Financial Accounting Tools For Business Decision Making Canadian 7Th Edition Kimmel Solutions Manual Full Chapter PDF

Financial Accounting Tools for
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7th Edition Kimmel Solutions Manual
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Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition
CHAPTER 7
INTERNAL CONTROL AND CASH
LEARNING OBJECTIVES
1. Explain the primary components of an internal control system, including its
control activities and limitations.
2. Apply the key control activities to cash receipts and payments.
3. Prepare a bank reconciliation.
4. Explain the reporting and management of cash.
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES

AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 C 6. 1 C 11. 2 C 16. 2,3 C 21. 3 K
2. 1 C 7. 1 C 12. 2 C 17. 3 C 22. 4 C
3. 1 C 8. 1 C 13. 2 C 18. 3 C 23. 4 C
4. 1 K 9. 1 C 14. 2 C 19. 3 C 24. 4 C
5. 1 C 10. 2 C 15. 2,3 C 20. 3 C 25. 4 C
Brief Exercises
1. 1 C 4. 1,2 K 7. 3 AN 10. 3 AP 13. 4 AP
2. 1 K 5. 3 C 8. 3 AN 11. 3 AP
3. 1,2 K 6. 3 AN 9. 3 AP 12. 4 C
Exercises
1. 1 C 4. 1,2 C 7. 3 AP 10. 4 AN
2. 1 C 5. 3 AP 8. 3 AP 11. 4 E
3. 1,2 C 6. 3 AP 9. 3 AP
Problems: Set A and B
1. 1,2 C 4. 1,2 AN 7. 3 AP 10. 4 C
2. 1,2 AN 5. 3 AP 8. 3 AP 11. 4 C
3. 1,2 AN 6. 3 AP 9. 4 AN
Accounting Cycle Review
1. 3,4 AP
Cases
1. 1 C 3. 1 C 5. 4 E
2. 4 C 4. 1,2 S 6. 1,2 C
Solutions Manual 7-1 Chapter 7

Copyright © 2017 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
Legend: The following abbreviations will appear throughout the solutions manual file.
LO Learning objective
BT Bloom's Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty

S Simple
M Moderate
C Complex
Time: Estimated time to prepare in minutes
AACSB Association to Advance Collegiate Schools of Business

Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency

cpa-e001 Ethics Professional and Ethical Behaviour
cpa-e002 PS and DM Problem-Solving and Decision-Making
cpa-e003 Comm. Communication
cpa-e004 Self-Mgt. Self-Management
cpa-e005 Team & Lead Teamwork and Leadership
cpa-t001 Reporting Financial Reporting
cpa-t002 Stat. & Gov. Strategy and Governance
cpa-t003 Mgt. Accounting Management Accounting
cpa-t004 Audit Audit and Assurance
cpa-t005 Finance Finance
cpa-t006 Tax Taxation

ANSWERS TO QUESTIONS
1. The five primary components of a good internal control system include the
control environment, risk assessment, control activities, information and
communication, and monitoring.
A control environment encourages integrity and a high standard of ethical

behaviour. Risk assessment involves identification and management of key
business risks. Control activities are policies and procedures to help
mitigate the business risks. Information and communication ensures that
the internal control system captures and communicates the appropriate
information to internal and external users. Monitoring the internal control
system for its adequacy is a recurring process.
LO 1 BT: C Difficulty: S Time: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. Management is responsible for establishing a company’s control

environment. Since management is responsible for the preparation and
delivery of accurate and fair financial statements, it follows that
management should also be responsible for the internal control system
that generates the financial information communicated to the users of that
information.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. When designing and explaining to all employees the system of internal

control of the company, management must be clear as to their
expectations concerning what actions all employees must take and the
consequences of not following management’s policies and procedures.
Those individuals in top management must set the correct tone by strictly
adhering to the company policies and procedures and providing a
consistent example and message to all employees. This conformance will
demonstrate commitment on the part of management to the importance of
the internal control system and environment for all concerned and the
pledge to administer consequences to anyone not following their lead.
4. The five control activities that apply to most companies are assignment of
responsibility, segregation of duties, documentation, physical controls, and
review and reconciliation.
LO 1 BT: K Difficulty: S Time: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting

5. Documentation procedures contribute to good internal control by providing

evidence of the occurrence of transactions and events and, when
signatures (or initials) are added, the documents establish responsibility for
the transactions. The prompt transmittal of documents to the accounting
department contributes to recording transactions in the proper period, and
the pre-numbering of documents helps to ensure that a transaction is
recorded only once.
6. Independent review and reconciliation by internal auditors is necessary

because employees can forget to, or intentionally fail to, follow internal
controls, or they might become careless if there is no one to observe and
evaluate their performance. Segregating the physical custody of assets
from accounting record keeping is not enough to ensure that nothing has
been stolen or recorded incorrectly. A performance review still needs to
be done to ensure these controls were working effectively.
LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001, cpa-t004 CM: Reporting and Audit
7. External auditors are required to be independent of the organization they

audit. This independence provides the reassurance needed by external
users and owners of the organization about the financial condition and
performance of the business depicted in the financial statements.
Independence provides the proper environment to arrive at appropriate
accounting and disclosure conclusions, particularly when judgement is
involved. Internal auditors are not independent of the organization as they
are employees of the organization. Their role is to assist management in
their responsibility to provide a proper internal control system and
environment.
LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001, cpa-t004 CM: Reporting and Audit
8. A company’s system of internal control can only give reasonable

assurance that assets are properly safeguarded and that accounting
records are reliable because the cost of a perfect system outweighs its
benefits. For example, if a company wanted flawless accounting records,
they could double the number of accountants on staff and have the new
accountants check all of the work that was done by experienced
accountants but the benefit of this is outweighed by the costs. Absolute
assurance is too costly. Furthermore, even if cost was not a factor,
human error and collusion cannot be eliminated.

9. Collusion occurs when two or more employees agree to circumvent

procedures or controls or get around control activities in an organization in
order to gain an advantage or to cover up theft or fraud. The internal
control activity that is most affected by collusion is the segregation of
employees’ duties.
10. Electronic funds transfers normally result in better internal control since no
cash or cheques are handled by employees, thereby limiting the possibility
of misappropriation. However, controls over EFT payments (and
collections) do need to be put in place.
11. This is a violation of the assignment of responsibility control activity. Each

cash register should only be used by one employee and an independent
verification of the cash in each register at the end of each shift should be
compared to the total of the sales recorded in the cash register plus the
float (coins and paper currency for making change) in the register. If a
discrepancy arises, the employee responsible for that register can be held
responsible.
12. Cash registers are visible to the customer. Thus, they prevent the sales
clerk from ringing up a lower amount for the price and pocketing the
difference. In addition, the customer receives an itemized receipt, and the cash register tape
13. This statement is true if the alternative to a cheque payment is a cash

payment. It is not always practical to make all payments by cheque but
payment by cheque contributes to effective internal control over cash
disbursements as it provides a record of all payments. Also, having only
authorized individuals sign the cheques reduces the likelihood of payments
being made for unauthorized amounts or to unauthorized vendors.
14. The receptionist has an opportunity to commit fraud. In the case of an

appointment where the customer pays cash, the cash can be pocketed by
the receptionist. The receptionist can then cancel the appointment, leaving
no trace in the accounting records of the revenue generated by the service.
This is a clear case of lack of segregation of duties.
LO 2 BT: C Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
15. An employee who has no other responsibilities that relate to cash should

prepare the bank reconciliation. If a person had responsibility for handling

cash and also prepared the bank reconciliation, they could use the bank
reconciliation to hide fraud by falsifying the bank balance or misstating
reconciling items.
LO 2,3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
16. A bank contributes significantly to internal control over cash because it:
(1) safeguards cash on deposit, (2) minimizes the amount of cash that
must be kept on hand, and (3) provides another record of all bank
transactions.
17. The lack of agreement between the cash balances may be due to either:
(1) Timing differences—caused by recording a transaction on the
company’s books in one month and the bank recording it another
month (example – outstanding cheque) or the bank recording a
transaction first which the company will record after completing the
bank reconciliation (example – a bank service charge, or an NSF
cheque).
(2) Errors—made by either the company or the bank. For example, a
cheque for $110 is recorded by the depositor at $101.
18. (a) An NSF cheque is a cheque issued by a customer that was recorded
by the company when it was received and then deposited in the bank
only to discover later that the customer did not have the funds to
cover the cheque payment.
(b) An NSF cheque makes the bank balance lower than the book
balance and requires the book balance to be updated. Consequently,
it is deducted from the balance per books.
(c) An NSF cheque results in an entry in the company’s books, as a debit
to Accounts Receivable and a credit to Cash (assuming the cheque
deposited was a collection on account). The debit to Accounts
Receivable includes any additional charge that the bank may add for
their services with respect to the NSF cheque or the company may
add for late payment.
19. Since the March cheque has still not cleared the bank at April 30, it must
be included in the April 30th bank reconciliation as an outstanding cheque.

