FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-21A
(10-15 min.)
Solution:
DATE DEBIT CREDIT
Mar. 31 Cash 320
Rent Revenue 320
EFT collection of rent.
Journal
ACCOUNT TITLES AND EXPLANATION
Use the data from Exercise 4-20A to make the journal entries that White should record
on March 31 to update his Cash account. Include an explanation for each entry.
Chapter 4: Internal Control and Cash Page 21 of 59
Cash 18
Bank service charge and charge for
printed checks.
Cash 110
NSF checks returned by bank.
Cash 252
Correction of book error.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-22A
(10-15 min.)
Solution:
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
Write a memo to convince the store manager that there is an internal control
weakness over cash receipts. Identify the weakness that gives an employee the
best opportunity to steal cash, and state how to prevent such a theft.
Chapter 4: Internal Control and Cash Page 22 of 59
To improve internal control, the company should use cash registers that record
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-23A
(10-15 min.)
Solution:
The main internal control weakness is that the payroll department both prepares
and distributes the paychecks. With both duties, a dishonest person in the payroll
department can create a time sheet for a fictitious employee and then keep the
Identify the main internal control weakness in this situation, state how the
weakness can hurt Linus Manufacturing, and propose a way to correct the
Chapter 4: Internal Control and Cash Page 23 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-24A
(20-30 min.)
Solution:
Cash balance, December 31, 2016 65$
Budgeted cash receipts:
Collections from customers 11,283
Prepare Byer Communications’ cash budget for 2017. Will the budgeted level
of cash receipts leave Byer with the desired ending cash balance of $68
million, or will the company need additional financing? If so, how much?
Byer Communications, Inc.
Cash Budget
Year Ended December 31, 2017
Chapter 4: Internal Control and Cash Page 24 of 59
Budgeted cash payments:
Payments for cost of
services and products 6,194$
Payments of operating expenses 2,556
Investment in equipment 1,823
Payment of debt 564
Cash available (needed) before financing 23
Cash available for additional investments, or
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-25B
(10-15 min.)
Solution:
Identify the internal control weakness in the given situations. State how the person
can hurt the company.
a. Morrison has access to the cash collected, and she also prepares the cash report.
With access to both items, Morrison can steal cash and falsify her cash report to
conceal her theft.
Chapter 4: Internal Control and Cash Page 25 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-26B
(10 min.)
Solution:
Evaluate the internal controls in each situation as strong or weak, and
give the reason for your answer.
Cash payments:
a. Strong internal control. There is a good separation of duties. Supervisors
request equipment, and the home office purchases the equipment.
Chapter 4: Internal Control and Cash Page 26 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-27B
(10 min.)
Solution:
To prevent Valentine’s embezzlement, Downtown Wooster’s board of directors
could have:
Give four ways Valentine’s embezzlement could have been prevented.
Chapter 4: Internal Control and Cash Page 27 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-28B
(10-20 min.)
Requirement
Solution:
BANK:
Balance, July 31 294$
Add: Deposit in transit 1,220
Less: Outstanding checks:
Check No.
F. L. Hill
Bank Reconciliation
July 31, 2016
1. Prepare Hill’s bank reconciliation at July 31, 2016.
Chapter 4: Internal Control and Cash Page 28 of 59
BOOKS:
Balance, July 31 1,252$
Less:
Recorded $81 check as $18 63$
NSF check 25
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-29B
(10-20 min.)
Solution:
BANK:
Balance, October 31 750$
Add: Deposit in transit 1,770
Neal’s Rink
Bank Reconciliation
October 31, 2016
How much cash does Neal actually have at October 31, 2016?
Chapter 4: Internal Control and Cash Page 29 of 59
BOOKS:
Balance, October 31 1,997$
Less:
Service charge 10$
Charge for printed checks 11
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-30B
(10-15 min.)
Solution:
DATE DEBIT CREDIT
Aug. 31 Cash 330
Rent Revenue 330
EFT collection of rent.
Use the data from Exercise 4-29B to make the journal entries that Neal should record
on October 31 to update his Cash account. Include an explanation for each entry.
Journal
ACCOUNT TITLES AND EXPLANATION
Chapter 4: Internal Control and Cash Page 30 of 59
Cash 21
Bank service charge and charge
for printed checks.
Cash 110
NSF checks returned by bank.
Cash 279
Correction of book error.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-31B
(10-15 min.)
Solution:
TO: Store Manager
FROM: Student
SUBJECT: Evaluation of internal control and plan for improvement
Write a memo to convince the store manager that there is an internal control
weakness over cash receipts. Identify the weakness that gives an employee the
best opportunity to steal cash, and state how to prevent such a theft.
Chapter 4: Internal Control and Cash Page 31 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-32B
(10-15 min.)
Solution:
Identify the main internal control weakness in this situation, state how the
weakness can hurt Greentown, and propose a way to correct the weakness.
The main internal control weakness is that the payroll department both prepares
and distributes the paychecks. With both duties, a dishonest person in the payroll
Chapter 4: Internal Control and Cash Page 32 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E4-33B
(20-30 min.)
