Accounting Chapter 8 Homework The Recordkeeper Also Could Pocket Cash

Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 8

Chapter 8

Cash, Fraud, and Internal Controls

QUESTIONS

1. The seven broad principles are: Establish responsibilities; Maintain adequate records;

2. Internal control procedures become especially critical when the manager of a business

4. Separation of custody from recordkeeping of an asset encourages the asset custodian to

5. If individual departments were permitted to deal directly with suppliers, the amount of

9. Depositing all receipts on the day of receipt (1) creates an independent record of the

10. During the year ended September 26, 2015, cash (and equivalents) of $56,274 million is

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11. Google’s net income for 2015 was $16,348 million. Further, it reported a net decrease in

cash (and equivalents) of $1,798 million. These two figures are different because (1) net

13. Samsung’s cash and equivalents increased by ₩ 5,795,978 million during 2015;

Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 8

QUICK STUDIES

Quick Study 8-1 (10 minutes)

1. True

Quick Study 8-2 (10 minutes)

Quick Study 8-3 (10 minutes)

a. False

Quick Study 8-4 (10 minutes)

1. (a) Petty Cash …………………………………………………. 150

Cash ……………………………………………………. 150

2. Answers: a and c. The Petty Cash account is credited when:

Quick Study 8-5 (15 minutes)

Bank or Book Side Add or Subtract Adjusting Entry or Not

a. (1) Book (2) Add (3) Adjusting entry required

Quick Study 8-6 (25 minutes)

NOLAN COMPANY

Bank Reconciliation

June 30, 2017

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Quick Study 8-7 (15 minutes)

a. A bank reconciliation is a formal review process that requires the person to

precisely identify all transactions and events, and their amounts, that

b. A bank reconciliation has the potential to uncover several kinds of frauds

or errors that an online review is unlikely to reveal. Those include the

following:

• A company makes a deposit to its account but that deposit is incorrectly

added to another company’s account. A bank reconciliation would

• The bank incorrectly pays a common vendor’s bill from the company’s

cash account, when that vendor should have been paid from some other

• A company check writer incorrectly records a check to a regular vendor

for services provided at an amount larger than the bill received. A bank

Quick Study 8-8 (15 minutes)

Days’ sales uncollected = x 365

Quick Study 8-9A (10 minutes)

Documents prepared as part of a voucher system include: a, c, d.

Quick Study 8-10 (10 minutes)

a. The purposes and principles of internal control systems are

fundamentally the same for accounting systems reporting under IFRS

Accounts receivable

Net sales

Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 8

545

EXERCISES

Exercise 8-1 (10 minutes)

Evaluation

The company’s internal control system failed to require separation of asset

Principles Ignored

Exercise 8-2 (15 minutes)

1. A cash register (with a locked record) should be used at the sales

stand—it should also be anchored to the stand. If a cash register

2. The employee should sign a receipt for the total amount of cash he or

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Exercise 8-3 (10 minutes)

1. A liquid asset refers to an asset that can be readily converted into

3. Effective cash management applies the following five principles:

a. Encourages collection of receivables.

Exercise 8-4 (15 minutes)

(a) Internal Control Problems

(1) A major internal control problem is that the recordkeeper (who has

(2) The recordkeeper might also delay recording a cash receipt from a

customer until more cash comes in at a later date from a second

(b) Internal Control Recommendations

(1) If only one person is present when the mail is opened, that person may

steal cash and claim it was never received. If possible, two people

(2) It is important the recordkeeper not have physical control over cash.

Exercise 8-5 (20 minutes)

1.

Sept. 9

Petty Cash ………………………………………………………

2.

Sept. 30

Merchandise Inventory* …………………………………..

40

Postage Expenses …………………………………………..

Miscellaneous Expenses …………………………..…….

80

Cash Short and Over ……………………………………….

3.

Oct. 1

Petty Cash ………………………………………………………

50

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Exercise 8-6 (20 minutes)

1.

