EXERCISE 7-14
ENRIGHT COMPANY
Cash Budget
For the Two Months Ending February 28, 2014
January February
Beginning cash balance ………………………………….. $ 46,000 $ 24,000
Add: Cash receipts
Administrative expenses ……………………….. 20,000 23,000
Selling expenses …………………………………… 15,000 20,000
*EXERCISE 7-15
Oct. 1 Petty Cash ………………………………………………… 150.00
Cash ………………………………………………….. 150.00
*EXERCISE 7-16
(a) Aug. 1 Petty Cash …………………………………………. 200.00
Cash …………………………………………… 200.00
15 Freight-Out ………………………………………… 74.40
Entertainment Expense ……………………… 36.00
16 Petty Cash …………………………………………. 200.00
Cash …………………………………………… 200.00
(b) Petty Cash
8/1 200
*EXERCISE 7-16 (Continued)
(c) The internal control features of a petty cash fund include:
(1) A custodian is responsible for the fund.
(2) A pre-numbered petty cash receipt signed by the custodian and
the individual receiving payment is required for each payment
SOLUTIONS TO PROBLEMS
PROBLEM 7-1A
(a) Principles
A
pplication to Granada Theater
Establishment of responsibility. Only cashiers are authorized to sell
tickets. Only the manager and cashie
r
can handle cash.
Segregation of duties. The duties of receiving cash and
admitting customers are assigned to
the cashier and to the doorperson.
The manager maintains custody of the
cash, and the company accountant
records the cash.
r
Human resource controls. Cashiers are bonded.
(b) Actions by the doorperson and cashier to misappropriate cash include:
(1) Instead of tearing the tickets, the doorperson could return the
tickets to the cashier who could resell them, and the two could
divide the cash.
PROBLEM 7-2A
Trent has created a situation that leaves many opportunities for undetected
theft. Here is a list of some of the weaknesses in internal control. You may
find others.
1. Documentation procedures. The tickets were unnumbered. By num-
bering the tickets, the students could have been held more accountable
for the tickets. See number 3 below.
3. Documentation procedures. No record was kept of which students
took tickets to sell or how many they took. In combination with items 1
and 2 above, the student assigned control over the tickets should have
kept a record of which tickets were issued to each student for resale.
(Note: This problem could have been largely avoided if the tickets had
only been sold at the door on the day of the dance.)
PROBLEM 7-2A (Continued)
7. Segregation of duties. Sandy Overbay counted the funds, made out the
deposit slip, and took the funds to the bank. This made it possible for
Sandy Overbay to take some of the money and deposit the rest since
there was no external check on his work. Trent should have counted
the funds, with someone observing him. Then he could have made out
the deposit slip and had Sandy Overbay deposit the funds.
PROBLEM 7-3A
(a) REDEKER COMPANY
Bank Reconciliation
July 31, 2014
Cash balance per bank statement ………………… $7,690.80
Add: Deposits in transit …………………………….. 1,193.30
8,884.10
(b) July 31 Cash ……………………………………………. 1,520
Miscellaneous Expense ……………….. 10
Notes Receivable ………………….. 1,500
Interest Revenue …………………… 30
PROBLEM 7-4A
(a) LAROCHE COMPANY
Bank Reconciliation
November 30, 2014
Cash Balance per bank statement ……………. $17,712.50
Add: Deposits in transit ………………………… 1,304.00
19,016.50
Less: Outstanding checks
No. 2451 ……………………………………. $1,260.40
No. 2472 ……………………………………. 426.80
No. 2478 ……………………………………. 538.20
No. 2482 ……………………………………. 612.00
No. 2484 ……………………………………. 829.50
PROBLEM 7-4A (Continued)
(b) Nov. 30 Cash ………………………………………………… 2,242
Miscellaneous Expense …………………….. 15
Notes Receivable ……………………….. 2,100
Interest Revenue ……………………….. 157
30 Miscellaneous Expense …………………….. 85
PROBLEM 7-5A
(a) ZIMMERMAN COMPANY
Bank Reconciliation
May 31, 2014
Cash balance per bank statement ……………….. $6,968.00
Add: Deposits in transit ……………………………. $1,880.15
Bank error—Zinderberg ……………………. 360.00 2,240.15
9,208.15
9,428.90
Less: NSF check ……………………………………….. $ 380.00
(b) May 31 Cash …………………………………………… 2,690
Miscellaneous Expense ……………….. 20
Notes Receivable ………………….. 2,600
Interest Revenue …………………… 110
31 Accounts Receivable—
B. Sullivan ………………………………… 380
Cash …………………………………….. 380
PROBLEM 7-6A
LANGERHAN INC.