Solution:
Cash balance, December 31, 2016 62$
Budgeted cash receipts:
Collections from customers 11,339
Sale of assets 132
Prepare Ayers Communications’ cash budget for 2017. Will the budgeted level
of cash receipts leave Ayers with the desired ending cash balance of $71
million, or will the company need additional financing? If so, how much?
Ayers Communications, Inc.
Cash Budget
Year Ended December 31, 2017
Millions
Chapter 4: Internal Control and Cash Page 33 of 59
Budgeted cash payments:
Payments for cost of
services and products 6,193$
Payments of operating expenses 2,544
Investment in equipment 1,823
Payment of debt 552
Payment of dividends 355 11,467
Cash available (needed) before financing 66
Budgeted cash balance, December 31, 2017 (71)
Cash available for additional investments, or
(New financing needed) (5)$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Quiz
Q4-34 c
Q4-35 a
Q4-36 d
Chapter 4: Internal Control and Cash Page 34 of 59
Q4-37 c
Q4-38 c
Q4-39 b
Q4-40 d
Q4-41 d
Q4-42 c
Q4-43 d
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P4-46A
(15-20 min.)
Requirement
Solution:
The internal control weaknesses in Irish Imports’ system are:
1. Kennedy controls the content of the invoices. With no supervision of
her work, Kennedy could have the suppliers overstate their prices and
1. Identify all the major internal control weaknesses in Irish Imports’
system and how the resulting action could hurt Irish Imports. Also state
how to correct each weakness.
Chapter 4: Internal Control and Cash Page 35 of 59
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P4-47A
(10-20 min.)
Requirements
Solution:
Requirement 1 Requirement 2 Requirement 3
a. Separation of duties
1. Identify the missing internal control characteristic in each situation.
2. Identify each firm’s possible problem.
3. Propose a solution to the problem.
Theft of diamonds — the
purchasing agent could
Separate purchasing,
approval, and check-
Missing Internal
Control Characteristic
Possible Problem
Solution
Chapter 4: Internal Control and Cash Page 36 of 59
c. Separation of duties Theft of cash.
many employees are
Assign a single employee
to manage the office when
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P4-48A
(20-30 min.)
Requirements
Solution:
Req. 1
BANK:
Balance, June 30, 2016 8,934$
Add: Deposits in transit ($982 + $2,804) 3,128
1. Prepare the Dunlap Automotive bank reconciliation at June 30, 2016.
2. Prepare the journal entries required at June 30, 2016.
3. Describe how a bank account and the bank reconciliation help the general
manager control Dunlap Automotive’s cash.
Dunlap Automotive
Bank Reconciliation
June 30, 2016
Chapter 4: Internal Control and Cash Page 37 of 59
Balance, June 30, 2016 6,531$
Add: EFT collection of rent 625$
Less: EFT payment of insurance 382
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2 (entries based on the reconciliation)
DATE DEBIT CREDIT
June 30 Cash 625
Rent Revenue 625
EFT deposit for rent revenue earned.
Req. 3
Journal
ACCOUNT TITLES AND EXPLANATION
A bank account helps control cash by providing a place for safekeeping. The
bank also provides a detailed list of the company’s cash transactions that
Chapter 4: Internal Control and Cash Page 38 of 59
Note Receivable 1,275
Note receivable collected by bank.
Accounts Payable 450
Correction for check #3115 recorded incorrectly.
Cash 382
EFT for payment of insurance.
Cash 489
US customer check returned by bank.
Cash 30
Bank service charge.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P4-49A
(30-45 min.)
Requirements
Solution:
Cash balance, beginning 8,100$
Budgeted cash receipts:
Collections from customers ($66,000 × 1.14) 75,240
Keller Wireless
Cash Budget
2017
Thousands
1. Prepare the Keller Wireless cash budget for 2017. Date the budget simply
“2017,” and denote the beginning and ending cash balances as “beginning” and
“ending.” Assume the company expects 2017 to be the same as 2016, but with the
following changes:
a. In 2017, the company expects a 14% increase in collections from customers
and a 20% increase in purchases of inventory.
b. There will be no sales of investments in 2017.
c. Keller Wireless plans to issue no stock in 2017.
d Keller Wireless plans to end the year with a cash balance of $3,500
Chapter 4: Internal Control and Cash Page 39 of 59
Budgeted cash payments:
Cash paid for inventory ($45,000 × 1.20) 54,000$
Cash paid for operating expenses 13,600
Purchases of investments 200
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P4-50B
(15-20 min.)
Requirement
Solution:
1. Identify all the major internal control weaknesses in Swedish Imports’ system
and how the resulting action could hurt Swedish Imports. Also state how to
correct each weakness.
The internal control weaknesses in Swedish Imports’ system are:
1. Martin controls the content of the invoices. With no supervision of her work,
Martin could have the suppliers overstate their prices and then arrange to have
Chapter 4: Internal Control and Cash Page 40 of 59