Jan. 1

Petty Cash ………………………………………………………

2.

Jan. 8

Postage Expense …………………………………………….

74

Merchandise Inventory* …………………………………..

29

Delivery Expense …………………………………………….

16

Miscellaneous Expenses …………………………..…….

43

3.

Jan. 8

Postage Expense …………………………………………….

74

Merchandise Inventory ……………………………………

29

Delivery Expense …………………………………………….

16

Miscellaneous Expenses …………………………..…….

43

Exercise 8-7 (10 minutes)

1. The voucher system of control establishes procedures for: (a) Verifying,

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Exercise 8-8 (20 minutes)

Bank Balance

Book Balance

Not Shown on

Add

Deduct

Add

Deduct

Adjust

Reconciliation

1.

NSF check from customer returned

4.

Check written by another depositor

7.

Check written against the company

8.

Principal and interest on a note

Exercise 8-9 (25 minutes)

DEL GATO CLINIC

Bank Reconciliation

June 30, 2017

Exercise 8-10 (10 minutes)

June 30

Cash …………………………………………………………..

9

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Exercise 8-11 (25 minutes)

WRIGHT COMPANY

Bank Reconciliation

May 31, 2017

Exercise 8-12 (15 minutes)

(a) Days’ sales uncollected on December 31, 2016:

(b) Evaluation: The change from 32.5 to 41.0 days’ sales uncollected

needs to follow up to identify the reasons for this change.

Exercise 8-13A (10 minutes)

Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 8

552

PROBLEM SET A

Problem 8-1A (20 minutes)

1. Violates separation of duties. The company should implement a policy

2. Violates the principle of establishing responsibility. Only Julia should

3. Violates the proper application of technological controls. While the

daily backup is a very good internal control, the drive needs to be taken

4. Violates regular and independent review. Ben Shales needs to

5. Violates the insuring of assets and the bonding of key employees. We

do not have enough information to know if the company can afford the

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Problem 8-2A (20 minutes)

Part 1

May 1

Petty Cash ……………………………………………………….

300.00

May 15

Janitorial Expenses ……………………………………………..

Miscellaneous Expenses ……………………………………..

Postage Expenses ……………………………………………….

Advertising Expense ……………………………………………

237.85

May 16

Petty Cash ……………………………………………………….

200.00

May 31

Postage Expenses ……………………………………………….

147.36

Mileage Expense ………………………………………………….

Delivery Expense …………………………………………………

Cash Over and Short ……………………………………………

211.80

May 31

100.00

Part 2

If the May 31 replenishment is not made and no entry is recorded, then

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Problem 8-3A (30 minutes)

Part 1

Petty Cash ……………………………………………………….

Part 2

Nakashima Gallery

Petty Cash Payments Report (for February)

Delivery expense

Delivery of customer’s merchandise …………………….

Mileage expense

Reimbursement for mileage …………………………..

Postage expense

Express delivery of contract …………………………..

Purchased postage stamps …………………………..

Merchandise inventory (transportation–in)*

COD charges on purchases …………………………..

Purchased stationery …………………………..……………….

Part 3

a. Feb. 28

Delivery Expense …………………………………………………

20.00

Mileage Expense ………………………………………………….

68.00

Postage Expense …………………………………………………

61.95

Merchandise Inventory …………………………………………

45.60

81.92

279.58

b. Feb. 28

Petty Cash ……………………………………………………….

100.00

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Problem 8-4A (30 minutes)

Part 1

BRANCH COMPANY

Bank Reconciliation

July 31, 2017

Part 2

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Problem 8-4A (Concluded)

Part 3

a. If the company’s Cash account balance of $27,497 is listed on the

bank reconciliation as $27,947 then:

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Problem 8-5A (50 minutes)

Part 1

CHAVEZ COMPANY

Bank Reconciliation

September 30, 2017

Part 2

Sept. 30

Cash ……………………………………………………….

12.50

Cash ……………………………………………………….

15.00

30.00