Problem 6-5A (50 minutes)
Part 1
CHAVEZ COMPANY
Bank Reconciliation
September 30
Bank statement balance ……..
$18,453
Book balance …………………………..
$17,404
Add
Add
Interest earned ….. $ 12
Deposit of Sept. 30 …………..
1,682
20,135
Note proceeds ……. $1,485
1,497
1,864
Part 2
Sept. 30
Cash ……………………………………………………….
12
Interest Earned ……………………………………………….
12
Record interest earned.
30
Cash ……………………………………………………….
1,485
Notes Receivable ……………………………………………
1,485
Record note collection.
30
Accounts Receivable— S.Nilson …………………………..
Cash ……………………………………………………….
Charge the account for NSF check.
30
Computer Equipment ……………………………………………
Cash ……………………………………………………….
30
Correct an entry error.
PROBLEM SET B
Problem 6-1B (20 minutes)
Part 1
a. Maintain adequate records.
b. Apply technological controls.
Part 2
a. Good recordkeeping helps protect assets from theft or loss and helps
managers monitor company activities. Keeping poor records of its
equipment leaves the company vulnerable to misuse or theft of these
assets. Hiring honest employees helps, but it is not a substitution for
adequate records. The company should immediately update and
improve its records of equipment. Further, these records should be
updated regularly.
c. The company needs to have three employees handle these functions
instead of two. One employee should place purchase orders, one
should receive merchandise, and the third should pay vendors.
d. The use of the check software/printer is a good internal control.
However the company needs to keep the checks and check
software/printer in a locked environment with password protection to
prevent unauthorized use.
Problem 6-2B (20 minutes)
Jan. 3
Petty Cash …………………………………………………………..
150.00
Cash ………………………………………………………………
150.00
Establish the petty cash fund.
Office Supplies Expense ………………………………………
14.29
Merchandise Inventory* ……………………………………….
19.60
Repairs Expense—Computer ……………………………….
38.57
Miscellaneous Expenses ……………………………………..
12.82
Cash Over and Short ……………………………………………
Cash ………………………………………………………………
87.72
Reimburse the petty cash fund.
Jan. 15
Petty Cash …………………………………………………………..
50.00
Cash ………………………………………………………………
50.00
Increase the petty cash fund.
Jan. 31
Advertising Expense ……………………………………………
50.00
Postage Expenses ……………………………………………….
48.19
Delivery Expense …………………………………………………
78.00
Cash Over and Short ……………………………………………
Cash ………………………………………………………………
182.65
Reimburse the petty cash fund.**
Jan. 31
Petty Cash …………………………………………………………..
50.00
Cash ………………………………………………………………
50.00
Increase the petty cash fund.**
**The Jan. 31 entries can be combined into one entry.
Problem 6-3B (30 minutes)
Part 1
Mar. 5
Petty Cash ……………………………………………………….
250
Cash ……………………………………………………….
250
Establish the $250 petty cash fund.
Part 2
Blues Music Center
Petty Cash Payments Report (for March)
Delivery expense
Mar. 11
Delivery of customer’s merchandise ……………………..
$ 10.75
Mileage expense
Mar. 30
Reimbursement for mileage …………………………..
56.80
Postage expense
Mar. 28
Paid postage ……………………………………………………….
18.00
Merchandise inventory (transportation-in)*
Mar. 6
Mar. 27
45.10
57.60
Office supplies expense
Mar. 12
Purchased file folders …………………………………………..
14.13
Mar. 14
Reimbursement for office supplies ……………………….
11.65
Mar. 18
Purchased paper ………………………………………………….
20.54
46.32
Total
$189.47
Delivery Expense ………………………………………………….
10.75
Mileage Expense ………………………………………………….
56.80
Postage Expense ………………………………………………….
18.00
Merchandise Inventory …………………………………………
57.60
Office Supplies Expense ………………………………………
46.32
Cash Over and Short ……………………………………….
Cash ……………………………………………………….
Reimburse the petty cash fund.
b. Mar. 31
Petty Cash ……………………………………………………….
50.00
Cash ……………………………………………………….
50.00
Increase the petty cash fund to $300.
Note: The two entries on Mar. 31 can be combined into one.
Problem 6-4B (30 minutes)
Part 1
SEVERINO CO.
