Problem 4-3B (LO 4-5)
Requirement 1
Glover Incorporated
Bank Reconciliation
July 31, 2018
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$3,750
Per general ledger
$5,670
Deposits outstanding
+2,820
Company error
− 400
Checks outstanding
+ 60
NSF check
− 500
Office supplies
− 600
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
Problem 4-4B (LO 4-7)
Dreamworks Bedding Supplies
Statement of Cash Flows
For the month ended August 31, 2018
Cash Flows from Operating Activities
Cash inflows:
From customers
$ 80,400
From interest
300
Cash outflows:
For salaries
For advertising
For office supplies
For bedding material
Sale of unused land
Purchase of delivery truck
Cash Flows from Financing Activities
Issuance of common stock
Repayment of borrowing
Net increase in cash
Cash at the beginning of the month
Cash at the end of the month
Chapter 4 – Cash and Internal Controls
Problem 4-5B (LO 4-7)
Requirement 1
June 2
Debit
Credit
Cash
19,000
Notes Payable
19,000
(Borrow from the bank)
June 3
Debit
Credit
Rent Expense
Cash
(Pay current month rent)
Cash
5,200
Accounts Receivable
Service Revenue
June 11
Debit
Credit
Equipment
8,400
Cash
8,400
(Purchase equipment)
June 17
Debit
Credit
Salaries Expense
Cash
(Pay salaries)
June 22
Debit
Credit
Dividends
Cash
(Pay dividends)
Problem 4-5B (continued)
Requirement 1 (concluded)
June 25
Debit
Credit
Cash
2,100
Deferred Revenue
2,100
(Receive cash in advance)
Utilities Expense
3,300
Cash
3,300
(Pay current month utilities bill)
June 30
Debit
Credit
Salaries Expense
6,500
Salaries Payable
6,500
(Owe current month’s salaries)
Requirement 3
Cash
Debits
Credits
June 1
14,700
1,200
June 3
June 2
8,400
June 11
June 7
6,500
June 17
3,300
June 28
Problem 4-5B (continued)
Requirement 4
Homeward Bound
Statement of Cash Flows
For the month ended June 30
Cash Flows from Operating Activities
Cash inflows:
From customers
$ 7,300
Cash outflows:
For rent
For salaries
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Borrow from bank
19,000
Cash at the beginning of the month
Cash at the end of the month
Requirement 5
Net cash flows in statement of cash flows = $5,350
Chapter 4 – Cash and Internal Controls
ADDITIONAL PERSPECTIVES
Additional Perspective 4-1
Requirement 1
Suzie should make deposits more often than once per month, such as each day or each
Requirement 2
Great Adventures, Inc.
Bank Reconciliation
December 31, 2018
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$50,500
Per general ledger
$64,200
reconciliation
$64,500
reconciliation
Dec. 31, 2018
Debit
Credit
Cash
500
Interest Revenue
500
(Record interest earned)
Dec. 31, 2018
(Record bank service fee)
Requirement 3
Failure to record the interest revenue would cause assets and revenues to be
understated by $500. Failure to record the service charge fee causes expenses to be
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-2
Requirement 1
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), American eagle Outfitters Inc.’s internal
control over financial reporting as of January 31, 2015, based on criteria established in
Requirement 2
Requirement 3
The amount of cash reported in the current year is $410,697 thousand, and the amount
of cash reported in the previous year is $418,933 thousand. This is a decrease of
Requirement 4
The amounts reported for operating, investing, and financing cash flows for
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-3
Requirement 1
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company’s internal control over
Requirement 2
Requirement 3
Requirement 4
The amounts reported for operating, investing, and financing cash flows are $195,768,
Requirement 5
Requirement 6
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-4
Requirement 1
Requirement 2
Based on this analysis alone, Buckle is more able to pay its current liabilities if they
were all to be paid immediately. American Eagle would have to borrow short-term, or
to collect on its receivables to pay all current liabilities immediately. It can be noted
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-5
What is the issue?
The rules explicitly state that friends and family are not allowed to watch free movies,
Who are the parties involved?
Jack could believe that because many workers, including upper management, are
What factors should Jack consider in making his decision?
Jack needs to remember that just because others are violating policies, it doesn’t make
it right for him. Upon employment, Jack agreed to the rules of employment. Even
though allowing friends and family to watch free movies doesn’t directly steal cash
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-6
Requirement 1
Calculate the ratio of cash to noncash assets for Exxon Mobil ($ in thousands).
Cash Noncash assets
Requirement 2
Calculate the ratio of cash to noncash assets for Linn Energy ($ in thousands).
Cash Noncash assets
Requirement 3
Exxon’s ratio of cash to noncash assets is much higher. One reason could be the
higher amount of international operations in lower-tax jurisdictions. Greater
Requirement 4
Exxon’s stock went from $87.79 at the beginning of 2013 to $92.45 by the end of
2014. Linn’s stock price over this same period went from $36.30 to $10.13. The
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-7
Some of the internal control weaknesses include:
1.
– The employee who authorizes payment should not also be the employee who
2.
– The employee who authorizes payment should not also be the employee who
prepares the check.
3.
– The employee who opens the mail should not also be the employee that makes a list
of checks and cash received.