operating expenses
13,400
Purchase of equipment
4,800
Purchases of investments
400
Payment of dividends
200
Payments of long-term debt
600
(81,400)
Cash available (needed) before financing
2,700
Budgeted cash balance, ending
(4,750)
Cash available for additional investments, or
(New financing needed)
$ (2,050)
Challenge Exercises and Problem
(15-25 min.) E 4-54
Wood could be:
Brown could investigate by:
1.
Writing business checks to
herself.
1.
Performing the bank
reconciliation and examining all
checks written by the business.
2.
Submitting purchase invoices a
second time for duplicate
payment, perhaps altering the
mailing address on the
duplicate invoice and sending
the check to a post office box
that Wood controls.
2.
Examining purchase invoices for
authenticity and comparing
invoices to receiving reports to
determine that the business
received all goods it paid for.
Any invoice with a hole indicates
it was paid earlier.
Calling the suppliers directly to
inquire about any questionable
invoices.
3.
Paying suppliers excess
amounts and arranging for
suppliers to kick back part of
the excess to Wood.
3.
Comparing the business’s ratio
of cost of goods sold to retail
selling price to the cost-to-retail
ratio in the past. A kickback
scheme would show up in higher
cost figures and a lower profit
percentage.
4.
Making small cash payments to
herself.
4.
Examining all cash records and
comparing the records to actual
quantities of supplies and other
items needed by the business.
(20-30 min.) E 4-55
Req. 1
Gateway Golf, Inc.
Cash Budget
Year Ended December 31, 2015
Thousands
Cash balance, December 31, 2014
$ 145
Budgeted cash receipts:
Collections from customers
20,400
Issuance of stock
632
21,177
Budgeted cash payments:
Purchases of inventory items
$14,245
Payment of operating expenses
2,849
Purchase of property and equipment
1,588
Payment of long-term and short-term debt
990
Payment of dividends
307
(19,979)
Cash available (shortage) before financing
1,198
Budgeted cash balance, December 31, 2015
(135)
Cash available for additional investments
$ 1,063
Req. 2
Current ratio
=
Total current assets
=
$7,576
=
1.74
Total current liabilities
$4,360
Debt ratio
=
Total liabilities
=
$11,588
=
0.51
Total assets
$22,677
P 4-56
The Pembrook Company
Bank Reconciliation
December 31
BANK:
Balance, December 31 (corrected for erroneous
November outstanding checks)
$ 3,668
Add: Deposit in transit
Actual amount of December 30 deposit
650
4,318
Less: Outstanding checks
Check No.
1560
$185
1901
842
1902
168
(1,195)
Adjusted bank balance, December 31
$ 3,123
BOOKS:
Balance, December 31
$ 9,455
Add: Checks #1880, #1882, and #1883 recorded
in both November and December
$1,155
EFT receipt from customer
52
Interest revenue
6
1,213
10,668
Less: NSF check
$ 135
EFT payment of utility bill
755
Book error (overstatement of Dec. 24
deposit)
3,000
Unexplained difference
3,655
(7,545)
Adjusted book balance, December 31
$ 3,123
(continued) P 4-56
Checks No. 1880, 1882, and 1883 were outstanding in November so
Decision Cases
(20-30 min.) Decision Case 1
Environmental Concerns, Inc.
Bank Reconciliation
September 30
BANK:
Balance, September 30
$ 8,224
Add: Deposit of September 30 in transit
3,794
12,018
Less: Outstanding checks ($116 + $150 +
$853 + $990 + $206 + $145)
(2,460)
Adjusted bank balance, September 30
$ 9,558
BOOKS:
Balance, September 30
$10,402
Add: Bank collection
200
10,602
Less: Service charge
$ 8
NSF check
36
(44)
Adjusted book balance, September 30
$10,558
Based on the above reconciliation, it appears the bookkeeper has stolen
Adjusted
balances
do not
agree.
(continued) Decision Case 1
(15-30 min.) Decision Case 2
The internal control weakness in this case is a lack of separation of
duties. The foreman performs too many duties.
1. The foreman hires the workers.
The foreman could steal from the company as follows:
1. The foreman could enter a fictitious worker into the payroll system
The following actions will correct the internal control weakness:
(continued) Decision Case 2
3. Don’t allow Pickins to pass out paychecks. Have employees pick up
4. Have a home-office employee compare signatures on the workers’
5. Occasionally — or always — have a home-office employee go to the
construction site to pass out paychecks.
6. Have a home-office employee go to the construction site occasionally
Ethical Issues
Ethical Issue 1
1. Identify the ethical issue. You must decide whether it is ethical for the
auditor not to require the bank to record the loss.
2. What are the alternatives? Require the client to record the loss, or
permit the client not to record the loss.
(continued) Ethical Issue 1
Ethical Issue 2
1. Identify the ethical issue. Galvin’s ethical issue is whether to use his
knowledge of The Salvation Army’s plans and of Nadar’s situation to
2. What are the alternatives? There are several:
(a) Let other members of the Salvation Army board of directors
know of Nadar’s situation in order to help The Salvation Army
buy the land at a bargain price.
3. Identify the stakeholders involved. Galvin, The Salvation Army, Nadar,
and Community Banks.
(continued) Ethical Issue 2
fellow board members. This would help The Salvation Army and hurt
Nadar, relative to her ability to sell the land at market value of $3.6
4. Make the decision. The authors would take the leave of absence and
hope other Salvation Army board members do not probe Galvin’s
Copyright © 2015 Pearson Education Inc. Chapter 4 Internal Control & Cash
4-51
Ethical Issue 3
1. Identify the ethical issue. French’s ethical issue is whether to tell IMS
personnel about Snicker Foods’ possible bankruptcy.
2. What are the alternatives?
3. Identify the stakeholders involved. IMS, Snicker Foods, Community
Bank, and everyone connected to these organizations — owners,
4. Make the decision. French should not tell IMS of Snicker’s financial
difficulties (after all, Snicker isn’t bankrupt yet). French should let
Focus on Financials: Amazon.com, Inc.
(20-30 min.)
Req. 1
Req. 2
Req. 3
Req. 4
Focus on Analysis: YUM! Brands, Inc.
(20-30 min.)
Req. 1
1. Net income of $1,608 million, in the operating section.
2. Capital spending, which used $1,099 million, in the investing
section.
3. Repurchase of shares of common stock, which used $965 million,
in the financing section.
Req. 2
The following items mentioned in Item 9A (following the footnotes), are
also mentioned in the chapter:
Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
4-54
Group Project
Student responses will vary.