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CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-19
Ex. 8–28
a. Year 3: $4,118.5 per month ($49,422 ÷ 12)
b. Year 3: 6.2 months ($25,668 ÷ $4,118.5)
c. At the end of Year 1, Amicus Therapeutics had 5.4 months of cash and cash
equivalents remaining to use in operations. During Year 2, Amicus issued $45
million of additional stock, which increased its ratio of cash to monthly cash
expenses to 25.4 months. In addition, negative cash flows from operations
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-20
Prob. 8–1A
Strengths: a, b, e, and f
Weaknesses:
c. Employees should not be allowed to use the petty cash fund to cash personal
d. Requiring cash register clerks to make up any cash shortages from their own
funds gives the clerks an incentive to shortchange customers. That is, the clerks
will want to make sure that they don’t have a shortage at the end of the day. In
g. The mail clerk should prepare an initial listing of cash remittances before
forwarding the cash receipts to the cashier. This establishes initial accountability
PROBLEMS
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-21
Prob. 8–2A
1 Petty Cash 750
Cash 750
12 Cash 12,465
Cash Short and Over 25
Sales 12,440
2016
Oct.
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-22
Prob. 8–3A
1.
Cash balance according to bank statement $128,660
Add:
Deposit of November 30, not recorded by bank $18,550
Bank error in charging check as $940 instead
of $490 450 19,000
$147,660
Deduct outstanding checks 32,700
2.
2016
Nov. 30 Cash 26,750
Notes Receivable
25,000
Interest Revenue
1,750
3. $114,960; the adjusted balance from the bank reconciliation should be reported
CAPSTONE MEDICAL CO.
Bank Reconciliation
November 30, 2016
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-23
Prob. 8–4A
1.
Cash balance according to bank statement $43,525
Add: Deposit of May 31, not recorded by bank $1,850
Bank error in charging check as $930 instead
of $390 540 2,390
*
Cash balance, May 1…………………………………………………………………
$34,250
2.
2016
May 31 Cash 5,250
Notes Receivable
5,000
Interest Revenue
250
BRENTWOOD BIKE CO.
Bank Reconciliation
May 31, 2016
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-24
Prob. 8–5A
1.
Cash balance according to bank statement $13,624.71
Add deposit of June 30, not recorded
Deduct outstanding checks:
No. 738 $251.40
758 259.60
759 901.50 1,526.45
Adjusted balance $13,216.00
Add: Proceeds of note collected by bank:
Principal $3,500.00
Interest 210.00 $3,710.00
Error in recording Check No. 743 90.00 3,800.00
BEELER FURNITURE COMPANY
Bank Reconciliation
June 30, 2016
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-25
Prob. 8–5A (Concluded)
2.
2016
June 30 Cash 3,800.00
Notes Receivable
3,500.00
Interest Revenue
210.00
3.
4. The error of $540 ($930 – $390) in the canceled check should be added to the
$13,216.00
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-26
Prob. 8–1B
Weaknesses:
c. An independent person (for example, a supervisor) should count the cash in
each cashier’s cash register, unlock the record, and compare the amount of cash
with the amount on the record to determine cash shortages or overages.
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-27
Prob. 8–2B
1 Petty Cash 1,000
Cash 1,000
30 Store Supplies 375
Merchandise Inventory 215
2016
June
8-28
1.
Cash balance according to bank statement $33,650
Add deposit of July 31, not recorded by bank
9,150
$42,800
of $1,810 630 18,495
Adjusted balance $24,305
2.
2016
July 31 Cash 6,635
Notes Receivable
5,750
Interest Revenue
345
3. $24,305; the adjusted balance from the bank reconciliation should be reported
STONE SYSTEMS
Bank Reconciliation
July 31, 2016
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-29
Prob. 8–4B
1.
Cash balance according to bank statement $112,675
Add deposit of November 30, not recorded by bank
12,200
$124,875
Adjusted balance $ 78,535
Cash balance according to company’s records* $ 66,935
Add:
Proceeds of note collected by bank, including
$385 interest $7,385
*
Cash balance, November 1……………………………………………
$81,145
2.
2016
Nov. 30 Cash 14,225
Notes Receivable
7,000
Interest Revenue
385
COLLEGIATE SPORTS CO.
Bank Reconciliation
November 30, 2016
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-30
Prob. 8–5B
1.
