Question Details

CHAPTER 8 INTERNAL CONTROL AND CASH PART 9

BRIEF EXERCISES
BE 148
Match the principle of internal control to each of the following cases.
a) Establishment of responsibility
b) Segregation of duties
c) Accountability for assets
d) Documentation procedures
e) Physical, mechanical and electronic controls
_____ 1. Employees’ time is tracked using a time clock.
_____ 2. Employees who receive shipments of goods do not have access to the accounting
records for merchandise.
_____ 3. Shipping documents are prenumbered.
_____ 4. The bookkeeper does not have physical custody of assets.
_____ 5. Only the treasurer of the company can sign checks.


BE 149
Identify which principle of internal control is being followed in each of the following cases.
1. Warehouse employees do not have access to the accounting records.
2. Prenumbered shipping documents are prepared for each shipment of goods.
3. The locked warehouse is accessible only by warehouse employees with keys.


8 - 24 Test Bank for Accounting Principles, Eighth Edition
BE 150
Identify the internal control procedures applicable to cash receipts for Colorado Company in each
of the following cases.
1. All cashiers are bonded.
2. The treasurer compares the total cash receipts to the bank deposit daily.
3. The bookkeeper records cash receipts which are held by the treasurer.
4. Only the treasurer holds cash receipts.
5. Deposit slips are completed for each deposit.


BE 151
Identify the internal control procedures applicable to cash disbursements followed by Kerry
Company in each of the following cases.
1. Company checks are prenumbered.
2. Only the treasurer is authorized to sign checks.
3. Invoices are stamped PAID.
4. Blank checks are stored in a locked safe.
5. The bookkeeper, not the treasurer, records cash disbursements.


BE 152
On October 1, Grayson Company- petty cash fund of $120 is replenished. The fund contains
cash of $40, and receipts for supplies of $55 and postage of $25. Prepare the journal entry to
record the replenishment of the petty cash fund.

BE 153
Identify whether each of the following items would be (a) added to the book balance, or (b)
deducted from the book balance in a bank reconciliation.
1. EFT transfer to a supplier
2. Bank service charge
3. Check printing charge
4. Error recording check # 214 which was written for $230 but recorded for $320
5. Collection of note and interest by bank on company- behalf


BE 154
Identify whether each of the following items would be (a) added to the book balance, (b) deducted
from the book balance in a bank reconciliation, (c) added to the bank balance, or (d) deducted
from the bank balance.
1. Deposits in transit
2. Bank service charge
3. Collection of note and interest by bank on company- behalf
4. NSF check
5. Outstanding checks


BE 155
Identify which of the following reconciling items would require an adjusting entry to be made by
Beutron Company.
1. Deposits in transit totaled $2,000.
2. A check written to the company for $350 by Taxton Company was returned NSF.
3. The bank charged the company $46 for printing checks.
4. Outstanding checks totaled $1,667
5. A debit memorandum reported an EFT of $178 to Paco Utilities
8 - 26 Test Bank for Accounting Principles, Eighth Edition


BE 156
Acton Company needs to make adjusting entries for each of the following reconciling items.
Identify the account to be debited and the account to be credited in each case.
1. A check for $59 written to the company by J. Neutron was returned NSF.
2. The monthly service charge by the bank was $34.
3. The bank collected a $1,000 note plus interest of $97 on the company- behalf. The company
had not accrued the interest.


BE 157
The following reconciling items are applicable to the bank reconciliation for the Motley Crew
Company. Indicate how each item should be shown on a bank reconciliation.
a. Outstanding checks.
b. Bank credit memorandum for collecting a note for the depositor.
c. Bank debit memorandum for service charge.
d. Deposit in transit.


BE 158
At August 31, Jones Company has this bank information: cash balance per bank $6,950;
outstanding checks $762; deposits in transit $1,700; and a bank service charge $20. Determine
the adjusted cash balance per bank at August 31, 2008.
Internal Control and Cash 8 - 27


BE 159
Given the following information, determine the adjusted cash balance per books from the
following information:
a. Balance per books as of June 30, $9,300.
b. Outstanding checks, $600.
c. NSF check returned with bank statement, $130.
d. Deposit mailed the afternoon of June 30, $300.
e. Check printing charges, $30.
f. Interest earned on checking account, $40.