20. When performing a bank reconciliation, outstanding cheques are

subtracted from the bank balance to “move” that balance closer to the one
recorded on the company’s books. Since the bank balance is lower than
the book balance by the amount of this fraud, Sam will understate the
amount of outstanding cheques on the reconciliation. For example, if there
was no fraud, let’s assume that the bank balance would be $5,000 and that
the outstanding cheques were $3,000 so the book balance should be
$2,000. After the fraud the book balance is still $2,000 but the bank
balance is now $3,300 instead of $5,000. When Sam prepares the
reconciliation he has to make sure that the $3,300 will reconcile to $2,000
so he will list the outstanding cheques as only $1,300, thereby understating
them by the amount of cash he has stolen. The real outstanding cheques
of $3,000 less the stolen amount of $1,700, equals $1,300.
21. Cash includes cash on hand and cash in bank accounts. Cash equivalents
include short-term, highly liquid held-for-trading investments less any bank
overdrafts. Together, these two amounts combine and are reported as
cash and cash equivalents in the current assets section of the statement of
financial position.
22. Restricted cash is not available for general use as it is restricted for a
special purpose. When the restricted purpose is of a long-term nature, the
restricted cash is reported as a non-current asset. If it is expected to be
used within one year of the statement of financial position date, it would be
classified as a current asset and disclosed in the financial statements.
Compensating balances are minimum cash balances which lenders
specify that a borrower must maintain in the borrower’s bank account to
provide support for a loan. A compensating balance should be reported as
a non-current asset and the details of the loan conditions should be
disclosed in the notes to the financial statements.
23. The line of credit facility of $16 million does not represent a liability until
Brandon Corporation borrows (or draws) money under the line of credit.
In the notes to the financial statements, the terms of the line of credit and
its available limit of $16 million should be reported to demonstrate how
the business is well positioned to deal with future cash flow demands or
to take advantage of investment opportunities.

24. The basic principles of cash management are: (1) increase the speed of
collection on receivables, (2) keep inventory levels low, (3) delay payment
of liabilities, (4) plan the timing of major expenditures, (5) invest idle cash,
and (6) prepare a cash budget. The first three principles are ways to
increase cash on hand. The last three principles focus on making sure
management understands when cash balances will be high so that
investment income can be earned from idle cash and when cash
balances will be low so that bank loans or other financing can be
obtained.
25. Having too much cash on hand may hinder a business’ performance if the
cash cannot be used effectively and therefore not give a proper return to
the shareholders. Effective uses of cash can include upgrading existing
property, plant, and equipment, expanding the business, paying down
debt, repurchasing shares, or paying dividends.

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 7-1
Control Activity Example
Assignment of Responsibility One person operates the cash register at the exit
of the parking garage.
Segregation of duties Tickets are provided to those entering the garage

by an automated machine. This ticket is given to
the attendant on exiting the parking garage. In
this way, the attendant does not authorize the
parking and collect the cash.
Documentation The time on the ticket is entered into a machine

to determine the amount owed, which is keyed
into the cash register before the gate will open. In
this way the total time in the parking garage is
recorded.
Physical controls Cash is kept in a cash register.
Review and reconciliation If a customer is overcharged, they will complain.

Review to make sure parking gate is not being
raised prior to payment being received.
Reconcile the number of parking tickets issued to
the amount of cash received.
BRIEF EXERCISE 7-2
(a) 3 All transactions should include original, detailed receipts.

(b) 4 Undeposited cash should be stored in the company safe.
(c) 5 Surprise cash counts are performed by internal audit.
(d) 1 Responsibility for related activities should be assigned to specific
employees.
(e) 2 Cheque signers are not allowed to record cash transactions

BRIEF EXERCISE 7-3
1. Documentation and physical controls

2. Review and reconciliation
3. Segregation of duties
4. Assignment of responsibility
5. Physical controls
LO 1,2 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-4
1. Documentation
2. Review and reconciliation
4. Assignment of responsibility
5. Segregation of duties
LO 1,2 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-5
1. Bank – 7. Book +
2. NA 8. Bank –
3. Bank + 9. Book –
4. Book – 10. Book –
5. Bank + 11. Bank –
6. Book – 12. Book +

BRIEF EXERCISE 7-6
January deposits in transit:
Deposits in transit at beginning of month ........................................... $ 0

Add: Deposits recorded in company books this month ...................... 5,000
Less: Deposits recorded on this month’s bank statement ................. 4,000
Deposits in transit at end of month .................................................... $1,000
February deposits in transit:
Deposits in transit at beginning of month ........................................... $1,000

Add: Deposits recorded in company books this month ...................... 5,600
Less: Deposits recorded on this month’s bank statement ................. 4,600
Deposits in transit at end of month .................................................... $2,000
LO 3 BT: AN Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-7
November outstanding cheques:
Outstanding cheques at beginning of month ..................................... $ 0

Add: Cheques recorded in company books this month ..................... 27,100
Less: Cheques recorded on this month’s bank statement ................. 25,900
Outstanding cheques at end of month ............................................... $ 1,200
December outstanding deposits:
Outstanding cheques at beginning of month ..................................... $1,200

Add: Cheques recorded in company books this month ..................... 23,200
Less: Cheques recorded on this month’s bank statement ................. 19,700
Outstanding cheques at end of month ............................................... $ 4,700

BRIEF EXERCISE 7-8
(a) Kashechewan should correct its books for the error in recording the
cheque by reducing cash by $90 ($659 – $569).
The cheque in the amount of $415 mistakenly deducted by the bank

should be added back to the bank balance since it is the bank’s error.
(b) Accounts Payable ..................................................................... 90

Cash ........................................................................... 90
No entry is necessary for the cheque mistakenly deducted by the bank,

although the bank should be notified of this error.
BRIEF EXERCISE 7-9
June 30, reconciled cash balance per bank reconciliation ............... $18,920
Add: Cash receipts in July ............................................................... 21,700
Less: Cash disbursements in July ................................................... 24,300
July 31, unreconciled cash balance ................................................. $16,320
LO 3 BT: AP Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-10
Cash balance per bank $19,260

Add: Deposits in transit 1,450
20,710
Less: Outstanding cheques 3,630
Reconciled cash balance per bank $17,080
Cash balance per books (as per BE7-9) $16,320

Add: EFT collections on account 2,170
18,490
Less: Bank service charge $ 90
NSF cheque and fee ($1,270 + $50) 1,320
1,410
Reconciled cash balance per books $17,080

BRIEF EXERCISE 7-11
July 31 Cash ......................................................................... 2,170

Accounts Receivable......................................... 2,170
Bank Charges Expense ............................................ 90

Cash .................................................................. 90
Accounts Receivable ................................................ 1,320

Cash .................................................................. 1,320
BRIEF EXERCISE 7-12
Ouellette Ltée should report the cash in the bank, the payroll bank account, and
the cash register floats as cash. The held-for-trading investments would be
reported as cash equivalents because they mature within 90 days. Cash and
cash equivalents are recorded as a current asset. Assuming the restricted cash
is not expected to be used during the next year, the restricted cash for the plant
expansion should be reported as a non-current asset. The compensating
balance should also be reported as a non-current asset and disclosed in the
notes.
LO 4 BT: C Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-13
(a)
Cash in savings account $22,000
Less compensating balance 5,000 $17,000
Cash on hand 1,700
Cash in chequing account 14,000
Cash reported as a current asset $32,700
(b)
Compensating balance reported as non-current asset
and disclosed in the notes. 5,000
Income tax refund, current assets: Income Tax Receivable 2,000
Postdated cheques received from customers of $1,000 are not yet valid and
represent underlying current assets of accounts receivable.

SOLUTIONS TO EXERCISES
EXERCISE 7-1
(a) (b)
Control Strength or Weakness Suggested Improvements
1. No establishment of responsibility over The employees should use separate cash

the cash – weakness drawers.
Cash counts not performed Cash counts should be performed by a
independently – weakness supervisor at the end of the shift and the totals
compared to the cash register reading.
2. By shredding the receipts there is no Retain supporting information until such time
record maintained of sales for as all independent verification is complete
independent internal or external (a comparison of the receipts to the sales
verification – weakness recorded in the accounting records). Shred the
receipts only after the verification is complete.
3. Cash receipts procedures appear to NA
illustrate good internal control – the
segregation of duties between
receiving, recording, and depositing
cash greatly reduces the likelihood of
cash being stolen or recorded
incorrectly – strength
4. Improper segregation of duties could Different individuals should receive cash,
result in the misappropriation of cash record cash receipts, and deposit the cash.
and the ability to misstate the
accounting records to cover up the In a small business this may be impossible;
misappropriation – weakness therefore, it is imperative that management
take an active role in the operations and
supervision of the business to enable
detection of any accounting irregularities.
5. The procedures in place to conduct the NA

physical inventory count appear to be
reasonable – strength

EXERCISE 7-2
1. (a) It is possible to detect this type of fraud by comparing the amount of
inventory consumed during the evening with the sales that were
recorded in cash registers.
(b) This fraud can be prevented by segregating the duties of those
individuals handling the drinks to those individuals having access to
the cash register. If additional staff is not available, the floor
supervisor should keep a close eye on the bartender or inventory
could be counted once a day.
2. (a) It is possible to detect this type of fraud as the bottles of liquor sold
to establishments are not the same as those sold at a liquor store. A
special label is attached, which can be detected at the end of the
shift. As well, if the additional empty bottles are on hand at the end
of the shift, when the inventory consumed (including the bartender’s
bottle) at the end of the bartender’s shift is compared to sales, a
discrepancy will be noticed.
individuals handling the drinks to those individuals having access to
the cash register. If additional staff is not available, the floor
supervisor should keep a close eye on the bartender and do a bottle
count at the end of the shift.
3. (a) It is possible to detect this type of fraud if someone notices that the
number of appointments and services given by the spa does not
reconcile to the revenue deposited in the bank account for the day.
Most businesses of this nature will have someone comparing the
bank deposit slips with the appointment schedule (often the
schedule will be printed off a day or two prior to the scheduled date).
individuals handling the appointments, to those handing the cash,
and again to those individuals making the bank deposit. If additional
staff is not available, the owner of the spa should at least make the
bank deposit and require that the scheduling software not allow
appointment changes on the day of the appointment.