Cash balance according to bank statement $11,601.41
Add deposit of July 31, not recorded by bank
1,177.87
$12,779.28
Deduct outstanding checks:
633 310.08 1,285.28
Adjusted balance $11,494.00
Cash balance according to company’s records*
$7,664.00
Add proceeds of note collected by bank:
Principal
$4,000.00
Interest
160.00
Add error in recording July 23 deposit
18.00
*
Balance per cash in bank account, July 1…………
$9,578.00
Add July receipts…………………………………………
6,465.42
SUNSHINE INTERIORS
Bank Reconciliation
July 31, 2016
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-31
Prob. 8–5B (Concluded)
2.
2016
July 31 Cash 4,241.00
Sales
18.00
Accounts Payable
63.00
4. The error of $1,620 ($1,800 – $180) in the canceled check should be added to the
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
8-32
CP 8–1
Acceptable business and professional conduct requires Joel Kimmel to notify the
CP 8–2
Several control procedures could be implemented to prevent or detect the theft of
cash from fictitious returns.
One procedure would be to establish a policy of “no cash refunds.” That is, returns
could only be exchanged for other merchandise. However, such a policy might not
be popular with customers, and Turpin Meadows Electronics might lose sales from
customers who would shop at other stores with a more liberal return policy.
CP 8–3
Several possible procedures for preventing or detecting the theft of grocery items by
failing to scan their prices include the following:
a. Most scanning systems are designed so that an audible beep is heard each time
an item is rung up on the cash register. This is intended to alert the cashier that
the item has been properly rung up. Thus, observing whether a cashier is ringing
CASES & PROJECTS
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
CP 8–3 (Concluded)
c. Although this detection procedure would probably not be used in a grocery
store, it is used by Sam’s Clubs to detect this activity. Specifically, an employee
CP 8–4
Jo is clearly behaving in an unprofessional manner in intentionally shortchanging
her customers.
At this point, Doris is in a difficult position. She is apparently adhering to Fuller’s
Organic Markets’ policy of making up shortages out of her own pocket, but she is
obviously upset about it. If Doris accepts Jo’s advice, she will be engaging in
unprofessional behavior. Doris is also faced with the dilemma of whether she should
report Jo’s behavior. If Doris continues to work for Fuller’s Organic Markets, her
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
CP 8–5
1. There are several methods that could be used to determine how much the
cashier has stolen. The method described below is based on preparing a
Balance according to bank statement $10,575
Add undeposited cash receipts on hand 1,500
225
750
800 5,150
Adjusted balance $ 6,925
Note to Instructors: The amount stolen by the cashier could also be computed directly
from the cashier-prepared bank reconciliation as follows:
Outstanding checks omitted from the bank
reconciliation prepared by the cashier:
No.
2670………………………………………………………
$1,050
Unrecorded note plus interest incorrectly recorded on
the bank reconciliation prepared by the cashier……………
2,400
Addition error in the total of the outstanding checks in
5151
PARKER COMPANY
Bank Reconciliation
July 31, 2016
5148
5149
8-35
CP 8–5 (Concluded)
2. The cashier attempted to conceal the theft by preparing an incorrect bank
reconciliation. Specifically, the cashier (1) omitted outstanding checks on
3. a. Two major weaknesses in internal controls that allowed the cashier to
steal the undeposited cash receipts are as follows:
●First, large amounts of undeposited cash receipts were kept on hand
during the month. For example, cash receipts for July 30 and 31 had
yet to be deposited as of July 31. The large amount of undeposited
b. Two recommendations that would improve internal controls so that similar
types of thefts of undeposited cash receipts could be prevented are as
follows:
●All cash receipts should be deposited daily. This would reduce the
risk of significant cash losses. In addition, any missing cash would be
more easily detected.
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
CP 8–6
Note to Instructors: The purpose of this activity is to familiarize students with the
internal controls used by specific businesses. For example, when you order food
at a McDonald’s drive-through lane, your order is processed as follows:
2. The order is simultaneously shown on a computer screen in the food
preparation area.
4. You drive farther to where your order is delivered by an employee other than
the cashier.
CP 8–7
1. Year 3: $497.8 per month ($5,974 ÷ 12)
2. Year 3: 5.6 months ($2,807 ÷ $497.8)
3. At the end of Year 1, TearLab had less than a month (0.3) of cash remaining.
During Year 2, the monthly cash expenses increased from $341.5 to $378.3. At the
end of Year 2, less than eight months (7.2) of cash remained. In Year 3, TearLab