EXERCISES
Ex. 160
Match each of the following principles of internal control with the appropriate description below.
A. Establishment of responsibility
B. Segregation of duties
C. Documentation procedures
D. Physical, mechanical, and electronic controls
E. Independent internal verification
F. Other controls
_____ 1. Involves the review, comparison, and reconciliation of data prepared by other
employees.
_____ 2. Provide evidence that transactions and events have occurred.
_____ 3. Includes the authorization and approval of transactions.
_____ 4. Rotating employees' duties and requiring employees to take vacations.
_____ 5. Related activities should be assigned to different individuals.
_____ 6. Using garment sensors to deter theft.
8 - 28 Test Bank for Accounting Principles, Eighth Edition


Ex. 161
Below are descriptions of internal control problems. In the space to the left of each item, enter the
code letter of the one best internal control principle that is related to the problem described.
Internal Control Principles
A. Establishment of responsibility
B. Segregation of duties
C. Physical, mechanical, and electronic control devices
D. Documentation procedures
E. Independent internal verification
F. Other controls
____ 1. The same person opens incoming mail and posts the accounts receivable subsidiary
ledger.
____ 2. Three people handle cash sales from the same cash register drawer.
____ 3. A clothing store is experiencing a high level of inventory shortages because people try
on clothing and walk out of the store without paying for the merchandise.
____ 4. The person who is authorized to sign checks approves purchase orders for payment.
____ 5. Some cash payments are not recorded because checks are not prenumbered.
____ 6. Cash shortages are not discovered because there are no daily cash counts by
supervisors.
____ 7. The treasurer of the company has not taken a vacation for over 20 years.


Ex. 162
Dan Howe has worked for Dr. Pat Dorsey for several years. Dan demonstrates a loyalty that is
rare among employees. He hasn't taken a vacation in the last three years. One of Dan's primary
duties at the medical office is to open the mail and list the checks received. He also takes cash
from patients at the cashier window as patients leave. At times it is so hectic that Dan doesn't
bother with giving each patient a receipt for the cash paid on their accounts. He assures them he
will see to it that they receive the proper credit. When the traffic is slow in the office, Dan offers to
help Eve post the payments to the patients' accounts receivable. She is always happy to receive
his help, because he is a very conscientious worker.
Instructions
Identify any principles of internal control that may be violated in this medical office situation.
Internal Control and Cash 8 - 29


Ex. 163
Listed below are seven errors or problems which might occur in the processing of cash
transactions. Also shown is a list of internal control principles. Evaluate each possible error and
cite a principle that is listed that would reduce the probability of the error occurring. If none of the
principles given will correct the problem, write "None." If you think more than one principle is
appropriate, list all principles that apply.
Possible Errors or Problems
1. An employee steals the cash collected from a customer for an account receivable and
conceals this theft by issuing a credit memorandum indicating that the customer returned the
merchandise.
2. A small fire destroys 3 days of cash receipts.
3. The official designated to sign checks is able to steal blank checks and issue them without
fear of detection.
4. A salesclerk in serving customers often rings up a sale for less than the actual amount and
then keeps the additional cash collected from the customer.
5. Three cashiers use one cash register drawer and the cash in the drawer is often short of the
balance kept on hand.
6. Each cashier counts his own register drawer each day and verbally reports the results to the
supervisor.
7. Cashiers with over 5 years’ experience are not bonded.
Internal Control Principles
a. Establishment of responsibility
b. Segregation of duties
c. Physical, mechanical, and electronic control devices
d. Documentation procedures
e. Independent internal verification
f. Other controls
8 - 30 Test Bank for Accounting Principles, Eighth Edition


Ex. 164
Match the internal control principle below with the appropriate cash receipts procedure described.
a. Documentation procedures
b. Establishment of responsibility
c. Independent internal verification
d. Other controls
e. Physical, mechanical, and electronic controls
f. Segregation of duties
_____ 1. Only designated personnel are authorized to handle cash receipts.
_____ 2. Different individuals receive cash and record cash receipts.
_____ 3. Use remittance advice and cash register tapes.
_____ 4. Store cash in safes and bank vaults.
_____ 5. Treasurer compares total receipts to bank deposits daily.
_____ 6. Deposit all cash in bank daily.


