Chapter 7 Homework Wynn Should Disclose The Financial Statements The

CHAPTER 7

Fraud, Internal Control, and Cash

ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions

Brief

Exercises

Do It!

Exercises

A

Problems

1. Discuss fraud and the

principles of internal

control.

1, 2, 3, 4, 5,

6, 7, 8, 9,

10, 11

1, 2, 3, 4

1

1, 2, 3,

5, 6

1A, 6A

6, 13, 14,

15, 16, 17,

5, 6, 7, 8, 9

2

2, 3, 4, 5, 6

1A, 2A, 6A

20, 22, 23,

10, 11, 12

9, 10, 11,

3A, 4A, 5A

12, 26, 27

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number

Description

Difficulty

Level

Time

Allotted (min.)

1A

Identify internal control principles over cash disbursements.

Simple

20–30

2A

Journalize and post petty cash fund transactions.

Simple

20–30

5A

Prepare a bank reconciliation and adjusting entries.

30–40

and cash disbursements.

WEYGANDT FINANCIAL AND MANAGERIAL ACCOUNTING 2E

CHAPTER 7

FRAUD, INTERNAL CONTROL, AND CASH

Number

LO

BT

Difficulty

Time (min.)

BE1

1

C

Simple

2–4

BE2

1

C

Simple

2–4

BE3

1

C

Simple

4–6

DI1

1

C

Moderate

6–8

DI2

2

C

Simple

4–6

DI3

3

AP

Simple

4–6

DI4

4

C

Simple

2–4

EX1

1

C

Simple

8–10

EX2

1, 2

E

Moderate

8–10

EX3

1, 2

E

Moderate

8–10

EX4

2

E

EX5

C

Simple

6–8

EX6

C

Simple

6–8

EX7

2

Simple

8–10

EX8

2

AP

Simple

6–8

EX9

3

Simple

8–10

EX10

3

Simple

3–5

BE4

1

C

Simple

3–5

BE5

2

C

Simple

4–6

BE6

2

AP

Simple

4–6

BE7

2

AP

Simple

2–4

BE8

2

C

Simple

4–6

BE9

2

AP

Simple

4–6

BE10

3

C

Simple

2–4

BE11

3

C

Simple

3–5

BE12

3

C

Simple

3–5

BE13

3

AP

Simple

2–4

BE14

3

Simple

2–4

BE15

4

C

Simple

2–4

FRAUD, INTERNAL CONTROL, AND CASH (Continued)

Number

LO

BT

Difficulty

Time (min.)

EX11

3

AN

Simple

10–12

EX12

3

AN

Simple

12–15

EX13

3

AN

Moderate

10–12

EX14

4

C, AP

Simple

8–10

P1A

1, 2

C

Simple

20–30

P2A

2

AP

Simple

20–30

P3A

3

AN

Simple

20–30

P4A

3

AN

Moderate

40–50

P5A

3

AN

Moderate

30–40

P6A

35–45

1, 4

C

Simple

10–15

4

AN

Simple

4

AN

Simple

8–12

1, 3

E

Simple

10–15

2

AN

Moderate

15–20

2

Simple

10–15

2

E

Simple

10–15

E

Simple

10–15

4

AP

Simple

10–15

BLOOM’ S TAXONOMY TABLE

Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End–of-Chapter Exercises and Problems

Learning Objective

Knowledge

Comprehension

Application

Analysis

Synthesis

Evaluation

1. Discuss fraud and the principles

of internal control

Q8-1 Q8-8

Q8-2 Q8-9

Q8-3 Q8–10

Q8-4 Q8–11

Q8-5 BE8-1

Q8-6 BE8-2

BE8-4

D18-1

E8-1

E8-5

E8-6

P8–1A

E8-2

E8-3

P8–6A

DI8-4

Organization

ANSWERS TO QUESTIONS

1. Fraud is dishonest act by an employee that results in personal benefit to the employee at a cost

to the employer. An example of fraud that might occur at a bank would be a computer operator

embezzling funds by transferring a customer’s deposits into another account.

4. Disagree. Internal control is also concerned with the safeguarding of company assets from employee

theft, robbery, and unauthorized use.

5. The principles of internal control are: (a) establishment of responsibility, (b) segregation of duties,

Questions Chapter 7 (Continued)

9. Safes, vaults, and locked warehouses contribute to the safeguarding of company assets. Cash

15. Two mail clerks contribute to a more accurate listing of mail receipts and to the endorsement of

Questions Chapter 7 (Continued)

19. (a) A voucher system is a network of approvals by authorized individuals acting independently

22. Yes. A bank contributes significantly to internal control over cash because it: (1) safeguards cash

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 7-1

BRIEF EXERCISE 7-2

BRIEF EXERCISE 7-3

The purposes of internal control are to:

BRIEF EXERCISE 7-4

BRIEF EXERCISE 7-5

BRIEF EXERCISE 7-6

BRIEF EXERCISE 7-7

BRIEF EXERCISE 7-8

BRIEF EXERCISE 7-9

BRIEF EXERCISE 7-10

BRIEF EXERCISE 7-11

BRIEF EXERCISE 7-12

BRIEF EXERCISE 7-13

BRIEF EXERCISE 7-14

BRIEF EXERCISE 7-15

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 7-1

DO IT! 7-1 (Continued)

DO IT! 7-2A

DO IT! 7-2B

DO IT! 7-3

Roger should treat the reconciling items as follows:

DO IT! 7-2A

SOLUTIONS TO EXERCISES

EXERCISE 7-1

EXERCISE 7-2

(a)

(b)

Procedure

Weakness

Principle

Recommended

Change

from theft.

in bank.

a specific clerk.

for each clerk.

