Question: Pauli Company’s internal controls over cash

> Presented here is information for Zheng Inc. for 2017. Retained earnings, January 1……………..$130,000 Service revenue…………………………………. 400,000 Total expenses……………………………………..175,000 Dividends……………………………………………. 65,000 Instructions Prepare the 2017 retained earn

> Suppose the following information was taken from the 2017 financial statements of pharmaceutical giant Merck and Co. (All dollar amounts are in millions.) Retained earnings, January 1, 2017…………………..$43,698.8 Cost of goods sold………………………………………………..9,018.9

> This information relates to Benser Co. for the year 2017. Retained earnings, January 1, 2017………………..$67,000 Advertising expense…………………………………………. 1,800 Dividends………………………………………………………..6,000 Rent expense…………………………………………………. 10,400 Service revenue………………………

> The Bonita Vista Golf & Country Club details the following accounts in its financial statements. Accounts payable……………………._____ Accounts receivable…………………_____ Equipment………………………………_____ Sales revenue………………………….._____ Service revenue……………………….._____ Inv

> What are the three main categories of the statement of cash flows? Why do you think these categories were chosen?

> What is the primary purpose of the statement of cash flows?

> What is meant by the term operating cycle?

> All businesses are involved in three types of activities—financing, investing, and operating. Listed below are the names and descriptions of companies in several different industries. Abitibi Consolidated Inc.—manufacturer and marketer of newsprint Cal S

> Wells Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Wells’ chemical pesticides. During the coming year, Wells will have environmentally safe and competitive re

> Why would a bank want to monitor the dividend payment practices of the corporations to which it lends money?

> Listed here are some items found in the financial statements of Finzelberg. Indicate in which financial statement(s) each item would appear. (a) Service revenue. (b) Equipment. (c) Advertising expense. (d) Accounts receivable. (e) Common stock. (f) Inter

> Who are the external users of accounting data? Give examples.

> Who are the internal users of accounting data? How does accounting provide relevant data to the internal users?

> “Accounting is ingrained in our society and is vital to our economic system.” Do you agree? Explain.

> What are the advantages to a business of being formed as a partnership or sole proprietorship? What are the disadvantages?

> What are the advantages to a business of being formed as a corporation? What are the disadvantages?

> What do these classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios. (c) Solvency ratios.

> Ken McCall believes that the allocation of cost of goods available for sale should be based on the actual physical flow of the goods. Explain to Ken why this may be both impractical and inappropriate.

> An item must possess two characteristics to be classified as inventory. What are these two characteristics?

> Here is a list of words or phrases discussed in this chapter: 1. Corporation 4. Partnership 7. Accounts payable 2. Creditor 5. Stockholder 8. Auditor’s opinion 3. Accounts receivable 6. Common stock Instructions Match each word or phrase with th

> Why is the normal operating cycle for a merchandising company likely to be longer than for a service company?

> What is the primary source document for recording (1) cash sales and (2) credit sales?

> Waymon Co. has net sales of $100,000, cost of goods sold of $70,000, and operating expenses of $18,000. What is its gross profit?

> Lance Morrow cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lance.

> How do the components of revenues and expenses differ between a merchandising company and a service company?

> What are some common types of receivables other than accounts receivable or notes receivable?

> What is the difference between an account receivable and a note receivable?

> Discuss the impact the use of LIFO has on taxes paid and cash flows relative to the impact of FIFO when prices are increasing.

> What is the economic entity assumption? Give an example of its violation.

> Which assumed inventory cost flow method: (a) usually parallels the actual physical flow of merchandise? (b) divides cost of goods available for sale by total units available for sale to determine a unit cost? (c) assumes that the latest units purchased

> The July 15, 2010, edition of CFO.com contains an article by Marie Leone entitled “Sucking the LIFO out of Inventory.” Instructions Read the article, which can be found at www.cfo.com/printable/article.cfm/14508745, and answer the following questions. (

> “The selection of an inventory cost flow method is a decision made by accountants.” Do you agree? Explain. Once a method has been selected, what accounting requirement applies?

> What is the major advantage and major disadvantage of the specific identification method of inventory costing?

> (a) “The steps in the accounting cycle for a merchandising company differ from the steps in the accounting cycle for a service company.” Do you agree or disagree? (b) Is the measurement of net income in a merchandising company conceptually the same as in

> Branden Doyle is reviewing the principle of segregation of duties. What are the two common applications of this principle?

> In the corner grocery store, all sales clerks make change out of one cash register drawer. Is this a violation of internal control? Why?

