CHAPTER 7
SOLUTIONS TO PROBLEMS—SET C
PROBLEM 7-1C
Principles
Application to Cash Disbursements
Establishment of responsibility.
Only the treasurer and assistant trea-
surer are authorized to sign checks.
Segregation of duties.
Invoices must be approved by both
the purchasing agent and the receiv-
ing department supervisor. Payment
can only be made by the treasurer or
assistant treasurer, and the check
signers do not record the cash dis–
bursement transactions.
PAID.
Physical controls.
Blank checks are kept in a safe in
surer and assistant treasurer have
access to the safe. A checkwriter is
used in writing checks.
Independent internal verification.
The check signer compares the check
with the approved invoice prior to
issue. Bank and book balances are
reconciled monthly by the assistant
chief accountant.
Human resource controls.
All employees who handle or account
for cash are bonded.
PROBLEM 7-2C
(a) The weaknesses in internal accounting control over collections are:
(1) Each usher could take cash from the collection plates en route to
the basement office.
(2) The head usher counts the cash alone.
(4) The financial secretary counts the cash alone.
(6) The cash is vulnerable to robbery when kept in the safe overnight.
(8) The financial secretary has custody of the cash, maintains church
records, and prepares the bank reconciliation.
(b) The improvements should include the following:
(1) The ushers should transfer their cash collections to a cash pouch
(2) The head usher and a finance committee member should take the
(3) Following the count, the financial secretary should prepare a deposit
(4) At the end of each month, a member of the finance committee
should prepare the bank reconciliation.
(c) The policies that should be changed are:
(1) Members should make checks payable to the church.
(2) A petty cash fund should be established for the financial secretary
committee for approval.
(3) The financial secretary should be bonded.
PROBLEM 7-3C
(a) LABAN COMPANY
Bank Reconciliation
May 31, 2014
Cash balance per bank statement ………………… $7,964.60
Add: Deposits in transit …………………………….. $799.15
Bank error—Logan check ………………….. 290.00 1,089.15
9,053.75
Cash balance per books ……………………………… $5,681.50
Less: NSF check ………………………………………… $165.00
Error in May 12 deposit ……………………… 10.00
Error in recording check No. 1181 ……… 27.00
(b) May 31 Cash ……………………………………………. 2,538
Miscellaneous Expense ……………….. 42
Notes Receivable ………………….. 2,500
Interest Revenue …………………… 80
PROBLEM 7-4C
(a) CARLIN COMPANY
Bank Reconciliation
December 31, 2014
Cash balance per bank statement ……………. $18,988.40
Add: Deposits in transit ………………………… 1,190.40
20,178.80
Less: Outstanding checks
No. 3471 ……………………………………. $ 844.50
No. 3474 ……………………………………. 1,050.00
Cash balance per books ………………………….. $12,513.30
Add: Note collected by bank
($2,500 + $160 – $15) …………………. 2,645.00
15,158.30
(b) Dec. 31 Cash ……………………………………….. 2,645.00
Miscellaneous Expense …………… 15.00
Notes Receivable ……………… 2,500.00
Interest Revenue ………………. 160.00
PROBLEM 7-5C
(a) GROSSFELD COMPANY
Bank Reconciliation
July 31, 2014
Cash balance per bank statement ………………… $7,043.80
Add: Deposits in transit …………………………….. 1,339.00
8,382.80
Less: Outstanding checks ………………………….. 2,480.10
Adjusted cash balance per bank ………………….. $5,902.70
(b) July 31 Cash ……………………………………………. 930
Miscellaneous Expense ……………….. 18
Notes Receivable ………………….. 900
Interest Revenue …………………… 48
PROBLEM 7-6C
(a) PINCUS CO.
Cash Budget
For the Two Months Ending February 28, 2014
January February
Beginning cash balance …………………………. $ 26,000 $ 25,000
Add: Receipts
Collections from customers ………….. 70,000 147,000
(b) A cash budget is a key business activity which contributes to effective
PROBLEM 7-7C
VAUX INC.
Cash Budget
For the Two Months Ending February 28, 2014
January February
Beginning cash balance ……………………………….. $ 58,000 $ 43,000
Add: Receipts
Less: Disbursements
Purchases ………………………………………….. 98,000 118,000
Salaries ………………………………………………. 80,000 95,000
Selling and administrative expenses …… 132,000 150,000
Purchase of land ………………………………… 0 20,000
PROBLEM 7-8C
(a) MONTI COMPANY
Bank Reconciliation
October 31, 2014
Balance per bank statement ……………………………………….. $13,600.00
Less: Outstanding checks
No.
Amount
No.
Amount
62
183
284
$126.75
190.00
253.25
862
863
864
$190.71
226.80
165.28
………………..
1,152.79
(b) The cashier attempted to cover the theft of $1,550.00 by:
$126.75; No. 183, $190.00; and No. 284, $253.25).
3. Subtracting the $440 credit from the bank balance instead of add–
(c) 1. The principle of independent internal verification has been violated
2. The principle of segregation of duties has been violated because