CHAPTER 7
SOLUTIONS TO PROBLEMS—SET B
PROBLEM 7-1B
(a) Weaknesses include the following.
2. There is little or no segregation of duties. The treasurer purchased
the books, and will deposit cash as it is collected.
3. There are no documentation procedures. Members are allowed to
4. Physical controls are lacking. The books are kept on an open shelf
5. Independent internal verification procedures are not used. The
(b) Improvements include the following.
1. A club member should be assigned as the director of this fund–
2. Someone other than the treasurer should handle and track cash
3. Members who take books should sign a pre-numbered receipt
PROBLEM 7-1B (Continued)
4. The supply of books should be kept in a secure (locked) location,
not on an open shelf. When students need more books, they must
5. An independent club member with no responsibility for purchase,
PROBLEM 7-2B
Violations:
1. It is Sue’s responsibility to post payments to patient accounts. In allowing
2. Although this may be a small office, it is not appropriate that Tom
4. Independent internal verification is also violated. There is no independent
counting of the cash and comparison to total receipts.
6. Human resource controls are being violated. Tom should be required
PROBLEM 7-3B
(a) TAGGERT COMPANY
Bank Reconciliation
March 31, 2014
Cash balance per bank statement ………………… $6,041.40
Add: Deposits in transit …………………………….. 1,481.60
7,523.00
Less: Outstanding checks ………………………….. 1,360.00
7,269.20
(b) Mar. 31 Cash ……………………………………………. 2,095
Miscellaneous Expense ……………….. 20
Notes Receivable ………………….. 2,000
Interest Revenue …………………… 115
PROBLEM 7-4B
(a) TRIAD IMPORTS, INC.
Bank Reconciliation
August 31, 2014
Balance per bank statement …………………….. $13,563
Add: Deposits in transit ………………………… 500
14,063
Less: Outstanding checks
No. 3151 ……………………………………. $ 290
No. 3172 ……………………………………. 1,000
Add: Collection of note receivable
($1,600 plus accrued interest $80
(b) Aug. 31 Cash ……………………………………….. 1,670
Miscellaneous Expense …………… 10
Notes Receivable ……………… 1,600
Interest Revenue ………………. 80
31 Cash ……………………………………….. 90
Accounts Receivable ………… 90
PROBLEM 7-5B
(a) BUG BUSTERS COMPANY
Bank Reconciliation
October 31, 2014
Cash balance per bank statement ……………………. $4,070
Add: Deposits in transit ………………………………… $2,390
Bank error—Fig Leaf …………………………….. 120 2,510
6,580
Cash balance per books …………………………………. $4,632
Add: Collection of note receivable
($1,000 plus accrued interest $50
less collection fee $15) ……………………… 1,035
5,667
Less: NSF check ……………………………………………. $230
Error in deposit …………………………………….. 30
(b) Oct. 31 Cash ……………………………………………….. 1,035
Miscellaneous Expense……………………. 15
Notes Receivable ……………………… 1,000
Interest Revenue ………………………. 50
PROBLEM 7-6B
ITEMS INC.
Cash Budget
For the Month Ending June 30, 2014
Beginning cash balance ……………………………….. $19,000
Add: Cash receipts
Cash sales ………………………………………….. 18,000
Collections from customers ………………… 47,600
Total receipts ………………………………….. 65,600
Total available cash ………………………………………. 84,600
Less: Cash disbursements
PROBLEM 7-7B
NOBLE CORPORATION
Cash Budget
For the Two Months Ending February 28, 2014
January February
Beginning cash balance …………………………………. $ 52,000 $ 40,000
Add: Cash receipts
Less: Cash disbursements
Purchases ……………………………………………. 106,000 116,000
Salaries ………………………………………………… 72,000 78,000
Administrative expenses (Jan. $58,000 –
Excess (deficiency) of available cash over
disbursements ……………………………………………… 40,000 53,000
Financing
PROBLEM 7-8B
(a) ELITE SERVICE COMPANY
Bank Reconciliation
March 31, 2014
Balance per bank statement ……………………………………….. $5,931.51
Plus: Undeposited receipts ……………………………………….. 1,591.63
7,523.14
Less: Outstanding checks
No.
Amount
No.
Amount
206
$358.53
781
$286.00
Adjusted balance per bank …………………………..…………….. $5,681.00
(b) The cashier attempted to cover the theft of $1,383.53 by:
2. Underfooting the outstanding checks listed by $100. (The correct
total is $908.61.)
PROBLEM 7-8B (Continued)
2. The principle of segregation of duties has been violated because