Chapter 4 – Cash and Internal Controls
Problem 4-4B (LO 4-7)
Dreamworks Bedding Supplies
Statement of Cash Flows
For the month ended August 31, 2021
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
(13,000)
Net cash flows from operating activities
Cash Flows from Investing Activities
Sale of unused land
15,700
Purchase of delivery truck
(34,500)
Net cash flows from investing activities
(18,800)
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
4-34 Financial Accounting, 5e
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)
Chapter 4 – Cash and Internal Controls
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 2
All transactions involve cash except for the salaries payable transaction on June 30.
Requirement 3
June 1
June 2
8,400
June 7
6,500
3,300
Chapter 4 – Cash and Internal Controls
4-36 Financial Accounting, 5e
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
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
Change in cash balance for the month = $20,050 (ending) − $14,700 (beginning)
= $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, 2021
Bank’s Cash Balance
Company’s Cash Balance
Per bank statement
$50,500
Per general ledger
$64,200
reconciliation
$64,500
reconciliation
Dec. 31, 2021
Debit
Credit
Cash
500
Interest Revenue
500
Dec. 31, 2021
Requirement 3
Failure to record the interest revenue would cause assets and revenues to be
Chapter 4 – Cash and Internal Controls
4-38 Financial Accounting, 5e
Additional Perspective 4-2
($ in thousands)
Requirement 1
We also have audited, in accordance with the standards of the Public Company
Requirement 2
The Company considers all highly liquid investments purchased with a remaining
maturity of three months or less to be cash equivalents.
Requirement 3
Requirement 4
The amounts reported for operating, investing, and financing cash flows for
continuing operations are $394,426, $(172,150), and $(188,772), respectively. The
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-3
($ in thousands)
Requirement 1
We have also audited, in accordance with the standards of the Public Company
Requirement 2
The Company considers all highly liquid debt instruments with an original maturity of
three months or less when purchased to be cash equivalents.
Requirement 3
The amount of cash reported in the current year is $165,086, and the amount of cash
reported in the previous year is $196,536. This is an decrease of $31,450.
Chapter 4 – Cash and Internal Controls
4-40 Financial Accounting, 5e
Additional Perspective 4-4
($ in thousands)
Requirement 1
American Eagle’s ratio of cash to noncash assets is $413,613/$1,402,700 = 29.5%.
Buckle’s ratio of cash to noncash assets is $165,086/$373,030 = 44.3%.
Riskier companies are more likely to incur negative economic shocks to their
Requirement 2
American Eagle’s ratio of cash to current liabilities is $413,613/$485,221 = 85.2%.
Buckle’s ratio of cash to current liabilities is $165,086/$97,906 = 168.6%.
Based on this analysis alone, Buckle is more able to pay its current liabilities if they
were all to be paid immediately. American Eagle would have to borrow short-term, or
Chapter 4 – Cash and Internal Controls
Additional Perspective 4-5
1. Yes.
2. Yes.
3. Yes.
4. Yes.
However, in such a situation, it would be easy for Jack to justify not following the
policy and to feel pressure from others. Jack could believe that because many workers,
including upper management, are violating policies in the employee handbook, it is
Chapter 4 – Cash and Internal Controls
4-42 Financial Accounting, 5e
Additional Perspective 4-6
Requirement 1
The Kroger Company ($ in thousands) for January 28, 2017.
Requirement 2
Sprouts Farmers Market ($ in millions) for December 31, 2017.
Requirement 3
The Kroger Company:
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
3.
– The employee who opens the mail should not also be the employee that makes a list