EXERCISE 7-2 (CONTINUED)

4. (a) It is possible to detect this type of fraud but likely only after the first
instance of fraud. The individual in charge of approving the bank
reconciliation could insist on looking at the cheques returned by the
bank and detect the unauthorized cheque.
individuals handling the cheques with the individual preparing the
bank reconciliation, and by being vigilant in scrutinizing the bank
reconciliation and its supporting documents.
EXERCISE 7-3
(a) (b)
Recommended
Weakness Control Activity Improvement
1. Inability to fix responsibility Assignment of There should be separate

for cash to a specific clerk. responsibility cash drawers and register
pass codes for each clerk.
2. Cash is not adequately Physical controls Cash should be stored in a

protected from theft. locked safe until it is
deposited in the bank.
3. Cash is not independently Review and A cashier office supervisor

counted. reconciliation should count cash and
reconcile the amount of cash
received to the cash register
reading.
4. The accountant should not Segregation of duties An employee not otherwise

handle cash and record cash handling cash or the
transactions. accounting records should
make the deposits.
5. Some sales will not be Documentation and All sales should be entered in
recorded so that they can be physical controls the cash register to provide
independently verified later; evidence the transaction has
cash is not adequately occurred. In addition, the
protected from theft. loose change box should be
locked to keep it safe until the
funds are deposited.
LO 1,2 BT: C Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 7-4
(a) (b)
Recommended
Weakness Control Activity Improvement
1. Cheques are not Physical controls Cheques should be stored in a safe or

stored in a secure locked file drawer.
area.
2. The approval of and Assignment of The purchasing manager should not

payment to suppliers responsibility and approve bills for payment nor should this
is done by the wrong segregation of manager have signing authority. An
employee. duties employee, other than one involved with
purchasing, who is aware of delivery of
goods and services, should be
authorizing the payment and another
member of senior management should be
assigned cheque signing duties.
3. Blank cheques are Assignment of Establish a second signing authority with

signed. responsibility the bank.
4. Cheques are not Documentation Cheques should be prenumbered and

prenumbered. their serial continuity subsequently tested
for completeness.
5. The bank Review and A person independent of the accountant

reconciliation is not reconciliation should prepare the bank reconciliation. If
independently this is not possible, then the accountant
prepared. can prepare the reconciliation but the
owner not the store manager (because
they can access cash) should approve it.
LO 1,2 BT: C Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 7-5
(a)
August 31 reconciled cash balance per bank reconciliation ............. $ 34,780
Add: (4) Cash deposits in September ............................................. 199,680
Less: (1) Cheques issued ................................................ $176,978
(2) Salaries deposited to employee accounts ......... 39,170
(3) Monthly EFT payment for rent ........................... 2,600 218,748
September, unreconciled cash balance ............................................ $ 15,712
(b) None of the above items would be included in the bank reconciliation as
they are included in the starting (unreconciled) cash balance and already
have been recorded by the company.

EXERCISE 7-6
Bank Books Journal

Not
Item Add Deduct Add Deduct Appli- Entry
(Credit) (Debit) (Debit) (Credit) Required
cable
1. Deposits in transit at √ No
the end of April
2. Deposits in transit at √
the beginning of April No
that cleared the bank
in April
3. Outstanding cheques √
at the beginning of No
April that cleared the
bank in April
4. Outstanding cheques √ No
at the end of April
5. Bank service charges √ Yes
6. Deposit of $400 made
in error by the bank to √ No
the company’s
account
7. Cheque written for
$250 recorded in error √ Yes
as $520 on the books
8. NSF cheque received √ Yes
from customer
9. EFT collection on √ Yes
account not previously
recorded by company
10. Interest earned on √ Yes
bank account
LO 3 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 7-7
(a) Deposits in transit: July 31

Deposits in transit, June 30 .................................................. $ 2,000
Add: Deposits recorded in company books in July .............. 14,750
Less: Deposits recorded on bank statement in July............. 15,820
Deposits in transit, July 31 .................................................... $ 930
Deposits in transit: August 31

Deposits in transit, July 31 .................................................... $ 930
Add: Deposits per books in company books in August ........ 22,900
Less: Deposits recorded on bank statement in August ........ 22,500
Deposits in transit, August 31 ............................................... $ 1,330
(b) Outstanding cheques: July 31

Outstanding cheques, June 30 ............................................. $ 570
Add: Cheques recorded in company books in July ............... 18,200
Less: Cheques recorded on July bank statement ................. 17,200
Outstanding cheques, July 31............................................... $ 1,570
Outstanding cheques: August 31

Outstanding cheques, July 31............................................... $ 1,570
Add: Cheques recorded in company books in August .......... 22,700
Less: Cheques recorded on August bank statement ............ 23,520
Outstanding cheques, August 31 .......................................... $ 750

EXERCISE 7-8
(a)
NEOPOLITAN LTD.
Bank Reconciliation
July 31
Cash balance per bank statement $10,670

12,638
Cash balance per books $ 8,953

Add: Cheque No. 373 error ($980 – $890) 90
EFT deposits 1,276
10,319
Less: Bank service charges 40
(b) July 31 Cash ................................................................. 90

Office Supplies ............................................ 90
Cash ................................................................. 1,276

Accounts Receivable ................................... 1,276
31 Bank Charges Expense .................................... 40

Cash ............................................................ 40

EXERCISE 7-9
(a) Outstanding deposit of May 31 $ 7,820

(b) Outstanding Cheques:
Cheque No. 003 – March 14 $1,675
Cheque No. 005 – March 18 360
Cheque No. 007 – March 22 2,130
Cheque No. 008 – March 23 525 $ 4,690
(c) Returned cheque – NSF S. Gillis – deduct 1,350
NSF fee – deduct 25
Bank service charges – deduct 40 $ 1,415
(d) May1, beginning balance ........................................................ $ 0
Add: Cash receipts in May ...................................................... 37,470
Less: Cash disbursements in May .......................................... 26,819
May 31, unreconciled cash balance........................................ $10,651
(e)
SHARP MANUFACTURING LTD.
Bank Reconciliation
May 31
Cash balance per bank statement $6,106

13,926
Cash balance per books $ 10,651

Less: Returned cheque – NSF S. Gillis 1,350
NSF fee 25
Bank service charges 40 1,415

EXERCISE 7-10
(a) Items that are considered cash but not cash equivalents would include:
1. Currency and coin $ 123
2. Royal Bank chequing account 4,325
3. Royal Bank savings account 5,000
5. Undeposited April customer cheques 750
7. Over-the-counter receipts ($1,735 + $1,230) 2,965
9. Cash register floats 500
Total cash $13,663
(b) 4. The $25,000 government treasury bill is considered a cash equivalent
because it matures within 90 days and the value at which it will
mature at is certain.
(c) Cash and cash equivalents = $13,663 [from (a)] + $25,000 = $38,663
(d) 6. Post-dated cheque—Accounts Receivable; Statement of Financial Position
8. IOU from company receptionist—Advances to Employees; Statement
of Financial Position
EXERCISE 7-11
Suggestions to improve cash management practices for Tory, Hachey, and
Wedunn:
1. Prepare a cash budget.
2. Adopt a time docketing accounting system that will track work performed
on files for individual clients.
3. Invoice clients monthly as work progresses using the accounting records
established for docketing time.
4. To the extent practicable, ask clients for retainers before work on files
begins. Use the retainers received to apply payments for monthly invoices
sent to clients.
5. When retainers are used up, request additional retainers until the case is
completed.
6. Establish an operating line of credit with the bank for day-to-day
operations.
7. Arrange a non-current loan for renovations and equipment with repayment
terms structured to coincide with expected future cash inflows.
8. Negotiate terms with suppliers that allow for delayed payments.
9. To the extent necessary, obtain additional investments from the three
lawyers to ensure payment to suppliers and employees are made on time.
LO 4 BT: E Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

SOLUTIONS TO PROBLEMS
PROBLEM 7-1A
(a) Control Activities Application to Cash Receipts
Assignment of responsibility Only cashiers are authorized to sell tickets.