> What principles of internal control apply to most businesses?

> Discuss how the Sarbanes-Oxley Act has increased the importance of internal control to top managers of a company.

> “Internal control is concerned only with enhancing the accuracy of the accounting records.” Do you agree? Explain.

> Identify the five components of a good internal control system.

> What are the three main types of business activity? Give examples of each activity.

> Recently, it was announced that two giant French retailers, Carrefour SA and Promodes SA, would merge. A headline in the Wall Street Journal blared, “French Retailers Create New Wal-Mart Rival.” While Wal-Martâ&#

> What was Apple’s balance in cash and cash equivalents at September 27, 2014? Did it report any restricted cash? How did Apple define cash equivalents?

> Identify the basic principles of cash management.

> Hank Cook is confused about the lack of agreement between the cash balance per books and the balance per bank. Explain the causes for the lack of agreement to Hank and give an example of each cause.

> “The use of a bank contributes significantly to good internal control over cash.” Is this true? Why?

> What is the essential feature of an electronic funds transfer (EFT) procedure?

> How do these principles apply to cash disbursements? (a) Physical controls. (b) Human resource controls.

> Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

> “To have maximum effective internal control over cash disbursements, all payments should be made by check.” Is this true? Explain.

> At Lazlo Wholesale Company, two mail clerks open all mail receipts. How does this strengthen internal control?

> In a period of rising prices, the inventory reported in Short Company’s balance sheet is close to the current cost of the inventory, whereas King Company’s inventory is considerably below its current cost. Identify the inventory cost flow method used by

> Why may the financial information from unadjusted accounts not be up-to-date and complete?

> What principle(s) of internal control is (are) involved in making daily cash counts of over-the-counter receipts?

> Robbins Inc. owns the following assets at the balance sheet date. Cash in bank—savings account…. $ 8,000 Cash on hand………………………………. 1,100 Cash refund due from the IRS………. 1,000 Checking account balance…………. 12,000 Postdated checks……………………………500 What amo

> Discuss the human resources department’s involvement in internal controls.

> (a) Explain the control principle of independent internal verification. (b) What practices are important in applying this principle?

> What internal control objectives are met by physical controls?

> A local bank reported that it lost $150,000 as the result of employee fraud. Ray Fairburn is not clear on what is meant by “employee fraud.” Explain the meaning of fraud to Ray and give an example of fraud that might occur at a bank.

> “Depreciation is a process of valuation that results in the reporting of the fair value of the asset.” Do you agree? Explain.

> What types of accounts does a company increase or decrease in a prepaid expense adjustment?

> Distinguish between the two categories of adjustments and identify the types of adjustments applicable to each category

> The financial statements of Columbia Sportswear Company are presented in Appendix B. Financial statements of VF Corporation are presented in Appendix C. Instructions (a) Based on the information contained in these financial statements, determine the fol

> “The historical cost principle of accounting requires adjustments.” Do you agree? Explain.

> Maria Lopez, CEO of Sales Bin Stores, is considering a recommendation made by both the company’s purchasing manager and director of finance that the company should invest in a sophisticated new perpetual inventory system to replace its periodic system. E

> In completing the engagement in Question 3, Wilson pays no costs in March, $2,500 in April, and $2,200 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue? Why?

> Max Wilson, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Wilson’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?

> Which balance sheet account provides evidence that Apple records sales on an accrual basis rather than a cash basis? Explain.

> One-half of the adjustment is given below. Indicate the account title for the other half of the adjustment. (a) Salaries and Wages Expense is increased. (b) Depreciation Expense is increased. (c) Interest Payable is increased. (d) Supplies is decreased.

> For each of the following items before adjustment, indicate the type of adjustment—prepaid expense, unearned revenue, accrued revenue, and accrued expense—that is needed to correct the misstatement. If an item could result in more than one type of adjust

> On January 9, a company pays $6,200 for salaries, of which $1,100 was reported as Salaries and Wages Payable on December 31. Indicate all accounts increased or decreased as well as dollar amounts when payment occurs.

> A company makes an accrued revenue adjustment for $780 and an accrued expense adjustment for $510. How much was net income understated or overstated prior to these adjustments? Explain.

> A company fails to recognize an expense incurred but not paid. Indicate which of the following types of accounts is increased or decreased in the adjustment: (a) asset, (b) liability, (c) revenue, or (d) expense.

