CHAPTER 8
SOLUTIONS TO EXERCISES—SET B
EXERCISE 8-1B
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
(ticket) in registering the sale on the cash register. The cash register
produces a tape of all sales.
EXERCISE 8-2B
(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
EXERCISE 8-2B (Continued)
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
3.
Cash is not
independently
counted.
Independent
internal
verification.
A cashier office
supervisor should
count cash.
handle cash.
take vacations.
controls.
either take vacations
jobs and shifts.
EXERCISE 8-3B
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
1.
The approval
and payment
of bills is done
by the same
individual.
Segregation
of duties.
The store manager
should approve bills
for payment and the
treasurer should sign
and issue checks.
is not
independently
prepared.
verification.
responsibilities
should prepare the
bank reconciliation.
a secure area.
storage area.
EXERCISE 8-3B (Continued)
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
4.
Checks are not
prenumbered.
Documentation
procedures.
Checks should
be prenumbered
and subsequently
accounted for.
bill from being
paid more than
once.
payment.
EXERCISE 8-4B
(a) Weaknesses
(b) Suggested Improvement
1. Checks are not prenumbered.
Use prenumbered checks.
2. The purchasing agent signs
checks.
Only the treasurer’s department
personnel should sign checks.
stored in a locked file cabinet
with access restricted to
4. Purchasing agent approves
and pays for goods purchased.
Purchasing should approve bills
for payment by the treasurer.
5. After payment, the invoice is
filed by payment date.
The invoice should be filed by
vendor name in paid invoices
file.
ments journal.
disbursements.
EXERCISE 8-4B (Continued)
(a) Weaknesses
(b) Suggested Improvement
7. The treasurer records the
checks in cash disbursements
journal.
Same as answer to No. 6.
bank statement.
An internal auditor should
reconcile the bank statement.
(b) To: Treasurer, Noble Company
From: Accounting Student
I have reviewed your cash disbursements system and suggest that you
make the following improvements:
1. Noble Company should use prenumbered checks. These should
be stored in a locked file cabinet or safe with access restricted to
authorized personnel.
EXERCISE 8-5B
Procedure
IC good or weak?
Related internal control principle
1.
Good
Establishment of Responsibility
2.
Weak
Independent Internal Verification
3.
Good
Segregation of Duties
4.
Weak
Segregation of Duties
5.
Weak
Documentation Procedures
EXERCISE 8-6B
Procedure
IC good or weak?
Related internal control principle
1.
Weak
Human Resource Controls
2.
Good
Establishment of Responsibility
3.
Good
Segregation of Duties
4.
Weak
Independent Internal Verification
5.
Weak
Physical Controls
EXERCISE 8-7B
May 1 Petty Cash ……………………………………………… 200.00
Cash ……………………………………………… 200.00
June 1 Delivery Expense ……………………………………. 69.30
Postage Expense ……………………………………. 75.50
EXERCISE 8-8B
Mar. 1 Petty Cash ……………………………………………………….. 150
Cash ……………………………………………………….… 150
15 Postage Expense ……………………………………………… 35
Freight-out ……………………………………………………….. 19
EXERCISE 8-9B
(a) Cash balance per bank statement ………………. $4,714.60
Add: Deposits in transit …………………………... 730.00
5,444.60
Less: Outstanding checks ………………………… 914.00
(b) Accounts Receivable …………………………………. 630.00
Cash ………………………………………………….. 630.00
EXERCISE 8-10B
The outstanding checks are as follows:
No.
Amount
255
$ 510
EXERCISE 8-11B
(a) TIM’S DVD COMPANY
Bank Reconciliation
July 31
Cash balance per bank statement ……………………………… $2,542
Add: Deposits in transit ………………………………………….. 825
3,367
Less: Outstanding checks ……………………………………….. 207
Adjusted cash balance per bank …………………………..…… $3,160
(b) July 31 Cash …………………………………………………………. 621
Miscellaneous Expense ……………………………… 15
EXERCISE 8-12B
(a) MORSE COMPANY
Bank Reconciliation
September 30
Cash balance per bank statement …………………….. $ 9,525
Add: Deposits in transit ………………………………….. 2,581
12,106
(b) Sept. 30 Cash ………………………………………………. 884
Notes Receivable ……………………… 850
Interest Revenue ……………………… 34
30 Cash ………………………………………………. 26
Interest Revenue ……………………… 26
EXERCISE 8-13B
(a) Deposits in transit:
Deposits per books in July ……………………….. $18,940
Deposits per bank in July …………………………. $17,200
EXERCISE 8-13B (Continued)
(b) Outstanding checks:
Checks per books in July …………………………... $17,850
Less: Checks clearing bank in July ……………. $17,050
(c) Deposits in transit:
Deposits per bank statement in September …. $25,400
Add: Deposits in transit, September 30 ……… 1,900
Total deposits to be accounted for ……………… 27,300
(d) Outstanding checks:
Checks clearing bank in September ……………. $22,800
Add: Outstanding checks, September 30 …… 3,200
EXERCISE 8-14B
(a) Cash and cash equivalents should be reported at $37,400.
