CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Ex. 7–28
a. Year 3: $4,118.5 per month ($49,422 ÷ 12)
Year 2: $1,165.3 per month ($13,983 ÷ 12)
Year 1: $3,614.3 per month ($43,371 ÷ 12)
7-19
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Prob. 7–1A
Strengths: a, b, e, and f
Weaknesses:
c. Employees should not be allowed to use the petty cash fund to cash personal
checks. In any case, postdated checks should not be accepted. In effect,
postdated checks represent a receivable from the employees.
d. Requiring cash register clerks to make up any cash shortages from their own
funds gives the clerks an incentive to shortchange customers. That is, the clerks
will want to make sure that they don’t have a shortage at the end of the day. In
PROBLEMS
7-20
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Prob. 7–2A
1 Petty Cash 750
Cash 750
12 Cash 12,465
Cash Short and Over 25
Sales 12,440
2016
Oct.
7-21
1.
Cash balance according to bank statement $128,660
Add: Deposit of November 30, not recorded by bank $18,550
Bank error in charging check as $940 instead
of $490 450 19,000
2.
2016
Nov. 30 Cash 26,750
Notes Receivable 25,000
CAPSTONE MEDICAL CO.
Bank Reconciliation
November 30, 2016
7-22
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Prob. 7–4A
1.
Cash balance according to bank statement $43,525
Add: Deposit of May 31, not recorded by bank $1,850
Bank error in charging check as $930 instead
of $390 540 2,390
*Cash balance, May 1………………………………………………………………
…
$ 34,250
2.
2016
May 31 Cash 5,250
Notes Receivable 5,000
Interest Revenue 250
BRENTWOOD BIKE CO.
Bank Reconciliation
May 31, 2016
7-23
1.
Cash balance according to bank statement $13,624.71
Add deposit of June 30, not recorded
by bank 1,117.74
$14,742.45
Deduct outstanding checks:
No. 738 $ 251.40
758 259.60
759 901.50 1,526.45
Adjusted balance $13,216.00
Cash balance according to company’s
records* $10,145.50
Add: Proceeds of note collected by bank:
…
…
BEELER FURNITURE COMPANY
Bank Reconciliation
June 30, 2016
7-24
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Prob. 7–5A (Concluded)
2.
2016
June 30 Cash 3,800.00
Notes Receivable 3,500.00
Interest Revenue 210.00
3.
4. The error of $540 ($930 – $390) in the canceled check should be added to the
$13,216.00
7-25
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Prob. 7–1B
Strengths: a, b, e, and f
Weaknesses:
c. An independent person (for example, a supervisor) should count the cash in
each cashier’s cash register, unlock the record, and compare the amount of cash
7-26
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
Prob. 7–2B
1 Petty Cash 1,000
2016
June
7-27
1.
2.
2016
STONE SYSTEMS
Bank Reconciliation
July 31, 2016
7-28
1.
Cash balance according to bank statement $112,675
2.
2016
Nov. 30 Cash 14,225
3. $78,535; the adjusted balance from the bank reconciliation should be reported
as cash on the November 30, 2016, balance sheet for Collegiate Sports Co.
COLLEGIATE SPORTS CO.
Bank Reconciliation
November 30, 2016
7-29
1.
633 310.08 1,285.28
Adjusted balance $11,494.00
Cash balance according to company’s records* $ 7,664.00
Add proceeds of note collected by bank:
…
…
SUNSHINE INTERIORS
Bank Reconciliation
7-30
2.
2016
Sales 18.00
Cash 411.00
4. The error of $1,620 ($1,800 – $180) in the canceled check should be added to the
7-31
CP 7–1
CP 7–2
Several control procedures could be implemented to prevent or detect the theft of
cash from fictitious returns.
One procedure would be to establish a policy of “no cash refunds.” That is, returns
CP 7–3
Several possible procedures for preventing or detecting the theft of grocery items by
failing to scan their prices include the following:
a. Most scanning systems are designed so that an audible beep is heard each time
7-32
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
CP 7–3 (Concluded)
c. Although this detection procedure would probably not be used in a grocery
CP 7–4
Jo is clearly behaving in an unprofessional manner in intentionally shortchanging
her customers.
At this point, Doris is in a difficult position. She is apparently adhering to Fuller’s
Organic Markets’ policy of making up shortages out of her own pocket, but she is
CP 7–5
1. There are several methods that could be used to determine how much the
cashier has stolen. The method described below is based on preparing a
bank reconciliation as illustrated in this chapter. Because of the theft of the
undeposited receipts, the bank reconciliation adjusted balances will not agree.
The difference between the adjusted balances is the estimate of the amount
1,650
225
750
800 5,150
Adjusted balance $ 6,925
No. 2670……………………………………………………… $1,050
3679……………………………………………………… 675
3690……………………………………………………… 1,650 $3,375
Unrecorded note plus interest incorrectly recorded on
the bank reconciliation prepared by the cashier…………
…
2,400
3690
5148
5149
5151
CP 7–5 (Concluded)
2. The cashier attempted to conceal the theft by preparing an incorrect bank
3. a. Two major weaknesses in internal controls that allowed the cashier to
steal the undeposited cash receipts are as follows:
●First, large amounts of undeposited cash receipts were kept on hand
during the month. For example, cash receipts for July 30 and 31 had
yet to be deposited as of July 31. The large amount of undeposited
7-35
CHAPTER 7 Sarbanes-Oxley, Internal Control, and Cash
CP 7–6
2. The order is simultaneously shown on a computer screen in the food
preparation area.
4. You drive farther to where your order is delivered by an employee other than
the cashier.
CP 7–7
1. Year 3: $497.8 per month ($5,974 ÷ 12)
2. Year 3: 5.6 months ($2,807 ÷ $497.8)
3. At the end of Year 1, TearLab had less than a month (0.3) of cash remaining.
During Year 2, the monthly cash expenses increased from $341.5 to $378.3. At the
end of Year 2, less than eight months (7.2) of cash remained. In Year 3, TearLab