> The notes that accompany a company’s fi nancial statements provide informative details that would clutter the amounts and descriptions presented in the statements. Refer to the fi nancial statements of Apple Inc. in Appendix A. Instructions for accessing

> Whistler Corp. performed services for a customer but has not received payment nor has it recorded any information related to the work. Which of the following types of accounts are involved in the adjustment: (a) asset, (b) liability, (c) revenue, or (d

> What types of accounts are increased or decreased in an unearned revenue adjustment?

> (a) Explain the income measurement process in a merchandising company. (b) How does income measurement differ between a merchandising company and a service company?

> Steele Company purchased equipment for $15,000. By the current balance sheet date, the company had depreciated $7,000. Indicate the balance sheet presentation of the data.

> Explain the differences between depreciation expense and accumulated depreciation.

> (a) How does the periodicity assumption affect an accountant’s analysis of accounting transactions? (b) Explain the term fiscal year.

> Describe the accounting information system.

> Wanda Roberts is president of Best Texts. She has no accounting background. Wanda cannot understand why fair value is not used as the basis for all accounting measurement and reporting. Discuss.

> Your roommate believes that accounting standards are uniform throughout the world. Is your roommate correct? Explain.

> Describe the constraint inherent in the presentation of accounting information.

> Banks charge fees for “bounced” checks—that is, checks that exceed the balance in the account. It has been estimated that processing bounced checks costs a bank roughly $1.50 per check. Thus, the prof

> Timmins Company of Emporia, Kansas, spreads herbicides and applies liquid fertilizer for local farmers. On May 31, 2017, the company’s Cash account showed a balance of $6,738.90. The bank statement from Emporia State Bank on that date s

> The bank portion of the bank reconciliation for Bogalusa Company at October 31, 2017, is as follows. The adjusted cash balance per bank agreed with the cash balance per books at October 31. The November bank statement showed the following checks and de

> What is the distinction between comparability and consistency?

> On July 31, 2017, Keeds Company had a cash balance per books of $6,140. The statement from Dakota State Bank on that date showed a balance of $7,690.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank se

> Blue Bayou Middle School wants to raise money for a new sound system for its auditorium. The primary fund-raising event is a dance at which the famous disc jockey Kray Zee will play classic and not-so-classic dance tunes. Grant Hill, the music and theate

> Gary Theater is in the Hoosier Mall. A cashier’s booth is located near the entrance to the theater. Two cashiers are employed. One works from 1:00 to 5:00 P.M., the other from 5:00 to 9:00 P.M. Each cashier is bonded. The cashiers receive cash from custo

> Soho Equipment Repair began operating in September 2017. It prepares financial statements at the end of each month. On November 1, 2017, a tabular summary includes the following information. Note that Soho began the month with $3,000 in Retained Earnings

> Roadside Travel Court was organized on July 1, 2016, by Betty Johnson. Betty is a good manager but a poor accountant. From the unadjusted tabular summary, Betty prepared the following income statement for her fourth quarter, which ended June 30, 2017.

> A review of the unadjusted balances for Lewis Company at December 31, 2017, produces these data pertaining to the preparation of annual adjustments. 1. Prepaid Insurance $15,200. The company has separate insurance policies on its buildings and its motor

> Salt Creek Golf Inc. was organized on July 1, 2017. Quarterly financial statements are prepared. Information from the unadjusted and adjusted tabular summary on September 30 is shown as follows. The $14,800 in the revenue column includes Service Revenue:

> As a new auditor for the CPA firm of Blacke and Whyte, you have been assigned to review the internal controls over mail cash receipts of Simon Company. Your review reveals that checks are promptly endorsed “For Deposit Only,” but no list of the checks is

> The Moto Hotel opened for business on May 1, 2017. The May transactions resulted in a tabular summary, with May 31 unadjusted balances shown below in the first row. The $9,000 in the revenue column resulted from Rent Revenue. The $4,300 in the expense co

> Len Kumar started his own consulting firm, Kumar Consulting, on June 1, 2017. The June transactions resulted in a tabular summary, with June 30 unadjusted balances shown here. Instructions (a) Record adjustments for the month of June that reflect the f

> The following selected data are taken from the comparative financial statements of Yankee Curling Club. The club prepares its financial statements using the accrual basis of accounting. Dues are billed to members based upon their use of the clubâ

> Merle Hawkins, the president of Pathway Company, is pleased. Pathway substantially increased its net income in 2017 while keeping its unit inventory relatively the same. Jon Dietz, chief accountant, cautions Merle, however. Dietz says that since Pathway