Question Details

Management 1A Week 9 Quiz 8 CHAPTER 8 PART 10

BRIEF EXERCISES

BE 168
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 controls

	1.	Cash is locked in a safe overnight.
	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 169
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.


BE 170
Identify the internal control procedures applicable to cash receipts for Ferguson 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 171
Identify the internal control procedures applicable to cash disbursements followed by Downey Company in each of the following cases.
1.	Company checks are prenumbered.
2.	Only the treasurer is authorized to sign checks.
3.	All employees are required to take vacations.
4.	Blank checks are stored in a locked safe.
5.	The bookkeeper, not the treasurer, records cash disbursements.


BE 172
On October 1, Head and Heart Company- petty cash fund of $150 is replenished. The fund contains cash of $30, and receipts for supplies of $75 and postage of $45. Prepare the journal entry to record the replenishment of the petty cash fund.


BE 173
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 $450 but recorded for $540
5.	Collection of note and interest by bank on company- behalf


BE 174
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 175
Identify which of the following reconciling items would require an adjusting entry to be made by Danielle Doyle Company.
1.	Deposits in transit totaled $2,000.
2.	A check written to the company for $415 by Cartography Company was returned NSF.
3.	The bank charged the company $25 for printing checks.
4.	Outstanding checks totaled $3,300
5.	A debit memorandum reported an EFT of $178 to Salome Utilities

BE 176
Harnish 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 $127 written to the company by J. Chandler was returned NSF.
2.	The monthly service charge by the bank was $20.
3.	The bank collected a $1,000 note plus interest of $100 on the company- behalf. The company had not accrued the interest.


BE 177
The following reconciling items are applicable to the bank reconciliation for the Spahn 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 178
At August 31, Coffman Company has this bank information: cash balance per bank $6,450; outstanding checks $2,762; deposits in transit $1,700; and a bank service charge $20.  Determine the adjusted cash balance per bank at August 31, 2012.


BE 179
Given the following information, determine the adjusted cash balance per books from the following information:
a.	Balance per books as of June 30, $8,600.
b.	Outstanding checks, $820.
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, $12.



EXERCISES
Ex. 180
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 controls E.	Independent internal verification F.	Human resource 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.


Ex. 181
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 controls
D.	Documentation procedures
E.	Independent internal verification
F.	Human resource 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. 182
Joe Foss has worked for Dr. Sam Milton for several years. Joe demonstrates a loyalty that is rare among employees. He hasn't taken a vacation in the last three years. One of Joe'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 Joe 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, Joe offers to help Ann post the payments to the patients' accounts receivable. She is always happy to receive his help, because he is a very conscientious worker.


Ex. 183
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.

Ex. 183	(Cont.)
Internal Control Principles
a.	Establishment of responsibility
b.	Segregation of duties
c.	Physical controls
d.	Documentation procedures
e.	Independent internal verification
f.	Human resource controls


Ex. 184
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.	Human resource controls e.	Physical 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.	Bonding of employees that handle cash.

 
Ex. 185
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 controls e.	Independent internal verification f.	Human resource 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.	Requiring employees to take vacations.


Ex. 186
The petty cash fund of $200 for Ginther Company appeared as follows on December 31, 2014:

Cash			$61.60
Petty cash vouchers
	Freight in	$27.40
	Postage	45.00
	Balloons for a special occasion	63.00

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 $50. Make the appropriate journal entry.


Ex. 187
Prepare the entry to replenish the $200 petty cash fund of Erin Company, assuming the fund has receipts for: freight-out $60, postage $105, and miscellaneous expense $25. The fund contains $8 in cash. 
	
Ex. 188
On October 1, 2014, Ellington Company establishes an imprest petty cash fund by issuing a check for $200 to Erin Angelo, the custodian of the petty cash fund. On October 31, 2014, Erin Angelo submitted the following paid petty cash receipts for replenishment of the petty cash fund when there is $32 cash in the fund:
	Freight-In	$28
	Supplies Expense	42
	Entertainment of Clients	65
	Postage Expense	30
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. 189
Ernest Company uses an imprest petty cash system. The fund was established on March 1 with a balance of $200. During March the following petty cash receipts were found in the petty cash box.

		Receipt
Date	   No.   	                 For                	Amount
	3/5	1	Stamp Inventory	$74
	7	2	Freight-Out	42
	9	3	Miscellaneous Expense	22
	11	4	Travel Expense	49

The fund was replenished on March 15 when the fund contained $9 in cash. On March 20, the amount in the fund was increased to $300.

Instructions
Journalize the entries in March that pertain to the operation of the petty cash fund.

Ex. 190
Sky Company is unable to reconcile the bank balance at January 31. Sky- reconciliation is as follows.

	Cash balance per bank	$5,300
	Add: NSF check	1,570
	Less: Bank service charge	      35
	Adjusted balance per bank	$6,835
	Cash balance per books	$5,705
	Less: Deposits in transit	750
	Add: Outstanding checks	  1,950
	Adjusted balance per books	$6,905
Instructions
(a)	Prepare a correct bank reconciliation.
(b)	Journalize the entries required by the reconciliation.