EXERCISE 7-11
(a) Deposits in transit = $74,000 – ($71,000 – $4,800) = $7,800
(c) PERTH INC.
Bank Reconciliation
August 31, 2017
Cash balance per bank statement ………………….. $20,692*
Add: Deposits in transit ……………………………….. 7,800
28,492
(d) Aug. 31 Cash …………………………………………………… 45
Interest Revenue ………………………….. 45
EXERCISE 7-12
(a) Cash and Cash Equivalents
2. U.S. Treasury bill …………………………………………………….. 10,000
5. Checking account …………………………………………………… 2,500
(b) 4. Post-dated check—Accounts Receivable; Balance Sheet
7. Prepaid postage in postage meter—Prepaid Postage Expense; Balance
EXERCISE 7-13
Suggestions to improve cash management practices for Lance, Art and
Wayne:
2. Bill clients as work progresses.
4. Arrange a long-term loan for renovations and equipment and plan the
EXERCISE 7-14
RIGLEY COMPANY
Cash Budget
For the Two Months Ending February 28, 2017
January February
Beginning cash balance ………………………………….. $ 46,000 $ 24,000
Add: Cash receipts
Collections from customers ………………….. 71,000 146,000
Less: Cash disbursements
Payments to suppliers …………………………... 40,000 75,000
Wages ………………………………………………….. 30,000 40,000
Excess (deficiency) of available cash over
disbursements ……………………………………………… 24,000 12,000
Financing
*EXERCISE 7-15
Oct. 1 Petty Cash ………………………………………………… 150.00
Cash ………………………………………………….. 150.00
31 Petty Cash ………………………………………………… 50.00
Postage Expense …………………………..………….. 39.70
*EXERCISE 7-16
(a) Aug. 1 Petty Cash …………………………………………. 200.00
Cash …………………………………………… 200.00
15 Freight-Out ………………………………………… 74.40
16 Petty Cash …………………………………………. 200.00
Cash …………………………………………… 200.00
31 Postage Expense ……………………………….. 145.00
(b)
Petty Cash
8/31 Bal. 400
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
(3) The treasurer’s office examines all payments and stamps
(4) Surprise counts can be made at any time to determine whether
SOLUTIONS TO PROBLEMS
PROBLEM 7-1A
(a)
Principles
Application to Gary Theater
Establishment of responsibility.
Only cashiers are authorized to sell
tickets. Only the manager and cashier
can handle cash.
Segregation of duties.
The manager maintains custody of the
cash, and the company accountant
records the cash.
The duties of receiving cash and
admitting customers are assigned to
Documentation procedures.
Tickets are prenumbered. Cash count
sheets are prepared. Deposit slips are
prepared.
Physical controls.
A safe is used for the storage of cash
and a machine is used to issue tickets.
comparisons are made by the company
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
(2) The cashier could issue a lower price ticket than paid for and the
doorperson would admit the customer. The difference between the
PROBLEM 7-2A
Grant 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-
2. Physical controls and establishment of responsibility. The tickets were
3. Documentation procedures. No record was kept of which students
took tickets to sell or how many they took. In combination with items 1
4. Documentation procedures. There was no control over unsold tickets.
This deficiency made it possible for students to sell tickets, keep the
5. Establishment of responsibility. Inadequate control over the cash box.
6. Documentation procedures. Instead of receipts, students simply wrote
PROBLEM 7-2A (Continued)
7. Segregation of duties. Lynn Dandi counted the funds, made out the
deposit slip, and took the funds to the bank. This made it possible for
8. Documentation procedures. Grant did not receive a receipt from Kray
9. Segregation of duties. Dana Uhler was collecting tickets and receiving
PROBLEM 7-3A
(a) KEEDS COMPANY
Bank Reconciliation
July 31, 2017
Cash balance per bank statement ………………… $7,690.80
Add: Deposits in transit …………………………….. 1,193.30
8,884.10
Less: NSF check ………………………………………… $575.00
Error in recording check No. 2480 ……… 36.00
(b) July 31 Cash ……………………………………………. 1,520
Accounts Receivable …………….. 1,520
31 Accounts Receivable—W. Krueger … 575
Cash …………………………………….. 575
PROBLEM 7-4A
(a) BOGALUSA COMPANY
Bank Reconciliation
November 30, 2017
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
Cash Balance per books………………………….. $11,073.80
Add: Electronic funds
PROBLEM 7-4A (Continued)
(b) Nov. 30 Cash ………………………………………………… 2,242
Accounts Receivable …………………. 2,242
PROBLEM 7-5A
(a) TIMMINS COMPANY
Bank Reconciliation
May 31, 2017
Cash balance per bank statement ……………….. $6,968.00
Add: Deposits in transit ……………………………. $1,880.15
Bank error—Tomins …………………………. 360.00 2,240.15
9,208.15
Less: Outstanding checks ………………………….. 276.25
Less: NSF check ……………………………………….. $ 380.00
Error in May 12 deposit …………………….. 50.00
(b) May 31 Cash …………………………………………… 2,690
Notes Receivable ………………….. 2,690
31 Accounts Receivable—
S. Ballard ………………………………….. 380
Cash …………………………………….. 380
PROBLEM 7-6A
(a) DAISEY COMPANY
Bank Reconciliation
October 31, 2017
Balance per bank statement ……………………………………….. $18,380.00
Less: Outstanding checks
No.