Only the manager and cashier can handle cash.
Only ushers authorize entrance.
Segregation of duties The duties of receiving cash and admitting

customers are assigned to the cashier and to the
doorperson. The manager maintains custody of
the cash, and the company accountant records
the cash.
Documentation Tickets are prenumbered. Cash count sheets are

prepared and initialled. Deposit slips are
prepared.
Physical controls Cash is deposited in a bank vault nightly.

Prenumbered tickets are locked into the machine
by the manager and the machine is used to issue
tickets.
Review and reconciliation Cash counts are made by the manager at the
end of each cashier’s shift. Daily comparisons
are made by the head cashier and accounting
department of cash received, deposited, and
recorded.
(b) Actions by the usher and cashier to collaborate to misappropriate cash

include:
1. Instead of tearing the tickets, the usher could return the tickets to the
cashier who could resell them, and the two could divide the cash.
2. The cashier could issue a lower priced ticket than paid for and the
usher would admit the customer. The difference between the ticket
issued and the cash received could be divided between the usher and
cashier.

PROBLEM 7-2A
(a) Control Weaknesses (b) Improvements
Fred or Asmaa can order goods John or Rehana should take on

(assignment of responsibility) and the responsibility for the
approve invoices for payment (up to purchase of goods.
$20,000 for Fred and up to $5,000 for
Asmaa). Fred is the sole signer of
cheques less than $20,000. Fred could
purchase items for personal use or
create and pay invoices to companies
that he owns.
Fred signs cheques and prepares the Someone who does not record
bank reconciliation. Fred could write a cash transactions or has
cheque to himself and cover it up in the access to cash and cheques
bank reconciliation and/or through should prepare the bank
journal entries. reconciliation. If this is not
possible, then one of the
owners should either prepare or
at least review and approve the
reconciliation.
One person can sign cheques At least two individuals should

sign each cheque to prevent
inappropriate expenditures.
LO 1,2 BT: AN Difficulty: C Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-3A
(a) Control Weaknesses (b) Recommendations
1. No segregation of duties between receiving the The duties of receiving cash and
cash and admitting students to the lessons. The admitting students should be
instructor could admit students for free or charge assigned to separate individuals.
extra and pocket the difference or report fewer
students and pocket the extra money.
2. There is no segregation of duties in the accounting An independent person should

function. The general manager could prepare approve the invoices for payment
fictitious invoices for payment or write cheques to and prepare the bank
himself and not be detected because the general reconciliations.
manager also prepares the bank reconciliation.
3. Each salesperson is responsible for determining An independent and experienced

credit policies and they receive a commission person should be responsible for
based on sales. They could provide credit to setting credit limits for customers.
customers who should not receive credit in order to Credit limit criteria should be
earn the commission on the sale. determined by the company and
consistently applied.
4. All programmers have access to the accounting Access to the accounting records
software which could provide unauthorized should be restricted and
changes to the accounting records (such as wage protected with password or
rates). biometric restrictions.
5. Eliminating receiving reports and purchase orders Receiving reports and purchase
causes problems when invoices from suppliers are orders should be reinstated.
received. Accountants will not be able to verify if
the invoice pertains to items that have actually
been received or approved. Incorrect or fictitious
invoices may be paid or unauthorized orders made.
LO 1,2 BT: AN Difficulty: M Time: 40 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-4A
The tickets were unnumbered so there is Tickets should be prenumbered so

no way of knowing if duplicates were that the students could be held more
made and sold. accountable for the tickets and a
final reconciliation could be
performed between cash receipts
and sales.
No record was kept of which students Roger should have kept a record of
took tickets to sell or how many they took which tickets were issued to each
so there is no way of knowing if tickets student for resale. (Note: This
were given away for free and how many problem could have been largely
tickets were actually sold. avoided if the tickets had been sold
at the door on the day of the dance.)
There was no control over unsold tickets. Students should have been required
This deficiency made it possible for to return the unsold tickets to Roger
students to sell tickets, keep the cash, as well as the cash. In each case,
and tell Roger that they had disposed of the students should have been
the unsold tickets. issued a receipt for the cash they
turned in and the tickets they
returned.
Did not receive a receipt from Obnoxious A receipt should have been obtained
Al. Without a receipt, there is no way to from Obnoxious Al.
verify how much Obnoxious Al was
actually paid. For example, it is possible
that he was only paid $100 and that
Roger took the rest.

PROBLEM 7-4A (CONTINUED)
(a) and (b) (continued)
Inadequate control over the cash box. Only Roger should have had
access to the key and disbursed
funds when necessary for
purchases.
Praveen Patel counted the funds, made Roger should have counted the
out the deposit slip, and took the funds to funds, with someone observing him.
the bank. Praveen could have taken some Then he could have made out the
of the money. deposit slip and had Praveen
deposit the funds.
Students taking money for decorations Roger should reimburse each

were not required to have a receipt and student when a receipt is provided.
had unrestricted access to the cash box to
pay for their purchases.
Sara Wu was collecting tickets and There should have been one
receiving cash for additional tickets sold. person selling tickets at the door
and a second person collecting
tickets. The tickets collected times
the price per ticket could then be
compared to the cash collected.
Net cash receipts were less than A final reconciliation should have
anticipated. been performed between cash on
hand, ticket sales, and purchase
receipts.

PROBLEM 7-5A
(a) BEAUPRÉ LTD.

Bank Reconciliation
July 31
Cash balance per bank statement .............................................. $21,722
Less: Outstanding cheques ($2,738 – $2,162) .......................... $ 576

Deposit incorrectly posted by bank ................................. 3,100 3,676
Reconciled cash balance per bank ............................................. $18,046
Cash balance per books ............................................................. $12,934

Add: EFT collections ................................................................ 5,230
18,164
Less: Bank service charges ....................................................... 118
Reconciled cash balance per books ........................................... $18,046
The salaries are not a reconciling item because they were recorded by
both the bank and the company.
(b) July 31 Cash ....................................................................... 5,230

Accounts Receivable ..................................... 5,230
31 Bank Charges Expense .......................................... 118

Cash .............................................................. 118

PROBLEM 7-6A
(a) HIRJI HOLDINGS LTD.

Bank Reconciliation
October 31
Cash balance per bank statement ........................ $16,780

Add: Outstanding deposits .................................... 6,300
............................................................................... 23,080
Less: Outstanding cheques .................................. 2,650
Reconciled cash balance per bank ....................... $20,430
Cash balance per books ........................................ $19,070

Add: Note receivable collection ............................ $ 2,000
Interest receivable collection on note ........... 180 2,180
21,250
Less: NSF cheque ................................................ $ 575
Cheque #3421 error ($860 - $680) ............... 180
Bank service charges ................................... 65 820
Reconciled cash balance per books ....................... $20,430
(b) Oct. 31 Cash ................................................... 2,180

Notes Receivable ..................... 2,000
Interest Receivable ................... 180
31 Accounts Receivable .......................... 575

Cash .......................................... 575
31 Utilities Expense ................................. 180

Cash .......................................... 180
31 Bank Charges Expense ...................... 65

Cash .......................................... 65

PROBLEM 7-7A
(a) February 28, reconciled cash balance per bank reconciliation $17,029
Add: Cash receipts in March.................................................... 9,249
Less: Cash disbursements in March ........................................ 7,912
March 31, unreconciled cash balance ..................................... $18,366
(b) Deposits in transit: $4,012 (dated March 31).
(c) Outstanding cheques: #3473 for $4,947 (dated March 29).
(d)
YAP LTD.
Bank Reconciliation
March 31
Balance per bank statement .......................................... $17,163

Add: Deposits in transit [from (b)] .............................. $4,012
Error in recording cheque #3472
($1,823 – $1,283) ......................................... 540 4,552
21,715
Less: Outstanding cheques
No. 3473 [from (c)] ........................................... 4,947
Reconciled cash balance per bank ............................... $16,768
Balance per books [from (a)] ........................................ $18,366

Add: EFT collection—Boudreault ............................. 610
18,976
Less: Service charges ................................................ $ 89
NSF cheque and fee—Mustafa ($870 + $35) ... 905
EFT loan payment ............................................ 1,214 2,208
Reconciled cash balance per books .............................. $16,768

(e) Mar. 31 Cash ....................................................... 610

Accounts Receivable ...................... 610
31 Bank Charges Expense .......................... 89

Cash ............................................... 89
31 Accounts Receivable .............................. 905

Cash ............................................... 905
31 Bank Loan Payable ................................ 1,130

Interest Expense..................................... 84
Cash ............................................... 1,214

PROBLEM 7-8A
(a)
October 31, reconciled cash balance per bank reconciliation ....... $23,812
Add: Cash receipts in November .................................................. 21,438
Less: Cash disbursements in November ...................................... 30,968
November 30, unreconciled cash balance .................................... $14,282
(b) HAMPTONS LIMITED

Bank Reconciliation
November 30
Balance per bank statement ......................................... $18,958

