The following situations describe two cash payment situations and two cash receipt situations. In each pair, one set of internal controls is better than the other. Evaluate the internal controls in each situation as strong or weak, and give the reason for your answer. Cash payments: a. Mark Moon Construction policy calls for construction supervisors to request the equipment needed for their jobs. The home office then purchases the equipment and has it shipped to the construction site. b. Best Buildings, Inc., policy calls for project supervisors to purchase the equipment needed for jobs. The supervisors then submit the paid receipts to the home office for reimbursement. This policy enables supervisors to get the equipment quickly and keep construction jobs moving. Cash receipts: a. At Cunnigham Auto Parts, cash received by mail goes straight to the accountant, who debits Cash and credits Accounts Receivable to record the collections from customers. The Cunningham accountant then deposits the cash in the bank. b. Cash received by mail at Healthy Heart Clinic goes to the mail room, where a mail clerk opens envelopes and totals the cash receipts for the day. The mail clerk forwards customer checks to the cashier for deposit in the bank and forwards the remittance slips to the accounting department for posting credits to customer accounts.
> The first seven transactions ofEverett Advertising, Inc., have been posted to the company’s accounts as follows: Requirement Prepare the journal entries that served as the sources for the seven transactions. Include anexplanation for
> All of the following are objectives of internal control except a. To safeguard assets b. To maximize net income c. To ensure accurate and reliable accounting records d. To comply with legal requirements
> Analyze the impact of business transactions on accounts;record (post) transactions in the books; construct and use a trial balance) Refer to Exercise 2-18A. In Exercise 2-18A Doherty TreeCellular, Inc., completed the following transactions during April
> Doherty TreeCellular, Inc., completed the following transactions during April 2012, its first month ofoperations: Apr 1 Received $19,800 and issued common stock. 2 Purchased $200 of office supplies on account. 4 Paid $14,300 cash for land to use as a bui
> Refer toExercise 2-16A. In Exercise 2-16A Bob Morin opened a medical practice specializing in surgery. During the first month of operation (August), the business, titled Bob Morin, Professional Corporation (P.C.), experienced the following events: Aug 6
> Bob Morin opened a medical practice specializing in surgery. During the first month ofoperation (August), the business, titled Bob Morin, Professional Corporation (P.C.), experiencedthe following events: Aug 6 Morin invested $39,000 in the business, whic
> Thefollowing selected events were experienced by either Fact Finders, Inc., a corporation, or Peter Flip,the major stockholder. State whether each event (1) Increased, (2) Decreased, or (3) Had no effecton the total assets of the business. Identify any s
> Highland Bank & Trust Company lent $150,000 to Sherman Summers on a three-month, 8% note. Record the following for the bank (explanations are not required): a. Lending the money on February 10. b. Collecting the principal and interest at maturity. Specif
> Explain what a transaction is; analyze the impact of transactionson accounts) Assume Casual Wear opened a store in San Francisco, starting with cash and commonstock of $98,000. Nicole Marchildon, the store manager, then signed a note payable to purchase
> EighthInvestments, Inc., began by issuing common stock for cash of $100,000. The company immediatelypurchased computer equipment on account for $60,000. 1. Set up the following T-accounts of Eighth Investments, Inc.: Cash, Computer Equipment,Accounts Pay
> Accounting has its own vocabulary andbasic relationships. Match the accounting terms at the left with the corresponding definition ormeaning at the right. ___ 1. Debit ___ 2. Expense ___ 3. Net income ___ 4. Ledger ___ 5. Posting ___ 6. Normal balance
> Refer to Darlington, Inc.’s trial balance in ShortExercise 2-10. The purpose of this exercise is to help you learn how to correct three commonaccounting errors. Error 1.Slide. Suppose the trial balance lists Land as $4,500 instead of $4
> Assume Slippy Slides borrowed $17 million from West Side Bank and agreed to (a) Pay an interest rate of 7.0% and (b) Maintain a compensating balance amount equal to 5.1% of the loan. Determine Slippy Slides’ actual effective interest rate on this loan.
