Question Details

CHAPTER 8 INTERNAL CONTROL AND CASH PART 10

Ex. 171
Using the code letters below, indicate how each of the items listed would be handled in preparing
a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.
Code
A Add to cash balance per books
B Deduct from cash balance per books
C Add to cash balance per bank
D Deduct from cash balance per bank
E Does not affect the bank reconciliation
Items:
____ 1. Outstanding checks.
____ 2. Bank service charge.
____ 3. Check for $320 correctly written and paid by the bank but incorrectly entered in the
cash payments journal for $230.
____ 4. Deposit in transit.
____ 5. Bank returns deposited check marked NSF.
____ 6. Bank collects notes receivable and interest for depositor.
____ 7. Bank debit memorandum for check printing fees.
____ 8. Petty cash custodian has $86 in paid petty cash vouchers that have not been
reimbursed.
____ 9. Bank charged a check against the company which should have been charged to
another company.
____ 10. A check for $236 was correctly paid by the bank but was incorrectly entered in the
cash payments journal for $263.


8 - 36 Test Bank for Accounting Principles, Eighth Edition
Ex. 172
The following adjusting entries for Rush Company were prepared after completing a bank
reconciliation. For each of the following adjustments, prepare a probable explanation for the
adjusting entry.
1. Supplies........................................................................................... 150
Cash ....................................................................................... 150
2. Accounts Receivable—B. Lowe ...................................................... 420
Cash ....................................................................................... 420
3. Cash ................................................................................................ 2,200
Notes Receivable ................................................................... 2,000
Interest Revenue .................................................................... 200
4. Sales ............................................................................................... 81
Cash ....................................................................................... 81
5. Miscellaneous Expense................................................................... 20
Cash ....................................................................................... 20


Ex. 173
The cash balance per books for Dexter Company on September 30, 2008 is $10,740.93. The
following checks and receipts were recorded for the month of October, 2008:
Checks Receipts
No. Amount No. Amount Amount Date
17 $372.96 22 $ 578.84 $843.86 10/ 5
18 $780.62 23 $1,687.50 $941.54 10/21
19 $157.00 24 $ 921.30 $808.58 10/27
20 $587.50 25 $ 246.03 $967.00 10/30
21 $234.15
Internal Control and Cash 8 - 37
Ex. 173 (cont.)
In addition, the bank statement for the month of October is presented below:
Balance Deposits and Credits Checks and Debits Balance
Last Statement No. Total Amount No. Total Amount This Statement
————————————————————————————————————————
$5,404.84 5 $9,178.36 10 $3,632.19 $10,951.01
————————————————————————————————————————
Checks and other debits Deposits Date Balance
———————————————————————
No. Amount No. Amount No. Amount
————————————————————————————————————————
14 148.29 17 372.96 22 578.84 5,484.38 10/ 1 $9,875.31
18 708.62 24 921.30 843.86 10/ 8 $9,219.03
19 157.00 25 246.03 941.54 10/23 $9,541.58
21 234.15 25.00 SC 808.58 10/29 $10,101.01
240.00 NSF 1,100.00 CM 10/31 $10,951.01
————————————————————————————————————————
Symbols: NSF (Not sufficient funds) SC (Service charge) CM (Credit Memo)
————————————————————————————————————————
Check No. 18 was correctly written for $708.62 for a payment on account. The NSF check was
from S. King, a customer, in settlement of an accounts receivable. An entry had not been made
for the NSF check. The credit memo is for the collection of a note receivable including interest of
$60 which has not been accrued. The bank service charge is $25.00.
Instructions
(a) Prepare a bank reconciliation at October 31.
(b) Prepare the adjusting journal entries required by the bank reconciliation.


Ex. 174
Simon Company received a notice with its bank statement that the bank had collected a note
receivable for $6,000 plus $300 of interest. The bank had credited these amounts to Simon's
account less a collection fee of $10. Simon Company had already accrued the interest for this
note on its books.
(a) How will these items affect Simon Company's bank reconciliation?
(b) Prepare the journal entry that Simon Company will make to record this information on its
books.


Ex. 175
The cash records of Norris Company show the following:
1. The June 30 bank reconciliation indicated that deposits in transit totaled $390. During July the
general ledger account Cash shows deposits of $9,800, but the bank statement indicates that
only $9,240 in deposits were received during the month.
2. The June 30 bank reconciliation also reported outstanding checks of $800. During the month
of July, Norris Company books show that $11,070 of checks were issued, yet the bank
statement showed that $11,100 of checks cleared the bank in July.
There were no bank debit or credit memoranda and no errors were made by either the bank or
Norris Company.
Answer the following questions:
(a) What were the deposits in transit at July 31?
(b) What were the outstanding checks at July 31?