Add: Deposits in transit (Nov. 30 cash receipt) ........... 2,676
21,634
Less: Outstanding cheques
No. 2474 ........................................................ $1,008
No. 2480 ........................................................ 1,224
No. 2482 ........................................................ 1,660 3,892
Reconciled cash balance per bank ............................... $17,742
Balance per books [from (a)] ........................................ $14,282

Add: EFT collection .................................................. 5,008
19,290
Less: NSF cheque and fee ($500 + $80) ................... $580
Bank service charges ....................................... 50
Error in recording cheque No. 2476
($4,760 – $5,660) ............................................ 900
Error in Nov. 20 deposit ($5,908 – $5,890) ...... 18 1,548
Reconciled cash balance per books ............................. $17,742

(c) Nov. 30 Cash ..................................................................... 5,008

Notes Receivable ........................................ 4,400
Interest Revenue .......................................... 608
30 Bank Charges Expense ........................................ 50

Cash ............................................................. 50
30 Accounts Receivable (Giasson Developments) .... 580

Cash ............................................................. 580
30 Accounts Payable ................................................. 900

Cash ............................................................. 900
30 Accounts Receivable............................................. 18
Cash ............................................................. 18

PROBLEM 7-9A
(a) and (b) Cash and cash equivalents (reported in Current Assets section)
Cash:
1. Cash on hand ............................................................... $ 2,920
2. Commercial bank savings account............................... 57,800
Commercial bank chequing account ............................ 25,000
U.S. bank account (Canadian equivalent) .................... 27,000
Total cash ............................................................................... 112,720
Cash equivalents:
5. Government of Canada Bond....................................... 50,000
Total cash and cash equivalents ............................................. $162,720
(c) 3. Restricted cash would be reported as a current or non-current

asset, depending on the timing of the equipment replacement.
4. Amounts due from employees (travel advances) of $8,700 would

be classified as other receivables in an account called Advances to
Employees.
5. Held-for-trading investments would be listed separately in the

current assets section of the statement of financial position and
would include the term deposit that matures in 120 days (to be a
cash equivalent it would have to mature in 90 days or less) and the
shares of Loblaw Companies Limited. The classification of the
shares could also be non-current depending on management’s
intentions for holding the shares.
6. NSF cheques would be included in Accounts Receivable,

assuming the company expects collection. If collection is doubtful,
they might have been provided for as part of Bad Debts Expense
and related Allowance for Doubtful Accounts or written off as
uncollectible.
7. This amount would be reported as restricted cash in the non-

current assets section of the statement of financial position.

PROBLEM 7-10A
(a) Cash includes cash on hand, and money in bank accounts.
Cash equivalents are short-term, highly liquid (easily sold) trading

investments that are subject to insignificant risk of changes in value less
any bank overdrafts. Examples of trading investments that would be
classified as cash equivalents include debt investments such as
government treasury bills (T-bills) that mature in 90 days or less, money
market funds, and 90-day bank term deposits.
These two categories are often combined as they are the cash either
currently available or the cash that is readily available for use by the
company. The classification as current or non-current would depend on
the nature of the restriction.
(b) Restricted cash will most likely be reported in the non-current assets
section of the statement of financial position as it can likely not be used to
meet current liabilities.
(c) It is necessary to report restricted cash separately because the cash

cannot be used for regular operations and has been set aside for a
specific purpose. As such, it is not available for use. Separate
classification assists users of the statement of financial position in
assessing the flexibility available to the business in managing its cash
and obligations to pay cash.
LO 4 BT: AN Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-11A
Accelerating collection of receivables

- currently only a minimal deposit of $50 is received from the customers.
Increase the deposit to cover cost of decorations so that this money is
received up front
- have final payment due immediately following the function
- both of these will improve cash flow as cash receipts will be accelerated
- Bev will have to check with other decorating companies to see what their
terms are in order to remain competitive
- if final payment cannot be received immediately due to competitive
pressures, Bev must monitor collections better and actively contact
customers whose payments are overdue so that cash can be collected
more promptly
Delay payment of liabilities

- Bev can apply for credit which will delay payment by 30 days giving her
use of this cash for 30 more days

PROBLEM 7-1B
Control Activities Application to Cash Payments
Assignment of responsibility Only the controller and assistant controller are

authorized to sign cheques. Invoices are approved by
the purchasing agent and goods received are
approved by the receiving department supervisor.
Segregation of duties The purchasing agent has only an approval function

and does not work in the receiving or accounting
areas. The receiving department supervisor has
access to the assets but does not order or record
purchases. Payment can only be made by the
controller or assistant controller, and the cheque
signers do not record the cash disbursement
transactions. The bank reconciliation is not done by
someone who records payments.
Documentation Cheques are prenumbered.

Following payment, the invoices are stamped “PAID”.
Physical controls Blank cheques are kept in a safe in the controller’s

office. Only the controller and assistant controller
have access to the safe. A computer is used for
printing cheques.
Review and reconciliation The cheque signer compares the cheque with the
approved invoice prior to issue. A staff accountant
reconciles the bank and book balances monthly.

PROBLEM 7-2B
(a) The weaknesses in control activities in the handling of collections include:
• Each usher could take cash from the collection plates en route to the
basement office.
• The head usher counts the cash alone so no one would ever know if
the head usher stole cash.
• The head usher’s notation of the count is left in the safe with the cash
so no one other than the financial secretary will know if the cash
placed in the safe was ever deposited.
• The financial secretary recounts the cash alone.
• The financial secretary withholds $200 per week – this is an
unapproved payment.
• The cash is vulnerable to robbery when kept in the unlocked safe
overnight.
• Cheques are made payable to “Cash” so anyone can cash them.
• The financial secretary has custody of the cash, maintains church
records, and prepares the bank reconciliation.
• No annual audits of cash receipts procedures are performed.
(b) The improvements should include the following:
(1) Head usher

• The head usher and a finance committee member should take the
cash to the office. The cash should be counted by the head usher and
the financial secretary in the presence of the finance committee
member. The amount counted should be written down on a cash
count sheet and copies kept by the secretary and finance committee
member.
(2) Ushers
• The ushers should transfer their cash collections to a cash pouch (or
bag) held by the head usher. The transfer should be witnessed by a
member of the finance committee.

PROBLEM 7-2B (CONTINUED)
(b) (continued)
(3) Financial Secretary

• Following the count, the financial secretary should prepare a deposit
slip in duplicate for the total cash received, and the secretary should
immediately deposit the cash in the bank’s night deposit vault. A copy
of the deposit slip should be given to a finance committee member.
• A “petty” or small cash fund should be established for the financial
secretary to be used for weekly cash expenditures and requests for
replenishment of the fund should be sent to the chairperson of the
finance committee for approval. Receipts for items paid from this fund
along with the unused cash should be kept in a locked cash box.
Periodic counts of the cash box should be performed by a finance
committee member to ensure that the cash on hand plus receipts for
cash expenditures total the limit (for example, $200) established for
the fund.
(4) Finance Committee

• A reconciliation of the cash count sheet and the bank deposit slip
should be done every time a deposit is made to ensure all cash
counted was actually deposited.
• Members should make their cheques payable to the church, and not
to cash.
• At the end of each month, a member of the finance committee should
prepare the bank reconciliation.
• Annual audits should be performed.

PROBLEM 7-3B
(a) Control Weaknesses (b) Recommendations

1. Cash is collected and kept in the car. Cash should be deposited in the bank
This could result in theft. each day.
2. The person purchasing the merchandise is An independent person should verify the
the same person that verifies receipt of the receipt of goods. The purchaser should
goods and approves invoices for payment. approve bills for payment by the
Because this person is responsible for all controller.
activities related to purchasing, errors and
theft could occur.
3. All three cashiers use the same cash Each employee should use a separate
drawer. This could result in difficulty cash drawer.
establishing responsibility for errors.
4. The office manager opens the mail, Mail should be opened by someone not
deposits the cash and cheques, and posts responsible for making the bank deposit.
the entry in the accounting records. This The bank deposit slip should be
could result in the office manager reconciled to the accounting records (and
depositing cheques into his/her own perhaps a list of cheques kept by the mail
account, taking the cash, and not posting room) on a daily basis to ensure all cash
the entry for accounting purposes or received was deposited and recorded.
posting a debit to an expense rather than Cash payments from customers should
cash. also not be accepted through the mail.
5. The sales staff provide the product to the All sales staff should be provided with a
customer for small orders, receive the cash set amount of product. Replacement
or cheques from the customers, and product for product sold should only be
restock their own inventory. This could provided to the sales staff by warehouse
result in the sales staff keeping the personnel after the sales staff submit the
payment from the customer and/or taking money collected (cash or cheque) for the
the product themselves. product being replaced.
LO 1,2 BT: AN Difficulty: M Time: 40 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-4B
Bank statements are not being reviewed Bank statements should be reviewed on a
as is evidenced by the fact that the bank regular basis and all deposits on the
statements have not been opened. statement compared to accounting
records. As well, cheques should be
scrutinized to ensure they have been
recorded and written to valid vendors and
that appropriate endorsements
(signatures) have been provided.
Accounting records have not been An accounting system should be

created nor updated regularly. The lack implemented immediately and all
of accounting records means that the transactions recorded on a timely basis by
charity cannot meet its mandate of an individual who does not have
having financial records available for the responsibility over the collection or deposit
public to examine. Reconciliations of cash receipts and the authorization or
cannot be performed if there are no signing of cheques for cash
accounting records to compare to the disbursements.
bank statement. Finally, it is impossible
for the charity to know if its resources are
being spent on charitable activities if
there is no record of total cash receipts
maintained.
Receipts are only issued for amounts Prenumbered receipts should be issued
over $20. for all donations and reconciled by a
representative of the charity at the end of
the day to the actual cash collected.