Cash in bank ……………………………………………………….….. $20,000
(b) “Cash in plant expansion fund” should be reported as part of long–term
investments (a noncurrent asset). “Receivables from customers” should be
SOLUTIONS TO PROBLEMS—SET C
PROBLEM 8-1C
(a)
Principles
Application to Spotlight Theater
Establishment of responsibility.
Only cashiers are authorized to sell
tickets. Only the manager and cashier
can handle cash.
Segregation of duties.
The duties of receiving cash and admit–
ting customers are assigned to the
cashier and to the usher. The manager
maintains custody of the cash, and the
company accountant records the cash.
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.
Independent internal verification.
Cash counts are made by the manager
at the end of each cashier’s shift. Daily
comparisons are made by the company
treasurer.
Human resource controls.
Cashiers are bonded.
(b) Actions by the usher and cashier to misappropriate cash might include:
(1) Instead of tearing the tickets, the usher could return the tickets to
the cashier who could resell them, and the two could divide the cash.
PROBLEM 8-2C
(a) July 1 Petty Cash ………………………………………… 200.00
Cash ………………………………………….. 200.00
15 Freight-out ………………………………………… 94.00
Postage Expense ………………………………. 42.40
31 Freight-out ………………………………………… 82.10
Charitable Contributions Expense ………. 30.00
Aug. 15 Freight-out ………………………………………… 74.40
Entertainment Expense ……………………… 41.50
Postage Expense ………………………………. 33.00
31 Postage Expense ………………………………. 145.00
Entertainment Expense ……………………… 90.60
(b)
Petty Cash
Date
Explanation
Ref.
Debit
Credit
Balance
PROBLEM 8-2C (Continued)
(c) The internal control features of a petty cash fund include:
(1) A custodian is responsible for the fund.
PROBLEM 8-3C
(a) EZY FERTILIZER COMPANY
Bank Reconciliation
May 31, 2017
Cash balance per bank statement ………………. $6,804.60
Add: Deposit in transit …………………………….. $1,436.15
Bank error—Bohr check ………………….. 600.00 2,036.15
8,840.75
Less: Outstanding checks ………………………… 515.25
Adjusted cash balance per bank ………………… $8,325.50
(b) May 31 Cash ………………………………………………………. 2,555
Miscellaneous Expense …………………………... 25
Notes Receivable …………………………….. 2,500
Interest Revenue ……………………………… 80
31 Accounts Receivable—Tyler Gricius ………… 934
Cash ……………………………………………….. 934
PROBLEM 8-4C
(a) LONBERG COMPANY
Bank Reconciliation
November 30, 2017
Balance per bank statement …………………….. $17,069.40
Add: Deposits in transit …………………………. 2,338.00
19,407.40
Less: Outstanding checks
No. 2451 …………………………………….. $1,260.40
No. 2472 …………………………………….. 503.60
Balance per books …………………………………… $10,846.90
Add: Note collected by bank
($2,400 note plus $120 interest
less $15 fee) …………………………..……… 2,505.00
13,351.90
PROBLEM 8-4C (Continued)
(b) Nov. 30 Cash …………………………………………………. 2,505
Miscellaneous Expense ……………………… 15
Notes Receivable ………………………… 2,400
Interest Revenue …………………………. 120
PROBLEM 8-5C
(a) STEINBRENNER COMPANY
Bank Reconciliation
August 31, 2017
Cash balance per bank statement ………………….. $25,932
Add: Deposits in transit (1) ………………………….. $ 8,590
Bank error ($278 – $275) ……………………… 3 8,593
34,525
Less: Outstanding checks (2) ……………………….. 6,393
(1) August receipts per books ……………………… $77,000
August deposits per bank ………………………. $72,410
Less: Deposits in transit, July 31 ……………. 4,000 68,410
Deposits in transit, August 31 …………………. $ 8,590
(2) Disbursements per books in
August……………………………….. $73,570
PROBLEM 8-5C (Continued)
(b) Aug. 31 Cash …………………………………………………….. 7,630
Notes Receivable ……………………………. 7,500
Interest Revenue …………………………….. 130
31 Cash …………………………………………………….. 32
Interest Revenue …………………………….. 32
PROBLEM 8-6C
(a) TAVARES COMPANY
Bank Reconciliation
October 31, 2017
Balance per bank statement ………………………………………. $18,180.00
Plus: Undeposited receipts ………………………………………. 3,795.51
21,975.51
Less: Outstanding checks
No.
Amount
No.
Amount
62
$126.75
862
$190.71
Cash balance per books…………………………………………….. $21,892.72
Add: Bank credit (collection of note receivable) ………… 400.00
(b) The cashier attempted to cover the theft of $1,430.00 by:
1. Not listing as outstanding three checks totaling $530.00 (No. 62,
$126.75; No. 183, $150.00; and No. 284, $253.25).
PROBLEM 8-6C (Continued)
(c) 1. The principle of independent internal verification has been violated
because the cashier prepared the bank reconciliation.