> Darlington, Inc.’s trial balance follows. Compute these amounts for the business: 1. Total assets 2. Total liabilities 3. Net income or net loss during December Darlington, Inc. Trial Balance December 31, 2012 Balance Debit Accoun
> Assume that Old Harborreported the following summarized data at December 31, 2012. Accounts appear in no particularorder; dollar amounts are in millions. Prepare the trial balance of Old Harbor at December 31, 2012. List the accounts in their properord
> TolmanUnlimited performed service for a client who could not pay immediately. Tolman expected to collectthe $4,700 the following month. A month later, Tolman received $3,000 cash from the client. 1. Record the two transactions on the books of Tolman Unli
> Architect Aaron Ashton purchased supplies onaccount for $1,700. Later Ashton paid $425 on account. 1. Journalize the two transactions on the books of Aaron Ashton, architect. Include an explanationfor each transaction. 2. Open a T-account for Accounts Pa
> After operating for several months,architect Edmund Roberge completed the following transactions during the latter part of March: Mar 15Borrowed $31,000 from the bank, signing a note payable. 22 Performed service for clients on account totaling $8,900. 2
> Roma Design specializes in imported clothing. During March, Romacompleted a series of transactions. For each of the following items, give an example of a transactionthat has the described effect on the accounting equation of Roma Design. a. Increase one
> Answer these questions about receivables and uncollectibles. For the true-false questions, explain any answers that turn out to be false. 1. True or false? Credit sales increase receivables. Collections and write-offs decrease receivables. 2. True or fal
> Refer to Short Exercise 2-3.Which of the transactions of Faith Varitek, MD, increased the total assets of the business? Foreach transaction, identify the asset that was increased. In Exercise 2-3 Faith Varitek, MD, opened a medical practice. The busines
> Faith Varitek, MD, opened a medical practice. The business completedthe following transactions: Apr 1Varitek invested $27,000 cash to start her medical practice. Thebusiness issued common stock to Varitek. 1 Purchased medical supplies on account totaling
> SmithSoftware began with cash of $11,000. Smith then bought supplies for $2,400 on account.Separately, Smith paid $5,500 for a computer. Answer these questions. a. How much in total assets does Smith have? b. How much in liabilities does Smith owe?
> Donn Communications, Inc., is preparing its cash budget for 2012. Donn ended 2011 with cash of $88 million, and managers need to keep a cash balance of at least $79 million for operations. Collections from customers are expected to total $11,323 million
> Bill Hooper opened a software consulting firm that immediately paid $6,000 for a computer. Was Hooper’s computeran expense of the business? If not, explain.
> Community Bank has a loan receivable from IMS Chocolates. IMS is six months late in making payments to the bank, and Jan French, a Community Bank vice president, is assisting IMS to restructure its debt. French learns that IMS is depending on landing a c
> This case is based on an actual situation experienced by one of the authors. Gilead Construction, headquartered in Topeka, Kansas, built a motel in Kansas City. The construction foreman, Slim Pickins, hired the workers for the project. Pickins had his wo
> Environmental Concerns, Inc., has poor internal control. Recently, Oscar Benz, the manager, has suspected the bookkeeper of stealing. Details of the business’s cash position at September 30 follow. a. The Cash account shows a balance of
> Refer to the RadioShack Corporation Consolidated Financial Statements in Appendix B at the end of this book. 1. Focus on cash and cash equivalents. Why did cash change during 2010? The statement of cash flows holds the answer to this question. Analyze th
> Refer to the Amazon.com, Inc., consolidated financial statements in Appendix A at the end of this book. The cash and cash equivalents section of the Consolidated Balance Sheet shows a balance of $3,777 as of December 31, 2010, and is made up of many diff
> The president of The Pembrook Company has recently become concerned that the bookkeeper has embezzled cash from the company. He asks you, confidentially, to look over the bank reconciliation that the bookkeeper has prepared to see if you discover any dis
> Perform the following accounting for the receivables of Garvey and Pullman, a law firm, at December 31, 2012. Requirements 1. Start with the beginning balances for these T-accounts: ▶ Accounts Receivable, $101,000 ▶ Allowance for Uncollectible Accounts,