PROBLEM 7-4B (CONTINUED)
(a) and (b) (continued)

Collections are made by volunteers This is a problem facing many charities and
who work on a short-term basis. one that cannot easily be solved. Some
charities will screen their volunteers for any
criminal background. However, the use of
prenumbered receipt books is often the only
available control.
Drivers collect cash. There is a The volunteer and the driver should count all
possibility that the driver could cash receipts at the end of the day. A
misappropriate cash and not report reconciliation of the cash per the receipt books
the collection. and the deposit should be prepared. An
independent person (not the driver) should
make the deposit daily. The reconciliation
should be sent back to the charity’s head
office to be used as a source document to
update the accounting records.
The driver uses money from cash All cash receipts should be deposited intact.
collections to pay expenses. This Cash disbursements should be by cheque only
means that cash receipts, cash after appropriate approval has been obtained.
deposits, and cash disbursements A special cash fund, also known as a petty
may not be recorded correctly. cash fund, could be established to allow for
smaller cash disbursements.
Because no reconciliation was The dance tickets should have been

made of the cash receipts to the prenumbered and the numbers of tickets taken
tickets printed for the dance, there by each volunteer recorded. Cash receipts
is a possibility that the tickets could from the ticket sales should have been
have been sold by the volunteers reconciled to the tickets. Any unsold tickets
and the cash never remitted to the should have been returned to the charity and
charity. accounted for in the reconciliation.

PROBLEM 7-5B
(a)
O’HEARNE LIMITED
Bank Reconciliation
May 31
Cash balance per bank statement .................................. $15,230

Add: Deposit in transit ................................................. $1,926
Bank error—O’Bearne cheque............................ 1,200 3,126
18,356
Less: Outstanding cheques ($2,900 – $2,240 + $1,892) 2,552
Reconciled cash balance per bank ................................ $15,804
Cash balance per books ................................................ $13,126

Add: EFT collections .................................................. 4,188
17,314
Less: NSF cheque and service charge ($1,350 + $80) $1,430
Bank service charge ...................................................... 80 1,510
Reconciled cash balance per books.............................. $15,804
(b) May 31 Cash ....................................................... 4,188

Accounts Receivable ...................... 4,188
31 Accounts Receivable .............................. 1,430

Cash ............................................... 1,430
31 Bank Charges Expense .......................... 80

Cash ............................................... 80

PROBLEM 7-6B
(a)
ISLAND MILLING LTD.
Bank Reconciliation
October 31
Cash balance per bank statement ......................... $17,230

Add: Deposit in transit ....................................... 3,600
20,830
Less: Outstanding cheques ................................ 6,200
Reconciled cash balance per bank ....................... $14,630
Cash balance per books ....................................... $14,565

Add: Cheque #1926 error ($3,760 - $3,670)...... $ 90
EFT collections.......................................... 2,650 2,740
17,305
Less: NSF cheque ........................................... $2,610
Bank service charge .................................. 65 2,675
Reconciled cash balance per books .................... $14,630
(b) Oct. 31 Cash ............................................... 90

Professional Fees Expense ... 90
31 Cash ............................................... 2,650

Accounts Receivable .............. 2,650
31 Accounts Receivable ...................... 2,610

Cash ....................................... 2,610
31 Bank Charges Expense .................. 65

Cash ....................................... 65

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POISONING BY CORROSIVE SALTS OF
MERCURY.
Calomel with muriatic acid, corrosive sublimate, mercuric chloride, iodide,
nitrate, cyanide. Fatal dose. Symptoms: anorexia, salivation, thirst, emesis, colic,
diarrhœa, rumbling, debility, tremors, stupor, death. Lesions: corrosive whitening
of gastro-intestinal mucosa, congestion, ulceration, blackening, bloody, glairy
ingesta. Treatment: albumen, emesis, demulcents, chlorate of potash, bitters, iron
sulphate. Test: copper and muriatic acid.
Calomel in itself cannot be looked on as corrosive, but in
ruminants in which it is retained in the system for 3 or 4 days it is
largely resolved into mercuric chloride by the free gastric acid and
alkaline chlorides. It has therefore been largely excluded from the
materia medica of these animals. When in these or other animals it
produces corrosive action, the operation is essentially that of
corrosive sublimate.
The corrosive salts of mercury likely to be taken by animals are
corrosive sublimate now so largely used as an antiseptic, the nitrates
and iodides, and cyanides of mercury used as local applications or as
antiseptics.
Mercuric chloride may be taken as the type. It has proved fatal
to the horse in a dose of 2 drs.; to the ox in 1 to 2 drs.; to the dog in
doses of 4 to 6 grs.
Symptoms. Loss of appetite, salivation, thirst, emesis in vomiting
animals, colics, diarrhœa, often bloody, weak perhaps imperceptible
pulse, hurried breathing, much rumbling of the abdomen, debility,
trembling, stupor and death.
Lesions. Escharotic whitening in patches of the mucosa of the
mouth, throat, gullet, stomach and intestines, with acute congestion,
ulceration and ecchymosis, and sometimes blackening by the
formation of the sulphide. The contents of the bowels may be serous
or bloody and more or less glairy. Like arsenic, mercuric chloride
concentrates its action on the intestinal canal by whatever channel it
may have entered the body.
Treatment. The mercury should be precipitated in an insoluble
form and then eliminated by emesis or by the stomach pump. White
of eggs is usually the most available agent producing the albuminate
of mercury. This is, however, still soluble in acid and alkaline liquids,
in chlorides of potassium, sodium or calcium and even in excess of
albumen. Vomiting may be favored by tickling the fauces, or by
hypodermic injection of apomorphia. This may be followed by boiled
flaxseed or copious drinks of rain water. When the mercury has been
largely eliminated the salivation may be controlled by chlorate of
potash, and the digestive disorder met by bitters and iron sulphate.
Test for Mercury. Place a few drops of the suspected solution on a
clean surface of copper; acidulate with muriatic acid; then touch the
copper through the liquid with a piece of zinc; a silver colored stain
will be formed easily dissipated by heat.
POISONING BY SULPHUR.
Fatal dose, horse 16 ozs. Symptoms: dullness, anorexia, colic, diarrhœa, sulphur
odor. Lesions: congestion, desquamation, ulceration of gastro-intestinal mucosa,
sulphur odor in flesh, blood nearly fluid, blackens silver. Treatment: chloride of
lime, oil, puncture rumen or colon, stimulants.
In excessive doses this is irritant. The horse is poisoned by 16 ozs.
(Tabourin): violent colics follow a dose of 12 ozs. (Collaine). Cattle
are less susceptible.
Symptoms. Dullness, anorexia, colic, pulse small and quick, skin
cold and clammy. Fœtid flatus and profuse diarrhœa, are marked
symptoms.
Lesions. Injection of the gastro-intestinal mucosa, shedding of the
epithelium, ulceration, and sometimes gangrene. Sulphur is found in
the ingesta and fæces and a sulphur odor is prominent, not only in
the bowels but also in the flesh. Tympany from H2S is common. The
blood is mostly fluid, and ecchymosis is shown on heart, lungs and
other internal organs. The tissues blacken silver.
Treatment. Chloride of lime, oleaginous laxatives, use trochar and
canunla for tympany. In prostrate conditions give stimulants
(alcohol, ether).
POISONING BY BROMINE AND IODINE.
Poisoning by these agents is rare in domestic animals. Bromine 2

