Homework 05A

01. (LO 05-S01) You began your new job as the accountant for Morton Company.  You
were surprised to find that the company had a $2,000 petty cash fund, which sits in the
break room.  The president of the company told you: “Our petty cash system here works
quite smoothly.  Since everyone is honest here, everyone has access to the fund for
incidentals that might pop up in the course of the business day.  Most of these situations
don’t have any receipts tied to them, so I just put the money back in the fund when my
secretary tells me that we have run out of petty cash and we debit the amount to
Miscellaneous Expense.

Required
(a) Should you implement some controls on petty cash? Why?
(b) If so, what controls could be used for petty cash?
02. (LO 05-S01) Stephanie Jo Company established a petty cash fund of $300 on May
1.  At the end of the month, the petty cash fund has $42 in cash; receipts for
postage, $39; entertainment, $146; and office supplies, $70.
Prepare the needed journal entries, recording any discrepancy in the cash short and
over account.

Journal
Date Description Post. Ref. Debit Credit

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03. (LO 05-04) The bank statement for Gatlin Co. indicates a balance of $7,735 on
June 30. After the journals for June had been posted, the cash account had a balance
of $4,098.

(a) Cash sales of $742 had been erroneously recorded in the cash receipts journal
as $724.
(b) Deposits in transit not recorded by bank, $425.
(c) Bank debit memo for service charges, $35.
(d) Bank credit memo for note collected by bank, $2,475 including $75 interest.
(e) Bank debit memo for $256 NSF (not sufficient funds) check from Janice Smith, a
customer.
(f) Checks outstanding, $1,860.

Record the appropriate journal entries that would be necessary for Gatlin Co.

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04. (LO 05-04) The cash account for Santiago Co. on May 31 indicated a balance of
$20,915.  The March bank statement indicated an ending balance of
$25,645.  Comparing the bank statement, the canceled checks, and the accompanying
memos with the records revealed the following reconciling items:

a. Checks outstanding totaled $5,975.

b. A deposit of $3,796 had been made too late to appear on the bank
statement.
c. A check for $1,482 returned with the statement had been incorrectly
recorded as $482. The check was originally issued to pay on account.
d. The bank collected $4,515 on a note left for collection of which $515 was
interest revenue.
e. Bank service charges for May amounted to $70.
f. A check for $894 was returned by the bank because of insufficient funds.

Prepare a bank reconciliation as of May 31. Journalize the necessary entries.

Santiago Co.
Bank Reconciliation
May 31

Journal

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05. (LO 05-03) Consider the following journal entry made by Jones Company for one
day's sales of a single cashier.  What might have happened to create this amount of
Cash Short and Over difference?  Give three possible reasons for this difference.
Cash 2,235
Cash Short and Over 100
Sales 2,135

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06. (LO 05-03) Describe the features of a voucher system and list typical supporting
documents for a voucher.

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07. (LO 05-02) The following procedures were recently implemented at Pampered Pets,
Inc. For each procedure, indicate whether the internal control over cash
represents (1) a strength or (2) a weakness. If it is a weakness, explain why.

(a) At the end of the day, cash register clerks are required to use their own funds
to make up any cash shortages in their registers.

(b) At the end of the day, an accounting clerk compares the duplicate copy of the
daily cash deposit slip with the deposit receipt obtained from the bank.

(c) After necessary approvals have been obtained for the payment of a voucher,
the treasurer signs and mails the check. The treasurer then stamps the
voucher and supporting documentation as paid and returns the
voucher and supporting documentation to the accounts payable clerk for
filing.

(d) Along with the petty cash receipts for postage, office supplies, etc., several
postdated employee checks are in the petty cash fund.

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08. (LO 05-02) Per the COSO Framework, list and define each of the five components
of internal control.
(1)
(2)
(3)
(4)
(5)

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09. (LO 05-02) Per the COSO Framework, list and define each of the three objectives of
internal control.

1.
2.
3.

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10. (LO 05-02) Two features of internal control are presented in the following
sections. Each is followed by a list of four irregularities that occurred in processing
data. Identify the one irregularity from each list that would be discovered or prevented
by the feature of internal control described.

The sum of the balances of the accounts in the customer's ledger is

compared at the end of each month with the balance of the accounts
receivable account in the general ledger by a person who has no
responsibility for maintaining either the general ledger or the customers
ledger.

Five hours of services were rendered but the customer was only billed
(1)
(a) for four hours.
A cash receipt of $750 was recorded correctly in the accounts
(2) receivable controlling account but was posted to the customer's ledger
as $75.
A bill for services rendered to Cole Co. was erroneously posted to the
(3)
account of Coleman Co. in the customer's ledger.
No entry was made in the accounting records for services rendered to
(4)
a customer.

Both cash and credit charges for services rendered are recorded on
prenumbered invoices. At the end of the day, all invoices are accounted
for before the duplicate copies of the invoices are routed to the Accounting
Department for entry into the accounts and the cash is sent to the
Cashier's Department for deposit.

(b) Some charge customers complained that the monthly statements of

(1)
account did not add all amounts correctly.
(2) Some clerks used incorrect hourly rates in preparing invoices.
Some clerks destroyed duplicate copies of cash invoices and
(3)
misappropriated the cash.
Some charge customers complained that the monthly statement of
(4)
account did not indicate credits for payments made.

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 11. (LO 05-01) Match the term to the appropriate definition. There are more definitions
than terms.
Definitions Terms
A set of regulations passed by Congress in 2002 in an attempt to improve
A
financial reporting and restore investor confidence.
A process for approving and documenting all purchases and payments on
B
account.
C An attempt to deceive others for personal gain.
Terms of a loan agreement that if broken, entitle the lender to renegotiate loan
D
terms or force repayment.
Short-term, highly liquid investments purchased within three months of
E
maturity.
Another name for bounced checks. They arise when the check writer (your
F
customer) does not have sufficient funds to cover the amount of the check.
An internal report prepared to verify the accuracy of both the bank statement
G
and the cash accounts of a business or individual.
Actions taken to promote efficient and effective operations, protect assets,
H
enhance accounting information, and adhere to laws and regulations.
An internal control designed into the accounting system to prevent an
employee from making a mistake or committing a dishonest act as part of
I
one assigned duty and then also covering it up through another assigned
duty.
J Not available for general use but rather restricted for a specific purpose.
A process that controls the amount paid to others by limiting the total amount of
K
money available for making payments to others.
Money or any instrument that banks will accept for deposit and immediately
L
credit to a company's account.

Terms
Fraud
Imprest System
Internal Control
Loan Covenants
Sarbanes-Oxley Act (SOX)
Segregation of Duties
Voucher System

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