Chapter 4 – Cash and Internal Controls
Exercise 4-19 (LO 4-7)
Requirement 1
1. Cash collected from customers for services provided
+$70,000
2. Salaries paid for the year
−$35,000
3. Advertising paid for the year
−$10,000
4. Supplies paid for the year
5. Utilities paid for the year
6. Cash collected in advance from customers
+$16,000
Requirement 2
1. Service Revenue for the year
+$80,000
2. Salaries Expense for the year
−$40,000
3. Advertising Expense for the year
−$10,000
4. Supplies Expense for the year
6. Cash collected in advance from customers
+$14,000
Requirement 3
Chapter 4 – Cash and Internal Controls
4-22 Financial Accounting, 5e
Exercise 4-20 (LO 4-8)
All other things equal, Glasco likely has the higher ratio of cash to noncash assets.
Based on the trend in operating cash flows, Glasco’s operations are more volatile and
Chapter 4 – Cash and Internal Controls
PROBLEMS: SET A
Problem 4-1A (LO 4-4)
Requirement 1
Internal controls include:
– Tickets are serially numbered.
Requirement 2
At the end of each day, the ticket manager can match the money received with the
Requirement 3 and 4
Classroom discussion.
Chapter 4 – Cash and Internal Controls
Problem 4-2A (LO 4-5)
Requirement 1
Oscar’s Red Carpet Store
Bank Reconciliation
February 28, 2021
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$13,145
Per general ledger
$8,100
Deposits outstanding
+ 1,600
NSF check
− 200
EFT for rent
Note collected
+6,000
Interest on note
+ 250
Bank balance per
reconciliation
reconciliation
Requirement 2
Debit
Credit
Cash
6,270
Notes Receivable
6,000
Interest Revenue
270
(Record note and interest collected by bank
and interest earned on account balance)
Accounts Receivable
Rent Expense
Service Fee Expense
Cash
Problem 4-3A (LO 4-5)
Requirement 1
Diaz Entertainment
Bank Reconciliation
May 31, 2021
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$6,210
Per general ledger
$5,100
Deposits outstanding
Requirement 2
Debit
Credit
Cash
1,190
Notes Receivable
1,100
Interest Revenue
90
Cash
(Record note and interest collected by bank
Chapter 4 – Cash and Internal Controls
4-26 Financial Accounting, 5e
Problem 4-4A (LO 4-7)
Pixar Toy Manufacturing
Statement of Cash Flows
For the month ended August 31, 2021
Cash Flows from Operating Activities
Cash inflows:
From customers
$93,500
Cash outflows:
For salaries
For office rent
For office utilities
For materials to make toys
Net cash flows from operating activities
Cash Flows from Investing Activities
Sale of unused warehouse
36,000
Purchase of manufacturing equipment
(46,000)
Net cash flows from investing activities
(10,000)
Cash Flows from Financing Activities
Bank borrowing
26,000
Payment of dividends
Net cash flows from financing activities
Net decrease in cash
Cash at the beginning of the month
Cash at the end of the month
Chapter 4 – Cash and Internal Controls
Problem 4-5A (LO 4-7)
Requirement 1
October 2
Debit
Credit
Cash
8,500
Service Revenue
8,500
(Receive membership dues)
October 5
Debit
Credit
Cash
Common Stock
(Issue common stock)
October 9
Debit
Credit
9,600
Cash
4,800
Notes Payable
4,800
October 12
Debit
Credit
Advertising Expense
1,500
Cash
1,500
(Pay for current month advertising)
October 19
Debit
Credit
Dividends
4,400
Cash
4,400
(Pay dividends)
October 22
Debit
Credit
Prepaid Insurance
6,900
Cash
6,900
(Pay prepaid insurance)
Chapter 4 – Cash and Internal Controls
Problem 4-5A (continued)
Requirement 1 (concluded)
October 25
Debit
Credit
Cash
5,600
Deferred Revenue
5,600
(Receive membership dues in advance)
Utilities Expense
5,200
Utilities Payable
5,200
(Receive current month utilities bill)
October 31
Debit
Credit
Salaries Expense
7,300
Cash
7,300
(Pay current month salaries)
Requirement 2
All transactions involve cash except for the utilities payable transaction on October
30.
Requirement 3
Cash
Debits
Credits
October 1
16,600
4,800
October 9
October 2
1,500
October 12
October 25
6,900
October 22
7,300
October 31
Problem 4-5A (continued)
Requirement 4
Balboa’s Gym
Statement of Cash Flows
For the month ended October 31
Cash Flows from Operating Activities
Cash inflows:
From customers
Cash outflows:
For advertising
For insurance
For salaries
Net cash flows from operating activities
Cash Flows from Investing Activities
Purchase of boxing equipment
(4,800)
Net cash flows from investing activities
(4,800)
Cash Flows from Financing Activities
Issuance of common stock
12,000
Payment of dividends
Net cash flows from financing activities
Net increase in cash
Cash at the beginning of the month
Cash at the end of the month
Requirement 5
Net cash flows in statement of cash flows = $1,200
Change in cash balance for the month = $17,800 (ending) − $16,600 (beginning)
= $1,200
Chapter 4 – Cash and Internal Controls
4-30 Financial Accounting, 5e
PROBLEMS: SET B
Problem 4-1B (LO 4-4, 4-5)
Requirement 1
Howard Productions
Bank Reconciliation
February 28
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$ 735
Per general ledger
$19,225
Deposits outstanding
Checks outstanding
Bank error
reconciliation
reconciliation
Requirement 2
The company has a large amount of NSF checks. This indicates that the company’s
procedures related to acceptance of customers’ checks is not reliable. The company
Chapter 4 – Cash and Internal Controls
Problem 4-2B (LO 4-5)
Requirement 1
Blockwood Video
Bank Reconciliation
October 31, 2021
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$12,751
Per general ledger
$12,381
Deposits outstanding
Bank error
Requirement 2
Debit
Credit
Cash
27
Utilities Expense
27
(Record correction of recording error)
Interest Expense
Cash
Problem 4-3B (LO 4-5)
Requirement 1
Glover Incorporated
Bank Reconciliation
July 31, 2021
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$3,750
Per general ledger
$5,670
+ 60
reconciliation
reconciliation
$4,170
Requirement 2
Debit
Credit
Cash
60
Interest Revenue
60
(Record interest earned on checking
account)
Equipment
Accounts Receivable
Service Fee Expense
60
Supplies