drs. killed a dog in 5 hours: 10 to 12 drops in 1 oz. water
intravenously killed a dog suddenly, and 5 to 6 drs. of iodine by the
mouth killed in a few days (Orfila). A horse had colic from taking ½
oz. iodine (Tabourin), others died from the effect of 2 drs. doses
intravenously (Patu).
Symptoms. Violent colicy pains, salivation, emesis in vomiting
animals, diarrhœa, iodine or bromine odor, acute coryza, red eyes,
dilated pupils, weakness, debility, vertigo, convulsions. If the patient
survives the glandular system undergoes atrophy, with emaciation
and scaly skin eruptions.
Lesions. After large doses there are congestion, ulceration,
corrosion and sloughing of the œsophagus, gastric and intestinal
mucosa, and more or less yellow discoloration of the parts. The odor
is characteristic. With iodine there may be blue iodide of starch in
the ingesta.
Treatment. Favor emesis by tickling the fauces and giving tepid
water, or apomorphia subcutem. Boiled starch is the best antidote
and may be given freely, both by mouth and rectum. Opium is often
called for to relieve suffering.
POISONING BY COPPER.
Copper sulphate: Fatal dose, horse, dog. Symptoms: Dullness, colic, blue or
green vomit, diarrhœa, straining, weakness, spasms, palsy, albuminuria, icterus,
hæmoglobinuria, impaired appetite, emaciation, spasms. Lesions: Redness,
softening, ulceration, sloughing of alimentary mucosa, methe-globinæmia, fatty
liver, enlarged spleen, ingesta give copper film on polished iron. Treatment:
Albumen, milk, mucilage, iron filings, sulphur, magnesia, laxatives, opium. Avoid
acids.
The common copper poisons are the sulphate and acetate. Copper
alum, oxide or carbonate of copper and paints with a copper base are
less frequently taken.
Sulphate of copper 1 ounce has proved fatal to the horse. In
dilute solution or with mucilaginous liquids it is much less injurious.
Ten grains to 2 drachms subcutem have killed the dog. (Tabourin.)
Symptoms. Dullness, colics, emesis of blue or greenish matter in
vomiting animals, diarrhœa, tenesmus, weakness, trembling,
spasms, trismus, paralysis, small, weak pulse, hurried breathing. In
experimental chronic poisoning in the sheep, albuminuria, icterus,
hæmaglobinuria, hæmaturia, impaired appetite and rumination,
constipation followed by diarrhœa, great emaciation and weakness
and finally convulsions. (Ellenberger and Hofmeister).
Lesions. Redness and softening of the alimentary mucosa,
ulceration, sloughing, perforation. In the chronic forms methe-
globinæmia, free hæmatin as crystals in liver, spleen and kidney,
nephritic extravasation, fatty degeneration of the liver, enlarged
spleen, and catarrhal changes in the intestinal mucosa. Polished iron
placed in the gastric or intestinal contents becomes coated with
copper.
Treatment. White of egg, milk, mucilage, iron filings, sulphur,
calcined magnesia, laxatives. Opium may be required to calm
suffering, but acids must be carefully avoided.
POISONING BY ZINC.
Sulphate and chloride poisonous, less potent oxide and carbonate. Symptoms:
colics, emesis, congested alimentary mucosa, diarrhœa, cramps, weakness, paresis,
anæmia, emaciation. Lesions: white, leathery, sloughing or ulcerated alimentary
mucosa, strictures. Treatment: emesis, demulcents, tannic acid, sodium carbonate.
The sulphate and chloride are the most likely to be taken in
dangerous amount, the former being mistaken for Glauber salts.
Three ounces of sulphate intravenously in the horse has proved fatal,
or 10 to 50 grains in the dog. In the vicinity of zinc ore furnaces the
agent is taken in on the fodder as oxide or carbonate.
Symptoms. There is much abdominal pain, emesis in vomiting
animals, quick pulse, congested mucosæ, diarrhœa, cramps,
weakness, and paresis, and if the patient survives, anæmia and
emaciation.
Lesions. The mucosa of mouth, gullet, stomach and perhaps
duodenum is white, opaque, hard, corrugated, leathery, sloughing, or
ulcerated. Congestion is well marked. Strictures may appear in
chronic cases.
Treatment. Give tepid water and tickle the fauces. Use white of egg
or milk freely and mucilaginous agents. Tannic acid, or carbonate of
soda are antidotal by tending to precipitate insoluble compounds.
POISONING BY SILVER.
Toxic doses of silver come mostly from materials used in the arts.
The photographer uses chiefly the nitrate, iodide, bromide, cyanide
and chloride. Taken into the stomach the silver salts are less
poisonous because they are largely precipitated as insoluble chloride
or albuminate. The chloride and albuminate are, however, soluble in
solutions of alkaline chlorides and hence even they may poison.
Symptoms. Colic, emesis in vomiting animals the vomited matters
blackening in the light, diarrhœa, great muscular weakness, paresis,
weak clonic spasms, and disturbed respiration. The nervous
symptoms are very prominent (Rouget and Curci). Chronic
poisoning produces emaciation and fatty degeneration of liver,
kidneys and muscles (Bogoslowsky).
Lesions. Patches of congestion and of white corrosion on the
buccal œsophageal and gastric mucous membrane, the presence of
the curdy white chloride of silver adherent to the gastric mucosa. In
chronic cases the visible mucosæ and white skin may have a slaty
color.
Treatment. Emetics in vomiting animals. White of egg, common
salt largely diluted and followed by milk as antidotal, demulcent and
nutritive agent.
POISONING BY BARIUM.
Poisonous salts. Symptoms: spasms, peristalsis, defecation, urination,

restlessness, prostration, emesis, weak pulse, coma. Lesions: Moderate congestion
of gastro-intestinal mucosa. Treatment: alkaline sulphate, anodynes, demulcents.
The salts of barium are irritant with a special action on the nervous
system shown by weakened action of the heart and spasms or paresis
of the muscles. The chloride is used in staining wool, the nitrate and
chlorate in producing green colors in fireworks, the oxide and
carbonate in glassmaking, the chromate by painters, and the
sulphate for giving weight and body to various white powders. The
chloride is now largely used to stimulate intestinal peristalsis in
animals.
Symptoms. Barium chloride hypodermically produces tonic and
clonic convulsions, increased peristalsis, discharges of urine and
fæces, great restlessness, muscular prostration, emesis in vomiting
animals, hurried, shallow respiration, weak, thready pulse, asthenia,
coma, and death.
Lesions. There is congestion of the gastric and intestinal mucosa,
but this is rarely violent, and corrosion and ulceration are almost
unknown. The agent indeed seems to act more energetically upon the
nervous system than on the mucosa of the alimentary tract.
Treatment. This consists in giving an alkaline sulphate (sulphate
of soda, potash, or magnesia), to precipitate the insoluble barium
sulphate, with anodynes (opium) and mucilaginous agents.
POISONING BY IRON.
Sulphate and chloride on empty stomach poisonous. Symptoms: Colic, emesis,
rumbling, purging. Treatment: Alkaline or earthy carbonates, tannic acid,
albumen. Opium.
Sulphate and chloride are the principal poisonous compounds.
Both are comparatively harmless even in large doses taken on a full
stomach, while on an empty stomach they may cause violent gastro-
enteritis.
Symptoms. Colicy pains, purging, emesis in vomiting animals,
more or less tympany and rumbling of the bowels, and surface
coldness.
Treatment. Give carbonates of the alkalies, magnesia or lime to
precipitate the comparatively insoluble carbonate or oxide; or tannic
acid or infusion of oak bark or galls. White of egg, milk and
mucilaginous agents, and opium may be required to allay irritation.
POISONING BY CHROMIUM.
Chromic acid, chromate and bichromate of potash. Corrosive. Cause: Gastro-
intestinal inflammation, albuminuria, hæmaturia, emaciation, digital ulcers and
sloughs, colic. Diarrhœa, vertigo, stiffness, weakness. Lesions. Treatment: Emesis,
stomach pump, demulcents.
Bichromate of potash is used extensively in dyeing, calico printing,
in the manufacture of porcelain, in chemistry and photography, and
to a slight extent in medicine, while lead chromate (chrome yellow) is
a valuable pigment. Chromic acid is one of the most potent caustics,
at a moderately high temperature dissolving all animal products that
may be subjected to it. The chromate and bichromate of potash are
only less violently caustic, producing deep and fistulous sores on the
hands of the dyers, and acting in a similar manner on the mucosa of
the alimentary canal. Twenty-eight grains of the bichromate given by
the stomach killed a rabbit in two hours, while 45 grains of the
chromate had no such effect (Gmelin). Pelikan found that the
bichromate acted like arsenic or mercuric chloride, producing violent
irritation of the stomach and intestines, followed by albuminuria,
hæmaturia and emaciation: 1 to 5½ grains proved fatal to rabbits
and dogs.
Workmen inhaling the bichromate dust, have inflammation,
ulceration and finally destruction of the nasal septum, together with
skin eruptions and ulcerations.
Horses working at the factories have intractable ulcers of the skin
and sometimes shed the hoofs (B. W. Richardson).
Symptoms. Taken by the mouth the bichromate causes colicy
pains, emesis in vomiting animals, diarrhœa, great prostration, cold
extremities, vertigo, stiffness or weakness of the hind limbs, dilated
pupils, weak pulse and death. If protracted the urine may be bloody
and albuminous.
Lesions. There is more or less intense congestion of the stomach
and intestine, yellow shrunken mucosa, abrasions, sloughs, and
ulcers, and congested kidneys with yellow cloudiness of the
epithelium of the convoluted tubes and congestion of the glomeruli.
Treatment. Wash out the stomach by emesis or the stomach pump
and use albuminous and mucilaginous agents freely.
POISONING BY CARBOLIC ACID.
Susceptibility of cat and other animals. Fatal dose. Effect of dilution and gastric
plenitude. Concentrated is corrosive. Symptoms: Salivation, dysphagia, anorexia,
thirst, emesis, colic, arched back, odor of the acid, dark, greenish brown,
albuminous urine, tremors, lowered temperature, debility, stertor, stupor, coma.
Lesions: Whitened corroded mucosa, inflammation, ecchymosis, dark, liquid
blood, brain effusions or extravasations, nephritic congestion. Treatment: Vinegar,
alcohol, emesis, demulcents, Glauber salts.
The cat is the most susceptible to this poison. For dogs, cats and
rabbits from 3 to 4 drops per pound, is the minimum fatal dose. For
an ordinary dog the lethal dose is ½ to 1 drachm. The horse has
taken 3 ounces without fatal results, and 15 ounces in a week
(Munk). Much depends on the dilution of the agent and the
plenitude of the stomach. In a concentrated state it acts at once on
the mucosa as a caustic abstracting the water and forming a white
eschar.
Symptoms. The concentrated acid causes salivation, dysphagia,
anorexia, thirst, emesis in vomiting animals, colics, arched back,
retracted abdomen, odor of the acid in the breath, dark or greenish
brown albuminous urine, trembling, lowered temperature, debility,
stertorous breathing, clonic or tonic spasms, paralysis of the hind
limbs, stupor, coma and death.
Lesions. In the mouth, throat, stomach and intestines are whitish,
cauterized patches, with active inflammation beneath and around
them, and ecchymosis. The blood is fluid and dark colored,
extravasations or effusions on the brain or in the lateral ventricles,
with pulmonary congestion and parenchymatous nephritis.
Treatment. If available, give vinegar proportionate to the amount
of carbolic acid taken. Alcohol is a good substitute. Emesis should be
encouraged when available. Next mucilaginous agents and bland oils
to dilute the acid are required. Glauber salts may assist in
neutralizing and expelling the acid.
POISONING BY CREOSOTE.
Irritates, coagulates albumen, and blood, arrests heart, colic, emesis, salivation,
labored breathing, vertigo. Lesions: Congestion, corrosion, dark clotted blood,
odor. Treatment: Mucilaginous agents, emesis, oily laxatives.
On the mucous membrane creosote has a very irritant action,
coagulating the albumen, causing violent inflammation. It also
coagulates the blood and when injected into the veins, stops the
action of the heart. Taken by the mouth it causes violent colics,
emesis in vomiting animals, salivation, laborious breathing,
convulsions, vertigo and death. At the necropsy the stomach is found
congested of a dull red color, and corroded, and the vessels contain
dark clotted blood. A dog died from a dose of 2 drachms. The odor of
creosote is marked.
Treatment. Emesis, white of eggs, mucilaginous liquids, and oily
laxatives.
POISONING BY SEEDS OF RICINUS
COMMUNIS.
Superpurgation. Poison in seeds. Diluents, demulcents, stomach pump, laxatives
if necessary.
An overdose of castor oil may kill by gastro-intestinal congestion
and superpurgation. Apart from the oil however the seeds contain a
very active poison, which has been fatally ingested by horses with
grain or otherwise. Five and a half ounces of the seeds have proved
fatal. (Pelletier. Wende).
The symptoms are those of acute colic and gastro-enteritis. The
indications are to wash out the stomach by abundant demulcents
and the stomach pump, and if necessary to hasten the expulsion of
the offensive matters by bland laxatives (olive oil, Glauber salts).
POISONING BY CROTON SEEDS AND OIL.
Fatal dose without water. Vomiting animals. Superpurgation. Lesions.
Treatment: diluents, demulcents, stomach pump. Opiates.
One drachm of croton seeds given to a horse, without water proved
fatal in 24 hours (Morton); 2 drachms followed by all the water the
horse would drink produced most violent catharsis followed by
recovery (Hughes). Twenty to thirty drops of croton oil proved fatal;
8 drops in the jugular vein caused death (Hertwig). It is much less
fatal to cattle. Dogs and pigs vomit it so readily that they usually
survive with profuse catharsis.
The symptoms are profuse watery diarrhœa with tenesmus,
congested mucosæ, rapidly increasing weakness and small pulse,
becoming imperceptible.
The lesions are violent congestion of the mucosa of stomach and
intestines, concentrated very largely on the cæcum and colon.
Treatment consists in abundance of mucilaginous liquids, which
the animal readily drinks, and washing out the stomach with the
stomach tube or pump. Opiates may be demanded to calm the pain.
POISONING BY EUPHORBIA.
In Europe euphorbia lathyris has been found to produce in
animals, colic, constipation, tympany, followed by bloody diarrhœa,
stupor and hæmaturia. In America the euphorbia corollata (large
flowering spurge) and euphorbia ipecacuanhæ (ipecacuanha spurge)
though less potent have a similar action. Treatment consists in
favoring elimination by emesis, and abundant mucilaginous and
demulcent agents.
POISONING BY BOX LEAVES.
The leaves of buxus sempervirens, used as a border in gardens,

