Ex. 7.3 a.
b.
Employee theft is never ethical, even if it is committed to pay for medical bills.
There were several controls lacking at White Electric Supply which made it
possible for the bookkeeper to embezzle nearly $416,000 in less than five years.
Ex. 7.4 a.
b.
c. (1)
(2)
(3)
The fraudulent actions by D. J. Fletcher would not cause the general ledger to be
If Bluestem Products bonds its employees, it may be able to collect the $3,000
In the income statement, the Sales Returns and Allowances account would be
restitution.
Cash receipts should be deposited daily in the bank. The $3,000 of currency
The function of handling cash should be separate from the maintenance of
The employee who opens the mail should prepare a list of amounts
(4)
Ex 7.5 a. $ 15,200
Add: Undeposited receipts of December 31 ………………………………………..
10,000
$ 25,200
25
775
Cash …………………………………………………………..
Accounts Receivable (Jane Jones) …………………………………..
Bank Service Charges ………………………………………………..
b.
Balance per bank statement ……………………………………………………
Adjusted cash balance ……………………………………………………………..
$ 16,700
Balance per depositor’s records …………………………………………………..
$ 17,500
Adjusted cash balance, as above ………………………………………………….
$ 16,700
Jane Jones check returned NSF …………………………….
Service charges …………………………………………………….
Ex. 7.6
Ex. 7.7 a.
b.
d. (1)
Valuation at market value is not a departure from the principle of
e.
Fair value accounting benefits users of financial statements by showing
marketable securities at the amount of cash those securities represent under
The highest interest rates are offered by Citizens Trust Bank and Commerce Bank,
both are offering 0.05%. The benefit of investing with Citizens Trust is that there is
Marketable securities are either equity or debt instruments that are readily
cash at quoted market prices.
Cash generates little or no revenue. Marketable securities, on the other hand,
produce revenue in the form of dividends, interest, and perhaps increases in their
The valuation of marketable securities at market value is a departure from
c.
Ex. 7.8 a. 200,000
b. 155,000
155,000
Required year-end credit balance ………….………….….
Temporary debit balance……………………………….
Credit balance at beginning of year…………………………
Required adjustment for year……………………………….
Write-offs during year……………………………………..
c. 96,000
Accounts Receivable…………….……………………………….
d.
Ex. 7.9 a.
b.
c.
Adjusting the balance in the Allowance for Doubtful Accounts account based upon
Uncollectible Accounts Expense………………………………. ……..
The reason it takes Goodyear 17 days longer than PPL to collect its receivables is
due, in large part, to industry characteristics of each company. Customers of
Uncollectible Accounts Expense ………………………………………………………………………
Uncollectible Accounts Expense ……………………………………………………
Allowance for Doubtful Accounts…………………………………..
Allowance for Doubtful Accounts…………………………………..
Total Net Operating Non Operating
Transaction Assets Income Cash Flow Cash Flow
a. NE NE NE D*
b. NE NE INE
Ex. 7.10
d. NE NE NE NE
a.
b.
c.
d.
f.
g.
h.
Cash earmarked for a special purpose is not available to pay current liabilities and,
Compensating balances are included in the amount of cash listed in the balance sheet, and
Ex. 7.11
Cash equivalents normally are not shown separately in financial statements. Rather, they
The difference between the cost and current market value of securities owned is shown in
The accounts receivable turnover rate is equal to net sales divided by average accounts
Realized gains and losses on investments sold during the year are reported in the income
Transfers between cash and cash equivalents are not reported in financial statements. For
e.
Receivables
Gross
Curren
Turnover Net Retained Working
Transaction Profit Ratio Rate Income Earnings Capital
a. U NE UNE NE NE
Ex. 7.12
Ex. 7.13 a.
b.
c. Jan. 4 520,000
Marketable Securities ……………………………………
180,000
d.