Bank Reconciliation
December 31
Bank statement balance ……..
$46,822.40
Book balance …………………………..
$32,878.30
Add
Add
Deposit of Dec. 31 …………….
9,583.10
Error (Ck 1267) . $ 9.00
56,405.50
Note proceeds… 18,980.00
18,989.00
Deduct
Deduct
Checks No. 1242 …. $ 410.40
NSF check ……… $ 762.50
Printing fee …….. 99.00
5,399.70
Part 2
Dec. 31
Cash …………………………………………………………………….
9.00
Office Supplies ……………………………………………….
9.00
Correct an entry error.
31
Cash …………………………………………………………………….
18,980.00
Notes Receivable …………………………………………….
18,980.00
Record note collection.
31
Accounts Receivable—Titus Industries …………………
Cash ……………………………………………………….
Charge the account for NSF check.
31
Miscellaneous Expenses ………………………………………
Cash ……………………………………………………….
Problem 6-5B (50 minutes)
Part 1
SHAMARA SYSTEMS
Bank Reconciliation
May 31
Bank statement balance ………
$21,762.70
Book balance …………………………..
$15,177.30
Add
Add
Deposit of May 31………………
2,727.30
24,490.00
Proceeds of note …………………………..
7,350.00
22,527.30
Deduct
Deduct
Part 2
May 31
Cash ……………………………………………………………………
7,350.00
Notes Receivable ……………………………………………
7,350.00
Record note collection.
31
Accounts Receivable—W. Sox …………………………..
431.80
Cash ……………………………………………………….
431.80
Charge the account for NSF check.
31
Miscellaneous Expenses …………………………..
14.00
Cash ……………………………………………………….
14.00
Record bank service fee.
31
10.00
Cash ……………………………………………………….
10.00
Correct an entry error.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 6
SERIAL PROBLEM — SP 6
Serial Problem — SP 6, Business Solutions (50 minutes)
Part 1
BUSINESS SOLUTIONS
Bank Reconciliation
March 31, 2020
Bank statement balance …..
$67,566
Book balance …………………………..
$68,057
Add
Add
Bank error …………………………
Deposits in Transit ……………
500
0
Bank interest …………………………..
33
______
68,066
68,090
Part 2
Mar. 25
Miscellaneous Expenses ……………………………………..
677
50
Cash ……………………………………………………….
101
50
Record safety deposit box rental.
26
Miscellaneous Expenses ……………………………………..
677
102
Cash ……………………………………………………….
101
102
Record charge for printing checks
31
101
33
Record interest earned.
Company Analysis — AA 6-1
$ millions
1. (a) $20,289
(b) $20,484
2.
$ millions
Balance
September
30, 2017
Cash and
equivalents
as % of:
Balance
September
24, 2016
Cash and
equivalents
as % of:
Cash and cash
equivalents ……………
$ 20,289
—
$ 20,484
—
Current assets ………..
128,645
15.8%
106,869
19.2%
Current liabilities …….
100,814
20.1
25.9
134,047
15.1
128,249
16.0
3. (a) Per the statement of cash flows for year ended September 30, 2017
($ millions):
Cash and equivalents, beginning-year …………… $20,484
Cash and equivalents, year-end ……………………… $20,289
Percent change* ……………………………………………… 1.0% decrease
*[($20,289 – $20,484) / $20,484]
(b) Per the statement of cash flows for year ended September 24, 2016
($ millions):
Company Analysis (Concluded)
4. Days’ Sales Uncollected ($ millions)
Days’ sales uncollected = x 365
5. Unfavorable
Explanation: The number of days of uncollected sales in accounts
receivable increased. This increase indicates Apple’s assets are being
tied up in receivables for a longer period of time and collection efforts
have worsened.
Accounts receivable
Net sales
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 6
Comparative Analysis — AA 6-2
Days’ sales uncollected = x 365
1.
(a) Apple ($ millions)
Current Year: ($17,874 / $229,234) x 365 = 28.5 days
Prior Year: ($15,754 / $215,639) x 365 = 26.7 days
2. Apple
Accounts receivable
Net sales
Global Analysis — AA 6-3
1.
(KRW millions)
Current
year
balance
Cash as
percent
of:
Prior year
balance
Cash as
percent
of:
Cash …………………………..
30,545,130
—
32,111,442
—
Current assets …………………..