contains an acrid principle. After eating 1½ lb. a horse had colic,
tympany and enteritis. After death the lesions of gastro-enteritis
were found (Weiss). Treatment would be by stomach pump,
laxatives, demulcents and anodynes.
POISONING BY DAFFODILS. (NARCISSUS
POETICUS, AND NARCISSUS PSEUDO
NARCISSUS).
These common denizens of gardens produce intense gastro-
enteritis, profuse diarrhœa, spasms, stupor and weakness.
Treatment will not differ materially from that advised in box
poisoning.
POISONING BY RANUNCULUS.
The ranunculus acris (tall crowfoot), repens (creeping crowfoot),
sceleratus (cursed crowfoot), and bulbosus (butter cup), are all more
or less acrid and liable to produce gastro-enteritis when taken in
quantity. They are usually avoided by animals but will sometimes be
taken by accident with other vegetation. Sheep are said to eat
ranunculus bulbosus with impunity (Daubenton). Both cattle and
sheep suffered from the other species (Delafond, Lipp, Brugnone,
Delplanque). There were salivation, colic, emesis in vomiting
animals, diarrhœa, vertigo, spasms, grinding of the teeth, arched
back and staring coat. Treatment would be emesis or the stomach
pump when available, mucilaginous drinks and enemata. Johnson
(Medical Botany of North America) had a herd of cows abort for
years on a field thickly set with ranunculus acris, but which ceased to
abort when removed to a field from which this weed was absent.
POISONING BY VERATRUM. VIRIDE.
AMERICAN HELEBORE.
Used in the early days by New England farmers to destroy birds in

the cornfields (Osgood). Taken internally it reduces the fullness and
frequency of the pulse, and if the dose be large excites nausea,
vomiting and purging with great prostration. In the horse I have
found anorexia, irritability of the bowels, and frequent retching. The
action is primarily on the heart and nervous system and incidentally
as an irritant on the gastro-intestinal mucosa. Treatment consists in
evacuation of the stomach and the free use of mucilaginous drinks
and diffusible stimulants. Helleborus Niger, viridus and fœtidus have
analogous effects.

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SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES

Solutions Manual 7-1 Chapter 7

Difficulty: Level of difficulty

Time: Estimated time to prepare in minutes

AACSB Association to Advance Collegiate Schools of Business

CPA CM CPA Canada Competency

Solutions Manual 7-2 Chapter 7

A control environment encourages integrity and a high standard of ethical

2. Management is responsible for establishing a company’s control

3. When designing and explaining to all employees the system of internal

Solutions Manual 7-3 Chapter 7

5. Documentation procedures contribute to good internal control by providing

6. Independent review and reconciliation by internal auditors is necessary

7. External auditors are required to be independent of the organization they

8. A company’s system of internal control can only give reasonable

Solutions Manual 7-4 Chapter 7

9. Collusion occurs when two or more employees agree to circumvent

11. This is a violation of the assignment of responsibility control activity. Each

13. This statement is true if the alternative to a cheque payment is a cash

14. The receptionist has an opportunity to commit fraud. In the case of an

Solutions Manual 7-5 Chapter 7

prepare the bank reconciliation. If a person had responsibility for handling

Solutions Manual 7-6 Chapter 7

20. When performing a bank reconciliation, outstanding cheques are

Solutions Manual 7-7 Chapter 7

Solutions Manual 7-8 Chapter 7

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 7-1

Control Activity Example

Segregation of duties Tickets are provided to those entering the garage

Documentation The time on the ticket is entered into a machine

Physical controls Cash is kept in a cash register.

Review and reconciliation If a customer is overcharged, they will complain.

BRIEF EXERCISE 7-2

(a) 3 All transactions should include original, detailed receipts.

Solutions Manual 7-9 Chapter 7

BRIEF EXERCISE 7-3

1. Documentation and physical controls

BRIEF EXERCISE 7-4

BRIEF EXERCISE 7-5

Solutions Manual 7-10 Chapter 7

BRIEF EXERCISE 7-6

January deposits in transit:

Deposits in transit at beginning of month ........................................... $ 0

February deposits in transit:

Deposits in transit at beginning of month ........................................... $1,000

BRIEF EXERCISE 7-7

November outstanding cheques:

Outstanding cheques at beginning of month ..................................... $ 0

December outstanding deposits:

Outstanding cheques at beginning of month ..................................... $1,200

Solutions Manual 7-11 Chapter 7

BRIEF EXERCISE 7-8

The cheque in the amount of $415 mistakenly deducted by the bank

(b) Accounts Payable ..................................................................... 90