EXERCISE 7-2 (Continued)

(a)

(b)

Procedure

Weakness

Principle

Recommended

Change

EXERCISE 7-3

(a)

(b)

Procedure

Weakness

Principle

Recommended

Change

independently

should prepare the

bank reconciliation.

individual.

and issue checks.

not stored in

a secure area.

controls.

stored in a safe or

locked file drawer.

should not

handle cash.

of duties.

department should

make the deposits.

independently

counted.

internal

verification.

supervisor should

count cash.

Cashiers are

not bonded.

Human resource

controls.

All cashiers should

be bonded.

EXERCISE 7-3 (Continued)

(a)

(b)

Procedure

Weakness

Principle

Recommended

Change

EXERCISE 7-4

(a) Weaknesses

(b) Suggested Improvement

Use prenumbered checks.

restricted to authorized personnel.

before being placed in the folder.

PAID.

personnel should record cash

disbursements.

bills are simply

filed in a folder.

procedures.

PAID before being placed

in the folder.

accounted for.

EXERCISE 7-4 (Continued)

(a) Weaknesses

(b) Suggested Improvement

reconcile the bank statement.

EXERCISE 7-5

Procedure

IC good or weak?

Related internal control principle

EXERCISE 7-6

Procedure

IC good or weak?

Related internal control principle

Human Resource Controls

Segregation of Duties

EXERCISE 7-7

Segregation of Duties

EXERCISE 7-8

EXERCISE 7-9

EXERCISE 7-10

The outstanding checks are as follows:

EXERCISE 7-11

(a) CRANE VIDEO COMPANY

Bank Reconciliation

July 31

EXERCISE 7-12

(a) MINTON COMPANY

Bank Reconciliation

September 30

EXERCISE 7-13

EXERCISE 7-13 (Continued)

EXERCISE 7-14

SOLUTIONS TO PROBLEMS

PROBLEM 7-1A

Principles

Application to Cash Disbursements

PROBLEM 7-2A

(b)

Petty Cash

Date

Explanation

Ref.

Debit

Credit

Balance

PROBLEM 7-2A (Continued)

(c) The internal control features of a petty cash fund include:

PROBLEM 7-3A

(a) REBER COMPANY

Bank Reconciliation

May 31, 2017

PROBLEM 7-4A

(a) LANGER COMPANY

Bank Reconciliation

December 31, 2017

PROBLEM 7-5A

(a) RODRIGUEZ COMPANY

Bank Reconciliation

July 31, 2017

PROBLEM 7-5A (Continued)

PROBLEM 7-6A

Matt has created a situation that leaves many opportunities for undetected

theft. Here is a list of some of the deficiencies in internal control. You may

find others.

1. Documentation procedures. The tickets were unnumbered. By numbering

4. Documentation procedures. There was no control over unsold tickets.

This deficiency made it possible for students to sell the tickets, keep

PROBLEM 7-6A (Continued)

7. Segregation of duties. Jeff Kenney counted the funds, made out the

COMPREHENSIVE PROBLEM SOLUTION

COMPREHENSIVE PROBLEM SOLUTION (Continued)

(b) & (e) General Ledger

COMPREHENSIVE PROBLEM SOLUTION (Continued)

(c) FULLERTON COMPANY

Bank Reconciliation

December 31, 2017

COMPREHENSIVE PROBLEM SOLUTION (Continued)

(f) FULLERTON COMPANY

Adjusted Trial Balance

December 31, 2017

(g) FULLERTON COMPANY

Income Statement

For the Month Ending December 31, 2017

COMPREHENSIVE PROBLEM SOLUTION (Continued)

(g) FULLERTON COMPANY

Balance Sheet

December 31, 2017

BYP 7-1 FINANCIAL REPORTING PROBLEM

(a) In the Report, it states that “the financial statements referred to above

(d) The Company’s management is responsible for establishing and

BYP 7-2 COMPARATIVE ANALYSIS PROBLEM

PepsiCo

Coca-Cola

BYP 7-3 COMPARATIVE ANALYSIS PROBLEM

Amazon

Wal-Mart

BYP 7-4 REAL-WORLD FOCUS

(a) The system of internal control should be evaluated by: (1) responsible

BYP 7-5 DECISION MAKING ACROSS THE ORGANIZATION

(a) The weaknesses in internal accounting control over collections are:

(1) Each usher could take cash from the collection plates enroute to the

(c) The policies that should be changed are:

BYP 7-6 COMMUNICATION ACTIVITY

Mr. Danny Peak

Pritchard Company

Main Street, USA

Dear Mr. Peak:

During our audit of your financial statements, we reviewed the internal con–

trols over cash receipts. The weaknesses we discovered and our suggested

improvements are listed below.

Weaknesses

Suggested Improvement

BYP 7-6 (Continued)

Weaknesses

Suggested Improvement

BYP 7-7 ETHICS CASE

(a) You, as assistant controller, may suffer some negative effects from Lisa

BYP 7-8 ALL ABOUT YOU

BYP 7-9 FASB CODIFICATION ACTIVITY

(b) Cash equivalents are short-term, highly liquid investments that have

both of the following characteristics:

BYP 7-9 (Continued)

(c) Cash and cash items. Separate disclosure shall be made of the cash and

IFRS EXERCISES

IFRS7-1

Companies listed on U.S. stock exchanges must comply with the Sarbanes-

IFRS7-2

IFRS7-3 INTERNATIONAL FINANCIAL REPORTING PROBLEM

(b) The key control procedures include