Ex. 176
Indicate how each of the following items would be shown on a bank reconciliation.
1. Bank error (The bank charged our account with another company's check)
2. Check printing charge
3. Deposits in transit
4. Note collected by the bank
5. NSF checks
6. Outstanding checks
8 - 40 Test Bank for Accounting Principles, Eighth Edition


Ex. 177
The cash records of Pine Company show the following:
1. In September, deposits per the bank statement totaled $37,600; deposits per books $39,000;
and deposits in transit at September 30 were $4,300.
2. In September, cash disbursements per books were $36,500; checks clearing the bank were
$37,800; and outstanding checks at September 30 were $2,500.
There were no bank debit or credit memoranda and no errors were made by either the bank or
Pine Company.
Answer the following questions:
(a) What were the deposits in transit at August 31?
(b) What were the outstanding checks at August 31?


Ex. 178
Listed below are items that may be useful in preparing the March 2008, bank reconciliation for
Korman Machine Works.
Using the following code, insert in the space before each item the letter where the amount would
be located or otherwise treated in the bank reconciliation process.
Code Located or Treated
A Add to the cash balance per books
B Deduct from the cash balance per books
C Add to the cash balance per bank
D Deduct from the cash balance per bank
E Does not affect the bank reconciliation
____ 1. Included with the bank statement materials was a check from Joe Terrell for $40
stamped "account closed."
____ 2. A personal deposit by Tim Korman to his personal account in the amount of $300 for
dividends on his General Electric common stock was credited to the company
account.
____ 3. The bank statement included a debit memorandum for $22.00 for two books of blank
checks for Korman Machine Works.
____ 4. The bank statement contains a credit memorandum for $24.75 interest on the average
checking account balance.
____ 5. The daily deposits of March 30 and March 31, for $3,362 and $3,125 respectively,
were not included in the bank statement postings.
____ 6. Two checks totaling $316.86, which were outstanding at the end of February, cleared
in March and were returned with the March statement.
____ 7. The bank statement included a credit memorandum dated March 28, 2008, for $45.00
for the monthly interest on a 6-month, $15,000 certificate of deposit that the company
owns.
____ 8. Four checks, #8712, #8716, #8718, #8719, totaling $5,369.65, did not clear the bank
during March.
____ 9. On March 24, 2008, Korman Machine Works delivered to the bank for collection a
$4,500, 3-month note from Tom Jacobs. A credit memorandum dated March 29, 2008,
indicated the collection of the note and $90.00 of interest.
____ 10. The bank statement included a debit memorandum for $25.00 for the collection
service on the above note and interest.


8 - 42 Test Bank for Accounting Principles, Eighth Edition
Ex. 179
The following information was used to prepare the March 2008, bank reconciliation for Korman
Machine Works. Identify the items that require adjustment to the cash balance per books and
prepare the appropriate adjusting entries.
1. Included with the bank statement materials was a check from Joe Terrell for $40 stamped
"NSF."
2. A personal deposit by Tim Korman to his personal account in the amount of $300 for
dividends on his General Electric common stock was credited to the company account.
3. The bank statement included a debit memorandum for $22.00 for two books of blank checks
for Korman Machine Works.
4. The bank statement contains a credit memorandum for $24.75 interest on the average
checking account balance.
5. The daily deposits of March 30 and March 31, for $3,362 and $3,125 respectively, were not
included in the bank statement postings.
6. Two checks totaling $316.86, which were outstanding at the end of February, cleared in
March and were returned with the March statement.
7. The bank statement included a credit memorandum dated March 28, 2008, for $45.00 for
the monthly interest on a 6-month, $15,000 certificate of deposit that the company owns.
8. Four checks, #8712, #8716, #8718, #8719, totaling $5,369.65, did not clear the bank during
March.
9. On March 24, 2008, Korman Machine Works delivered to the bank for collection a $4,500,
3-month note from Tom Jacobs. A credit memorandum dated March 29, 2008, indicated the
collection of the note and $90.00 of interest.
10. The bank statement included a debit memorandum for $25.00 for the collection service on
the above note and interest.