Ex. 165
Match the internal control principle below with the appropriate cash disbursements procedure
described.
a. Establishment of responsibility
b. Segregation of duties
c. Documentation procedures
d. Physical, mechanical, and electronic controls
e. Independent internal verification
f. Other controls
_____ 1. Compare checks to invoices.
_____ 2. Different individuals approve and make payments.
_____ 3. Print check amounts by machine with indelible ink.
_____ 4. Only designated personnel are authorized to sign checks.
_____ 5. Each check must have approved invoice.
_____ 6. Stamp invoices PAID.
Internal Control and Cash 8 - 31


Ex. 166
The petty cash fund of $200 for Walsh Company appeared as follows on December 31, 2008:
Cash $93.60
Petty cash vouchers
Freight in $21.40
Postage 40.00
Balloons for a special occasion 18.00
Meals 25.00
Instructions
1. Briefly describe when the petty cash fund should be replenished. Because there is cash on
hand, is there a need to replenish the fund at year end on December 31? Explain.
2. Prepare in general journal form the entry to replenish the fund.
3. On December 31, the office manager gives instructions to increase the petty cash fund by
$100. Make the appropriate journal entry.


Ex. 167
Prepare the entry to replenish the $200 petty cash fund of Warner Company, assuming the fund
has receipts for: freight-out $60, postage $105, and miscellaneous expense $20. The fund
contains $10 in cash.
8 - 32 Test Bank for Accounting Principles, Eighth Edition


Ex. 168
On October 1, 2008, Foster Company establishes an imprest petty cash fund by issuing a check
for $200 to Mary Mann, the custodian of the petty cash fund. On October 31, 2008, Mary Mann
submitted the following paid petty cash receipts for replenishment of the petty cash fund when
there is $55 cash in the fund:
Freight-in $27
Office Supplies Expense 35
Entertainment of Clients 60
Postage Expense 20
Instructions
Prepare the journal entries required to establish the petty cash fund on October 1 and the
replenishment of the fund on October 31.


Ex. 169
Ogleby Boat Company's bank statement for the month of September showed a balance per bank
of $7,000. The company's Cash account in the general ledger had a balance of $5,459 at
September 30. Other information is as follows:
(1) Cash receipts for September 30 recorded on the company's books were $5,700 but this
amount does not appear on the bank statement.
(2) The bank statement shows a debit memorandum for $40 for check printing charges.
Internal Control and Cash 8 - 33
Ex. 169 (cont.)
(3) Check No. 119 payable to Lann Company was recorded in the cash payments journal and
cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36
credit balance in the account of Lann Company and that the payment to them should have
been for $284.
(4) The total amount of checks still outstanding at September 30 amounted to $6,000.
(5) Check No. 138 was correctly written and paid by the bank for $409. The cash payment
journal reflects an entry for Check No. 138 as a debit to Accounts Payable and a credit to
Cash in Bank for $490.
(6) The bank returned an NSF check from a customer for $360.
(7) The bank included a credit memorandum for $1,560 which represents collection of a
customer's note by the bank for the company; principal amount of the note was $1,500 and
interest was $60. Interest has not been accrued.
Instructions
(a) Prepare a bank reconciliation for Ogleby Boat Company at September 30.
(b) Prepare any adjusting entries necessary as a result of the bank reconciliation.


Ex. 170
Reebles Food Store developed the following information in recording its bank statement for the
month of March.
Balance per books March 31 $ 2,905
Balance per bank statement March 31 $10,900
———————————————————————————————————————————
(1) Checks written in March but still outstanding $7,000.
(2) Checks written in February but still outstanding $2,800.
(3) Deposits of March 30 and 31 not yet recorded by bank $5,200.
(4) NSF check of customer returned by bank $1,200.
(5) Check No. 210 for $594 was correctly issued and paid by bank but incorrectly entered in the
cash payments journal as payment on account for $549.
(6) Bank service charge for March was $50.
(7) A payment on account was incorrectly entered in the cash payments journal and posted to
the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly
prepared for $284. The check cleared the bank in March.
(8) The bank collected a note receivable for the company for $4,000 plus $150 interest revenue.
Instructions
Prepare a bank reconciliation at March 31.