Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
Chapter 6
Cash, Fraud, and Internal Control
QUICK STUDIES
Quick Study 6-1 (10 minutes)
1. True Separation of recordkeeping for assets from the custody over assets helps reduce
fraud.
Quick Study 6-2 (5 minutes)
Quick Study 6-3 (10 minutes)
1. Pressure
4. Opportunity
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Quick Study 6-4 (10 minutes)
1. a (cash) The ____ category includes currency, coins, and deposits in bank
accounts.
Quick Study 6-5 (10 minutes)
Coins …………………………………………………. $ 100
Quick Study 6-6 (10 minutes)
Weakness or Strength
1.
Weakness
3.
Weakness
Quick Study 6-7 (10 minutes)
a. False A guideline for safeguarding cash is that all cash receipts be deposited monthly or yearly.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
Quick Study 6-8 (10 minutes)
a. Cash ………………………………………………………….. 430
Cash Over and Short ……………………………. 10
Quick Study 6-9 (10 minutes)
1. a. Petty Cash …………………………………………………. 150
Cash ……………………………………………………. 150
2. Answers: a and c. The Petty Cash account is credited when:
Quick Study 6-10 (15 minutes)
Bank or Book Side Add or Subtract Entry or Not
a. (1) Book (2) Add (3) Entry required
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
Quick Study 6-11 (25 minutes)
NOLAN COMPANY
Bank Reconciliation
June 30
Bank statement balance…..
Book balance …………………………..
$22,352
Quick Study 6-12 (20 minutes)
ORGANIC FOOD CO.
Bank Reconciliation
August 31
Bank statement balance ..
Book balance …………………………..
$5,500
Add
Quick Study 6-13 (10 minutes)
Aug. 31
Accounts Receivable ………………………………….
120
Cash ……………………………………………………..
120
Miscellaneous Expenses …………………………..
Cash ……………………………………………………..
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
Quick Study 6-14 (10 minutes)
LIMA COMPANY
Balance Sheet
December 31
Assets
Current assets
Cash and equivalents ……………………………. $ 4,000
Quick Study 6-15 (15 minutes)
a. Days’ sales uncollected = x 365
Year 2 Year 1
b. Interpretation: The company took 0.9 days less to collect on its
accounts receivable in Year 2 (14.6 days) compared with Year 1 (15.5
Quick Study 6-16A (10 minutes)
Documents prepared as part of a voucher system include: a, c, d.
Accounts receivable
Net sales
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
EXERCISES
Exercise 6-1 (10 minutes)
Principle Violated
a. Separate Recordkeeping from Custody of Assets
Exercise 6-2 (15 minutes)
a. Separate recordkeeping from custody of assets
Exercise 6-3 (15 minutes)
Weakness or Strength
Internal Control Principle
1.
Weakness
Divide Responsibility for Related Transactions
3.
Weakness
5.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
Exercise 6-4 (15 minutes)
Good or Bad
Cash Management Strategy
1.
Bad
Delay payment of liabilities
2.
Plan expenditures
3.
Bad
4.
Bad
Encourage collection of receivables
5.
Exercise 6-5 (15 minutes)
Currency and coins ……………………………………………. $1,000
Exercise 6-6 (15 minutes)
Strength or Weakness
1.
Weakness
2.
Strength
3.
Strength
4.
Weakness
5.
Weakness
6.
Weakness
Exercise 6-7 (15 minutes)
Strength or Weakness
1.
Strength
2.
Strength
3.
Weakness
4.
Weakness
5.
Strength
6.
Weakness
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
Exercise 6-8 (20 minutes)
1.
Sept. 9
Petty Cash ………………………………………………………
350
2.
Sept. 30
Merchandise Inventory* …………………………………..
40
Postage Expenses …………………………………………..
123
Miscellaneous Expenses …………………………..…….
80
Cash Over and Short ……………………………………….
3.
Oct. 1
Petty Cash ………………………………………………………
50
Exercise 6-9 (20 minutes)
1.
May 2
Petty Cash ………………………………………………………
2.
May 30
Merchandise Inventory* …………………………………..
120
Postage Expenses …………………………………………..
369
Miscellaneous Expenses …………………………..…….
240
3.
June 1
Petty Cash ………………………………………………………
150
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Exercise 6-10 (20 minutes)
1.
Jan. 1
Petty Cash ………………………………………………………
200
Cash ……………………………………………………….
200
Establish a petty cash fund.
2a.
Jan. 8
Postage Expense …………………………………………….
74
Merchandise Inventory* …………………………………..
29
Delivery Expense …………………………………………….
16
Miscellaneous Expenses …………………………..…….
43
Cash ……………………………………………………….
162
Reimburse the petty cash fund.
2b.
Jan. 8
Postage Expense …………………………………………….
74
Merchandise Inventory …………………………..……….
29
Delivery Expense …………………………………………….
16
Miscellaneous Expenses …………………………..…….
43
Cash ……………………………………………………….
162
Reimburse the petty cash fund.**
Jan. 8
Petty Cash ………………………………………………………
250
Cash ……………………………………………………….
250
Increase the petty cash fund.**
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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Exercise 6-11 (20 minutes)
Bank Balance
Book Balance
Shown or Not
Shown on
Add or Subtract
Add or Subtract
Dr. or Cr.
Reconciliation
1.
