CHAPTER 7
SOLUTIONS TO EXERCISES—SET B
EXERCISE 7-1B
1. Establishment of responsibility. The counter clerk is responsible for
handling cash. Other employees are responsible for making the food.
2. Segregation of duties. Employees who make the food do not handle cash.
3. Documentation procedures. The counter clerk uses your order invoice
4. Physical controls. A cash register is used to record the sale.
5. Independent internal verification. The counter clerk, in handling the food,
6. Human resource controls. No visible application possible.
EXERCISE 7-2B
(a)
(b)
Procedure
Weakness
Recommended
Change
1.
for cash with
a specific clerk.
register codes
for each clerk.
Inability to
establish
There should be
separate cash
2.
from theft.
in bank.
Cash is not
Cash should be
EXERCISE 7-2B (Continued)
(a)
(b)
Procedure
Weakness
Principle
Violated
Recommended
Change
3.
counted.
verification.
count cash.
Cash is not
Independent
A cashier office
4.
accountant
should not
handle cash.
of duties.
department should
make the deposits.
The bookkeeper/
Segregation
The cashier’s
5.
jobs and shifts.
Cashiers do not
Human resource
All cashiers should
EXERCISE 7-3B
(a)
(b)
Procedure
Weakness
Principle
Violated
Recommended
Change
1.
of bills is done
by the same
individual.
for payment and the
treasurer should sign
and issue checks.
The approval
and payment
Segregation
of duties.
The store manager
should approve bills
2.
is not
independently
prepared.
verification.
responsibilities
should prepare the
bank reconciliation.
The bank
reconciliation
Independent
Internal
Someone with no
other cash
3.
Antiques are
Physical
Antiques should be
EXERCISE 7-3B (Continued)
(a)
(b)
Procedure
Weakness
Principle
Violated
Recommended
Change
4.
accounted for.
Checks are not
Documentation
Checks should
not bonded.
controls.
be bonded.
EXERCISE 7-4B
(a) Cash balance per bank statement ………………. $3,660.20
Add: Deposits in transit …………………………... 590.00
4,250.20
(b) Cash balance per books ……………………………. $3,975.20
(c) Accounts Receivable …………………………………. 570.00
Cash …………………………………………………….. 570.00
EXERCISE 7-5B
(a) Weaknesses
(b) Suggested Improvement
Use prenumbered checks.
personnel should sign checks.
2. The purchasing agent signs
Only the treasurer’s department
in a locked file cabinet with access
restricted to authorized personnel.
3. Unissued checks are stored in
Unissued checks should be stored
for payment by the treasurer.
4. Purchasing agent approves
Purchasing should approve bills
PAID.
5. After payment, the invoice is
The invoice should be stamped
6. The purchasing agent records
Only accounting department
7. The treasurer records the checks
Same as answer to No. 6 above.
reconcile the bank statement.
8. The treasurer reconciles the
An internal auditor should
EXERCISE 7-6B
(a) Cash balance per bank statement ………………. $3,777.20
Add: Deposits in transit …………………………... 490.00
4,267.20
(b) Cash balance per books ……………………………. $3,975.20
(c) Accounts Receivable …………………………………. 200.00
Cash ………………………………………………….. 200.00
EXERCISE 7-7B
The outstanding checks are as follows:
No.
Amount
255
$ 700
EXERCISE 7-8B
(a) LOHSE COMPANY
Bank Reconciliation
July 31, 2014
Cash balance per bank statement …………………………... $7,428
Add: Deposits in transit ……………………………………….. 3,100
10,528
(b) July 31 Cash ………………………………………………………. 2,536
Notes Receivable ……………………………… 2,500
Interest Revenue ……………………………… 36
EXERCISE 7-9B
(a) HAWKSWORTH COMPANY
Bank Reconciliation
September 30, 2014
Cash balance per bank statement …………………….. $17,500
Add: Deposits in transit …………………………………. 3,738
21,238
Cash balance per books ………………………………….. $17,600
Add: Collection of note receivable
($1,800 + $30) ………………………………………… $1,830
Interest earned ………………………………………. 45 1,875
(b) Sept. 30 Cash ………………………………………………. 1,830
Notes Receivable …………………….. 1,800
Interest Revenue ……………………… 30
30 Cash ………………………………………………. 45
Interest Revenue ……………………… 45
EXERCISE 7-10B
(a) Deposits in transit:
Deposits per books in July ……………………… $16,900
Less: Deposits per bank in July ……………… $15,600
(b) Outstanding checks:
Checks per books in July ……………………….. $17,500
(c) Deposits in transit:
Deposits per bank statement in
September ………………………………………….. $25,900
Add: Deposits in transit, September 30 …. 2,200
Total deposits to be accounted for ………….. 28,100
(d) Outstanding checks:
Checks clearing bank in September ………… $24,000
Add: Outstanding checks,
September 30 ………………………………. 2,600
Total checks to be accounted for ……………. 26,600
EXERCISE 7-11B
(a) Deposits in transit = $84,000 – ($81,000 – $4,800) = $7,800
(c) MARCIANO INC.
Bank Reconciliation
August 31, 2014
Cash balance per bank statement ………………… $20,692*
Add: Deposits in transit ……………………………… 7,800
28,492
Less: Outstanding checks ………………………….. 9,932
*Proof of cash balance per bank statement:
**Proof of cash balance per books:
(d) Aug. 31 Cash …………………………………………………… 45
Interest Revenue ………………………….. 45
EXERCISE 7-12B
(a) Cash and Cash Equivalents
1. Currency ………………………………………………………………… $ 100
2. U.S. Treasury bill …………………………………………………….. 10,000
3. April checks ……………………………………………………………. 480
(b) 4. Post-dated check—Accounts Receivable; Balance Sheet
7. Prepaid postage in postage meter—Prepaid Postage Expense; Balance
EXERCISE 7-13B
Suggestions to improve cash management practices for Rush and Kohrs:
1. Prepare a cash budget.
EXERCISE 7-14B
WARWICK COMPANY
Cash Budget
For the Two Months Ending February 28, 2014
January February
Beginning cash balance ………………………………….. $ 56,000 $ 26,000
Add: Receipts
Collections from customers ………………….. 71,000 146,000
Less: Disbursements
Payments to suppliers …………………………... 40,000 75,000
Wages ………………………………………………….. 30,000 40,000
Excess (deficiency) of available cash over
disbursements ………………………………………………. 26,000 13,000
Financing
*EXERCISE 7-15B
Oct. 1 Petty Cash ………………………………………………… 300.00
Cash ………………………………………………….. 300.00
31 Postage Expense ………………………………………. 39.70
Supplies ……………………………………………………. 26.10
Miscellaneous Expense …………………………….. 16.40
*EXERCISE 7-16B
(a) Aug. 1 Petty Cash …………………………………………. 200.00
Cash …………………………………………… 200.00
15 Freight-Out ………………………………………… 74.40
Entertainment Expense ……………………… 36.00
16 Petty Cash …………………………………………. 100.00
Cash …………………………………………… 100.00
31 Postage Expense ……………………………….. 145.00
(b)
Petty Cash
8/16 100
8/31 Bal. 300
8/1 200
(c)