The sale of securities on January 4, Year 2, will increase Wharton’s taxable
The amount of unrealized holding gain included in the securities’ current market
As of December 31, Year 1, Wharton Inc. still owns the marketable securities.
investments.
Cash …………………………………………………………
Gain on Sale of Investments ……………………
340,000
a.
Year 1
Aug. 1
1.
Year 2
Jan. 31
3.
Year 2
Jan. 31
4.
Interest Receivable ………………………………………………………
Interest Revenue …………………………………………………………
Interest Revenue ……………………………………………………..
Interest Receivable …………………………………………………..
43,200
Accounts Receivable (Dusty Roads) ……………………………………….
45,144
Notes Receivable ……………………………………………………..
Net
Revenue –Expenses = Income Assets = Equity
NE NE NE NE NE
INE I I I
INE I I I
INE I I I
4.
NE
3.
NE
Ex. 7.14
Notes Receivable ……………………………………………………..
43,200
Accounts Receivable (Dusty Roads) ………………………………
43,200
Cash ………………………………………………………………………….
45,144
Notes Receivable ………………………………………………………….
43,200
2.
NE
b.
Transaction
1.
NE
Liabilities +
Dec. 31
2.
Interest Revenue ……………………………………………………..
Interest Receivable ………………………………………………………..
b.
d. 88.519 billion
Accounts receivable 02/03/13
Average days outstanding (rounded)
Note to instructor: The notes accompanying the financial statements reveal that the company has an
The company does not report any investments in marketable securities. If Home Depot had
Net sales
Financial (current) assets = $4.106 billion (2.216 billion + 1.890 billion)
25 Minutes, Medium
a.
114,828$
16,000
b.
July 31 4,396
Notes Receivable 4,000
Office Equipment 396
July 31 50
Cash 250
To record collection by bank of note receivable
Accounts Receivable (Howard Williams)
charges and the customer’s check charged back as
office equipment.
from Rene Manes, and correct recorded cost of
Bank Service Charge
To adjust accounting records for bank service
d.
Add: Deposit in transit
General Journal
SOLUTIONS TO PROBLEMS SET A
PROBLEM 7.1A
BANNER, INC.
July 31
Bank Reconciliation
BANNER, INC.
Balance per bank statement, July 31
The balance per the company’s bank statement is often larger for two reasons: (1) There
Cash
Deduct: Outstanding checks
Deduct: Service charges
Adjusted cash balance
Balance per accounting records, July 31
Add: Note receivable collected by bank
Adjusted cash balance (as above)
45 Minutes, Strong
a. Corrected bank reconciliation for November:
Balance per bank statement, November 30 20,600$
1,245
21,845$
900$
6,255
1,000
5,000
13,255$
25,765$
reconciliation
Understating the sum of the outstanding checks
Error causing a $12,510 understatement of the
memorandum even though the caption stated
that this amount should be added
Total shortage concealed in Escola’s bank
Subtracting the $6,255 amount of the credit
adjusted balance per the accounting records:
that were listed
Omitting check no. 8294 from the outstanding check
list
to the balance per the bank statement
Making an addition error in adding the adjustments
the following intentional errors in her reconciliation:
Errors leading to a $13,255 overstatement of the
b. Escola attempted to conceal the shortage by making
by the bank to the bank balance
adjusted balance per the bank statement:
Overstating the deposit in transit with a
transposition error
Add: Deposit in transit
Subtotal
Improperly adding the amount of the note collected
PROBLEM 7.2A
OSAGE FARM SUPPLY
November 30
BANK RECONCILIATION
OSAGE FARM SUPPLY
6,100
15,745$
35,400$
6,255
41,655$
15,745$
recognition of cash shortage
Balance per accounting records
Add: Note receivable collected by bank
Subtotal
Less: NSF check returned
Adjusted cash balance per accounting records
Bank service charges
Adjusted cash balance per accounting records prior to
Less: Outstanding checks:
no. 8231
no. 8263
Adjusted cash balance per bank statement
no. 8288
no. 8294
Total outstanding checks