NSF check shown on bank statement
but not yet recorded by company.
—
Subtract
Cr.
Shown
2.
Interest earned on the account.
—
Add
Dr.
Shown
Deposit made on September 5 and
processed by bank on September 6.
but charged against this company’s
5.
Bank service charge.
—
Cr.
Shown
6.
Checks outstanding on August 31
that cleared the bank in September.
—
—
—
Not Shown
7.
Check written against the company
account and cleared by the bank;
erroneously not recorded by the
company recordkeeper.
—
Subtract
Cr.
Shown
A note receivable is collected by the
bank for the company but not yet
recorded by the company.
9.
Checks written and mailed to payees
on October 2.
—
—
—
Not Shown
Checks written by the company and
mailed to payees on September 30.
—
—
Bank fees for check printing are not
yet recorded by the company.
—
Cr.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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Exercise 6-12 (25 minutes)
DEL GATO CLINIC
Bank Reconciliation
June 30
Bank statement balance ..
Book balance …………………………..
$11,589
Add
Add
Exercise 6-13 (10 minutes)
June 30
Cash …………………………………………………………..
9
Utilities Expense ……………………………………
9
Cash ……………………………………………………..
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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Exercise 6-14 (25 minutes)
WRIGHT COMPANY
Bank Reconciliation
May 31
Bank statement balance …
Book balance …………………………..
$27,500
Add
Deduct
Deduct
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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Exercise 6-15 (20 minutes)
BOSCO COMPANY
Balance Sheet
December 31
Assets
Current assets
Cash and equivalents …………………………….. $ 7,000
Accounts receivable ………………………………. 5,000
Liabilities
Current liabilities
Accounts payable …………………………………… $10,000
Wages payable ………………………………………. 2,000
Total liabilities …………………………………………. 27,000
Equity
Common stock …………………………..……………. 1,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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Exercise 6-16 (15 minutes)
a. Days’ sales uncollected in Year 1:
b. Worsened. The change from 32.5 to 41.0 days’ sales uncollected
indicates that the receivables have become less liquid. While the
Exercise 6-17A (10 minutes)
1. Purchase requisition E. A document used by department managers to inform the purchasing
department to place an order with a vendor.
2. Purchase order C. A document used to place an order with a vendor that authorizes the
vendor to ship ordered merchandise at the stated price and terms.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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PROBLEM SET A
Problem 6-1A (20 minutes)
Part 1
a. Separate recordkeeping from custody of assets.
Part 2
a. The company should implement a policy whereby the person receiving
incoming cash receipts is not responsible for posting the payments to
the customer accounts.
d. Ben Shales needs to implement a way to regularly and independently
review his employees. Hiring of internal auditors or an outside
consultant to objectively review the internal controls and the employees’
work needs to be implemented.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6
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Problem 6-2A (20 minutes)
May 1
Petty Cash ……………………………………………………….
300.00
Cash ………………………………………………………………
300.00
Establish the $300 petty cash fund.
May 15
Janitorial Expenses ……………………………………………..
88.00
Miscellaneous Expenses ……………………………………..
53.68
Postage Expenses …………………………..…………………..
53.50
Advertising Expense ……………………………………………
47.15
Cash Over and Short …………………………..………….
Cash ………………………………………………………………
237.85
Reimburse the petty cash fund.
May 16
Petty Cash ……………………………………………………….
200.00
Cash ………………………………………………………………
200.00
Increase the petty cash fund to $500.
Note: The May 31 entries can be combined into one entry.
May 31
Postage Expenses …………………………..…………………..
147.36
Mileage Expense ………………………………………………….
23.50
Delivery Expense …………………………………………………
34.75
Cash ………………………………………………………………
211.80
Reimburse the petty cash fund.
May 31
100.00
Petty Cash ……………………………………………………..
100.00
Decrease the petty cash fund to $400.
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Problem 6-3A (30 minutes)
Part 1
Petty Cash ……………………………………………………….
Part 2
Nakashima Gallery
Petty Cash Payments Report (for February)
Delivery expense
Feb. 23
Delivery of customer’s merchandise …………………….
$ 20.00
Mileage expense
Feb. 14
Reimbursement for mileage …………………………..
68.00
Postage expense
Feb. 12
Express delivery of contract …………………………..
Feb. 27
Purchased postage stamps …………………………..
61.95
Merchandise inventory (transportation-in)*
Feb. 9
Feb. 25
45.60
Feb. 20
Purchased office paper ………………………………………..
Part 3
a. Feb. 28
Delivery Expense …………………………………………………
20.00
Mileage Expense ………………………………………………….
68.00
Postage Expense …………………………………………………
61.95
Merchandise Inventory …………………………………………
45.60
81.92
Petty Cash ……………………………………………………….
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Problem 6-4A (30 minutes)
Part 1
BRANCH COMPANY
Bank Reconciliation
July 31
Bank statement balance …..
$27,233
Book balance …………………………..
$27,497
Add
Add
Deposit of July 31 ………….
11,514
38,747
Proceeds from note …………………………..
7,955
35,452
Deduct
Deduct
Part 2
Cash ……………………………………………………………………
7,955
Notes Receivable ……………………………………………
7,955
Record note collection.
Cash ……………………………………………………….……..
Charge account for NSF check.
Cash ……………………………………………………….……..
Record bank service fee.
Correct an entry error.