Amount
No.
Amount
62
$140.75
862
$190.71
(b) The cashier attempted to cover the theft of $1,044.00 by:
$140.75; No. 183, $180.00; and No. 284, $253.25).
3. Subtracting the $185 credit from the bank balance instead of adding
(c) 1. The principle of independent internal verification has been violated
because the cashier prepared the bank reconciliation.
2. The principle of segregation of duties has been violated because
PROBLEM 7-7A
MOTNAHAN INC.
Cash Budget
For the Month Ending April 30, 2017
Beginning cash balance ………………………………………. $11,000
Add: Cash receipts
Cash sales ……………………………………………….. 42,000
Collections from customers ………………………. 18,400
Less: Cash disbursements
Payment of March purchases ……………………. 22,400
April cash purchases ………………………………… 28,100
PROBLEM 7-8A
BASTILLE CORPORATION
Cash Budget
For the Two Months Ending February 28, 2017
January February
Beginning cash balance …………………………………. $ 46,000 $ 43,000
Add: Cash receipts
Collections from customers ………………….. 326,000 378,000
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
ACCOUNTING CYCLE REVIEW
(a)
Dec. 7
Cash …………………………………………………….
Accounts Receivable ……………………..
3,600
3,600
12
Inventory ………………………………………………
Accounts Payable …………………………..
12,000
12,000
Cost of Goods Sold ……………………………….
Inventory ……………………………………….
10,000
10,000
19
Salaries and Wages Expense …………………
Cash ………………………………………………
2,200
2,200
Accounts Receivable ……………………..
Cash
12/31 Bal. 27,420
12/31 Bal. 6,100
12/1 Bal. 50,000
12/1 Bal. 18,200
12/19 2,200
Notes Receivable
12/1 Bal. 2,000
12/31 2,000
12/31 Bal. – 0 –
12/31 Bal. 1,880
12/17 16,000
12/31 Bal. 16,000
12/26 320
12/31 Bal. 320
Inventory
12/1 Bal. 16,000
12/12 12,000
12/17 10,000
12/22 120
12/31 Bal. 17,880
Prepaid Insurance
12/1 Bal. 1,600
12/31 400
12/31 Bal. 1,200
12/1 Bal. 28,000
12/31 Bal. 3,200
12/31 425
12/19 2,200
12/31 Bal. 2,200
12/31 400
12/31 Bal. 400
12/31 425
12/31 Bal. 425
Accounts Payable
12/22 12,000
12/1 Bal. 6,100
12/12 12,000
Retained Earnings
12/1 Bal. 14,200
Sales Revenue
Cost of Goods Sold
12/17 10,000
12/31 Bal. 10,000
Depreciation Expense
12/31 200
12/31 Bal. 200
ACR SOLUTION (Continued)
(c) HAVENHILL COMPANY
Bank Reconciliation
December 31, 2017
Cash balance per bank statement …………………….. $25,930
Add: Deposits in transit ……………………………………. 2,700
28,630
(d) Dec. 31 Cash ………………………………………………….. 2,000
Notes Receivable …………………………. 2,000
31 Accounts Receivable ………………………….. 680
Cash ……………………………………………. 680
31 Depreciation Expense ………………………… 200
ACR SOLUTION (Continued)
(f) HAVENHILL COMPANY
Adjusted Trial Balance
December 31, 2017
DR.
CR.
Cash ……………………………………………………..
$27,420
Accounts Receivable ……………………………..
1,880
Inventory ……………………………………………….
17,880
Prepaid Insurance ………………………………….
Equipment …………………………………………….
28,000
Accumulated Depreciation—Equipment ….
Accounts Payable ………………………………….
Income Taxes Payable …………………………...
Common Stock ………………………………………
50,000
Retained Earnings …………………………………
Sales Revenue ……………………………………….
16,000
Sales Discounts …………………………………….
320
Cost of Goods Sold ……………………………….
10,000
Depreciation Expense …………………………...
200
Salaries and Wages Expense …………………
2,200
Insurance Expense ………………………………..
Income Tax Expense ……………………………..
(g) HAVENHILL COMPANY
Income Statement
For the Month Ending December 31, 2017
Sales revenue ………………………………………..
$16,000
Less: Sales discounts …………………………..
320
Net sales ……………………………………………….
15,680
Cost of goods sold ………………………………..
Gross profit …………………………………………..
Operating expenses
Salaries and wages expense ……………
Insurance expense ………………………….
400
Depreciation expense ……………………..
2,800
Income before income taxes …………………..
Income tax expense ……………………………….
425