146,982,464
20.8%
141,429,704
22.7%
Current liabilities ……………….
45.5
58.7
214,491,428
14.2
192,963,033
16.6
2. Cash, beginning-year (KRW millions) ………………………………….. 32,111,442
Cash, year-end (KRW millions) ……………………………………………. 30,545,130
Percent change* ……………………………………………………………. 4.9% decrease
*[(30,545,130 – 32,111,442) / 32,111,442]
3. Days’ Sales Uncollected Formula (KRW millions)
Days’ sales uncollected = x 365
4. Favorable
Explanation: The number of days of uncollected sales in accounts
receivable has decreased from the prior year to the current year.
Samsung is collecting its receivables more efficiently this year as
compared to its prior year.
Accounts receivable
Net sales
Ethics Challenge — BTN 6-1
2. Unfortunately, due to collusion of the employees, the bank
reconciliation will not detect this fraud. The cash deposits per the
books will reconcile to the cash deposits per the bank.
3. Despite the collusion, the scheme is not foolproof. For example, some
ways in which the scheme might be uncovered or prevented include the
following:
• A bank employee may become suspicious and call Dr. Conrad and
ask if she is aware that occasionally her employees cash patient
checks for cash.
• An astute patient might notice that his/her statement contains a
miscellaneous credit rather than a cash payment notation. If the
patient is aware of accounting practices, then Dr. Conrad might be
advised.
4. Dr. Conrad should review her salary schedules for employees to make
sure that she is at least offering market pay. She may want to consider
bonding her employees to insure herself against material losses. Dr.
Communicating in Practice — BTN 6-2
Memorandum
To: “Owner”
From: “Consultant”
Date: __________
Subject: Advice on monitoring purchase discounts
[Instructor’s Note: The response should acknowledge the owner’s concern and
recommend the net method of recording purchases. It should explain how this method
results in the recording of “Discounts Lost,” which will flow through to the income
statement, thus providing the information desired. The memo might look something like
the following.]
The net method gives management an advantage in controlling and
monitoring purchase discounts. When invoices are recorded at gross
amounts, the amount of discounts taken is deducted from the balance of
the Merchandise Inventory account.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 6
Taking It to the Net — BTN 6-3
[Instructor Note: These answers were taken from the ACFE’s 2016 Report to the Nations.]
s3–us-west-2.amazonaws.com/acfepublic/2016-report-to–the-nations.pdf
3. The median duration — the amount of time from when the fraud
commenced until it was detected — for the fraud cases reported to us was
18 months.
4. Asset misappropriation was by far the most common form of occupational
fraud, occurring in more than 83% of cases, but causing the smallest
median loss of $125,000.
5. Financial statement fraud was on the other end of the spectrum, occurring
in less than 10% of cases but causing a median loss of $975,000.
Corruption cases fell in the middle, with 35.4% of cases and a median loss
of $200,000.
Teamwork in Action — BTN 6-4
Common internal controls visible in a typical retail store include:
1. Door locks and roll–down screens for after-hours lock-up.
4. Security guards.
5. Cash registers.
6. Separate cash drawers or transaction codes to identify clerks at
registers.
10. A security safe on the premises.
11. Timeclocks.
Entrepreneurial Decision — BTN 6-5
1. Seven principles of internal control along with examples are:
a. Establish responsibilities. The clerks at the counter should be
responsible for handling cash. The other employees should be
responsible for preparing the orders and helping customers. There
also should be employees assigned responsibilities such as
maintaining inventories, cleaning premises, clerical duties, locking
doors, etc.
c. Insure assets and bond key employees. The owner should acquire
insurance for the employees and the physical facilities. Insurance
should also be acquired for potential casualties such as a
customer slipping on the floor.
f. Apply technological controls. The owner should invest in
technological controls such as cash registers, time clocks,
security cameras, and other devices to reduce the risk of fraud or
theft.
g. Perform regular and independent reviews. The owner should
implement regular reviews of all operating and control procedures.
Hitting the Road — BTN 6-6
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
particularly the case with respect to popular college service/product
centers. Common controls found in college units include:
1. Door locks and roll–down screens for after-hours lock-up.
2. Electronic detection devices stationed at entrances or anti-theft devices
on merchandise that must be removed by a cashier.
3. Security cameras.