Cash Budget
For the Month Ending April 30, 2014
Beginning cash balance ……………………………………… $11,000
Add: Cash receipts
Less: Cash disbursements
Payment of March purchases ……………………. 22,400
April cash purchases ……………………………….. 28,100
Cash operating costs ……………………………….. 11,200
PROBLEM 7-7A
CASTLE CORPORATION
Cash Budget
For the Two Months Ending February 28, 2014
January February
Beginning cash balance …………………………………. $ 46,000 $ 43,000
Add: Cash receipts
Less: Cash disbursements
Purchases ……………………………………………. 110,000 135,000
Salaries ……………………………………………….. 84,000 81,000
Administrative expenses (Jan. $72,000 –
$1,000; Feb. $75,000 – $1,000) ……………. 71,000 74,000
PROBLEM 7-8A
(a) HEISEY COMPANY
Bank Reconciliation
October 31, 2014
Balance per bank statement ……………………………………….. $18,380.00
Plus: Undeposited receipts ………………………………………. 3,795.51
22,175.51
Less: Outstanding checks
No. Amount No.
A
mount
62
$140.75
862
$190.71
(b) The cashier attempted to cover the theft of $1,044.00 by:
1. Not listing as outstanding three checks totaling $574.00 (No. 62,
$140.75; No. 183, $180.00; and No. 284, $253.25).
PROBLEM 7-1B
(a) Weaknesses include the following.
1. There is no clear establishment of responsibility. All members
appear to have the authority to take books and collect cash.
2. There is little or no segregation of duties. The treasurer purchased
the books, and will deposit cash as it is collected.
(b) Improvements include the following.
1. A club member should be assigned as the director of this fund-
raising program. This member would track distribution, sales, and
returns of books.
PROBLEM 7-1B (Continued)
4. The supply of books should be kept in a secure (locked) location,
not on an open shelf. When students need more books, they must
contact the member in charge of inventory and complete a receipt.
Collections from sales must be kept in a secure (locked) location
and deposited in the bank as collected.
PROBLEM 7-2B
Violations:
1. It is Sue’s responsibility to post payments to patient accounts. In allowing
Tom to assist her, the establishment of responsibility principle is
violated.
3. The documentation principle is violated when patients are not given
cash receipts.
PROBLEM 7-3B
(a) TAGGERT COMPANY
Bank Reconciliation
March 31, 2014
Cash balance per bank statement ………………… $6,041.40
Add: Deposits in transit …………………………….. 1,481.60
7,523.00
(b) Mar. 31 Cash ……………………………………………. 2,095
Miscellaneous Expense ……………….. 20
Notes Receivable ………………….. 2,000
Interest Revenue …………………… 115
PROBLEM 7-4B
(a) TRIAD IMPORTS, INC.
Bank Reconciliation
August 31, 2014
Balance per bank statement …………………….. $13,563
Add: Deposits in transit ………………………… 500
14,063
Less: Outstanding checks
No. 3151 ……………………………………. $ 290
No. 3172 ……………………………………. 1,000
No. 3178 ……………………………………. 1,598
No. 3182 ……………………………………. 1,508
(b) Aug. 31 Cash ……………………………………….. 1,670
Miscellaneous Expense …………… 10
Notes Receivable ……………… 1,600
Interest Revenue ………………. 80
PROBLEM 7-5B
(a) BUG BUSTERS COMPANY
Bank Reconciliation
October 31, 2014
Cash balance per bank statement ……………………. $4,070
Add: Deposits in transit ………………………………… $2,390
Bank error—Fig Leaf …………………………….. 120 2,510
(b) Oct. 31 Cash ……………………………………………….. 1,035
Miscellaneous Expense……………………. 15
Notes Receivable ……………………… 1,000
Interest Revenue ………………………. 50
31 Accounts Receivable—J. Simpson…….. 230
Cash ………………………………………… 230
PROBLEM 7-6B
ITEMS INC.
Cash Budget
For the Month Ending June 30, 2014
Beginning cash balance ……………………………….. $19,000
Add: Cash receipts
Less: Cash disbursements
Payment of May purchases …………………. 18,200