Ex. 180
Compute Nance Company- adjusted cash balance per books based on the following information:
Beginning cash balance per books $4,500
Deposit in transit 800
Check printing charge 20
Note collected by bank for Nance 1,500


8 - 44 Test Bank for Accounting Principles, Eighth Edition
COMPLETION STATEMENTS
181. Internal control consists of the related methods and measures adopted to ____________
its assets and enhance the ______________ and ______________ of its accounting
records.
182. The principle of internal control that prevents one individual from being responsible for all
the related activities of a given task is ______________.
183. Maintaining an adequate system of internal control is required by the _______________
Act of 1977.
184. The ______________ of an asset should not have access to the accounting records of
that asset.
185. Employees of a company who evaluate the effectiveness of the company's system of
internal controls on a year-round basis are called ______________.
186. Using _______________ documents is a control measure which helps in accounting for
all documents in a series and also prevents a document from being recorded more than
once.
187. Employees who handle cash should be ______________ in order to protect against
misappropriation of assets by dishonest employees.
188. Two limitations of systems of internal control are the concept of ______________ and the
______________.
189. Internal control over cash disbursements is more effective when payments are made by
______________, rather than by ______________.
190. A disbursement system that uses wire, telephone, computers, etc., to transfer cash from
one location to another is referred to as ______________.
191. A voucher is recorded in the ________________ and filed according to the date on which
it is to be paid.
192. A __________________ fund is used to pay relatively small expenditures.
193. A debit memorandum issued by the bank ______________ the cash balance in the
depositor's account.
194. There are three parties to a check: (1)_______________, (2)______________, and the
(3)______________.
Internal Control and Cash 8 - 45
195. The difference between the cash in bank balance shown on the company's books and the
cash balance shown on the bank statement may be caused by ______________ and by
______________ in recording transactions by either party.
196. In preparing a bank reconciliation, outstanding checks are ______________ from the
cash balance per ______________.
197. A check correctly written for $270 was incorrectly entered in the cash payments journal for
$720. In preparing a bank reconciliation, $_____________ must be ______________ the
cash balance per ______________.


8 - 46 Test Bank for Accounting Principles, Eighth Edition
MATCHING
198. Match the items below by entering the appropriate code letter in the space provided.
A. Prenumbered documents G. Bank signature card
B. Custody of an asset should be kept H. Payee
separate from the record-keeping I. Maker
for that asset J. Canceled checks
C. Cash registers, garment sensors K. NSF checks
and burglar alarms are examples L. Outstanding checks
D. Bonding employees M. Petty cash receipt
E. Collusion N. Cash equivalents
F. Cash O. Voucher system
____ 1. Segregation of duties.
____ 2. One to whom a check is payable.
____ 3. Two or more employees circumventing prescribed procedures.
____ 4. Prevent a transaction from being recorded more than once.
____ 5. Checks which have been returned by the maker's bank for lack of funds.
____ 6. Checks which have been paid by the depositor's bank.
____ 7. Indicates those people authorized to sign checks.
____ 8. Anything that a bank will accept for deposit.
____ 9. Mechanical and electronic control devices.
____ 10. One who issues a check.
____ 11. Insurance protection against misappropriation of assets.
____ 12. An extensive network of approvals by authorized individuals.
____ 13. Document indicating the purpose of a petty cash expenditure.
____ 14. Issued checks that have not been paid by the bank.
____ 15. Highly liquid investments.


SHORT-ANSWER ESSAY QUESTIONS
S-A E 199
Important objectives of a system of internal controls are to safeguard assets and to enhance the
accuracy and reliability of the accounting records. Briefly discuss how (1) cost-benefit
considerations, (2) the human element, and (3) the size of the business, affect the implementation
of a system of internal controls.


S-A E 200
Your friend, Mark, has opened a movie theater. Mark states that he does not have time to
develop and implement a system of internal controls.
a. Provide Mark with the objectives of a system of internal controls.
b. Explain to Mark why he should develop a system of internal controls.


8 - 48 Test Bank for Accounting Principles, Eighth Edition
S-A E 201
The preparation of a bank reconciliation is an important cash control procedure. If a company
deposits cash receipts daily and makes all cash disbursements by check, explain why the cash
balance per books might not agree with the cash balance shown on the bank statement. Identify
specific examples that may cause differences between the cash balance per books and the cash
balance per bank.
S-A E 202 (Ethics)
Tyler Instruments is a rapidly growing manufacturer of medical devices. As a result of its growth,
the company's management recently modified several of its procedures and practices to improve
internal control. Some employees are upset with the changes. They have complained that all
these changes just show that the company no longer trusts them.
Required:
"Internal controls exist because most people can't be trusted." Is this true? Explain.


S-A E 203 (Communication)
Medaid is a medical office management franchise. There are currently twenty-five medical offices
managed by a Medaid franchisee. One of the services provided to franchisees is assistance in
training various staff members.
Medaid is preparing a manual for the front office staff to use as a reference guide. It will be used
in training new employees as well. One of the reasons the manual is being prepared is to stress
the importance of strong internal controls.
Required:
Prepare a short paragraph, to be included in the training materials, describing the benefits of
sound internal control, from the viewpoint of the employee.