> Dave Dern, the chief financial officer, is responsible for The Grand Design’s cash budget for 2013. The budget will help Dem determine the amount of long-term borrowing needed to end the year with a cash balance of $135,000. Dern’s assistants have assemb
> Sharon Hall, the owner of Sharon’s Party Picks, has delegated management of the business to Lola Oster, a friend. Hall drops by to meet customers and check up on cash receipts, but Oster buys the merchandise and handles cash payments. Business has been v
> Fast Pass Company manufactures a popular brand of footballs. Fast Pass employs 142 workers and keeps its employment records on time sheets that show how many hours the employee works each week. On Friday the shop foreman collects the time sheets, checks
> David Doyle, chief financial officer of Madison Wireless, is responsible for the company’s budgeting process. Doyle’s staff is preparing the Madison cash budget for 2013. A key input to the budgeting process is last ye
> The April 30 bank statement of Durkin Engineering Associates has just arrived from Maine First Bank. To prepare the Durkin bank reconciliation, you gather the following data: a. Durkin’s Cash account shows a balance of $7,795.12 on April 30. b. The April
> The cash data of Duff y Automotive for October 2012 follow: Duffy received the following bank statement on October 31, 2012: Additional data for the bank reconciliation include the following: a. The EFT deposit was a receipt of monthly rent. The EFT
> Each of the following situations reveals an internal control weakness: Situation a. In evaluating the internal control over cash payments of Yankee Manufacturing, anauditor learns that the purchasing agent is responsible for purchasing diamonds for use
> European Imports is an importer of silver, brass, and furniture items from Spain. Eloise Stiles is the general manager of European Imports. Stiles employs two other people in the business. Michelle Woods serves as the buyer for European Imports. In her w
> Nathan Farmer, chief financial officer of Bosworth Wireless, is responsible for the company’s budgeting process. Farmer’s staff is preparing the Bosworth cash budget for 2013. A key input to the budgeting process is la
> The November 30 bank statement of Donald Engineering Associates has just arrived from Kansas First Bank. To prepare the Donald bank reconciliation, you gather the following data: a. Donald’s Cash account shows a balance of $7,684.83 on November 30. b. Th
> The cash data of Durkin Automotive for April 2012 follow: Durkin received the following bank statement on April 30, 2012: Additional data for the bank reconciliation include the following: a. The EFT deposit was a receipt of monthly rent. The EFT deb
> Evan Neal operates a roller skating center. He has just received the monthly bank statement at January 31 from Citizen National Bank, and the statement shows an ending balance of $575. Listed on the statement are an EFT rent collection of $330, a service
> Gulig and Doherty, a law firm, started 2012 with accounts receivable of $26,000 and an allowance for uncollectible accounts of $2,000. The 2012 service revenues on account totaled $183,000, and cash collections on account totaled $133,000. During 2012, G
> During 2013, Chocolate Passion completed these transactions: 1. Sales revenue on account, $1,030,000 2. Collections on account, $895,000 3. Write-off s of uncollectibles, $15,000 4. Uncollectible-account expense, 2% of sales revenue Journalize Chocolate
> D. J. Hardy’s checkbook and August bank statement show the following: Requirement Prepare Hardy’s bank reconciliation at August 31. Date Check No. Item Check Deposit Balance 8/1 $ 535 4 622 Sun Cafe S 20 515 9. D
> The following items appear on a bank reconciliation. Classify each item as (a) An addition to the bank balance, (b) A subtraction from the bank balance, (c) An addition to the book balance, or (d) A subtraction from the book balance. 1. __ Outstanding ch
> Scott Smart served as executive director of Downtown Huntsville, an organization created to revitalize Huntsville, Alabama. Over the course of 14 years, Smart embezzled $236,000. How did Smart do it? He did it by depositing subscriber cash receipts in hi
> Identify the internal control weakness in the following situations. State how the person can hurt the company. a. Jay Mott works as a security guard at TOWN parking in Des Moines. Mott has a master key to the cash box where customers pay for parking. Eac
> Assume Victor’s Vans borrowed $15 million from Jay’s Bank and agreed to (a) Pay an interest rate of 7.2% and (b) Maintain a compensating balance amount equal to 5.3% of the loan. Determine Victor’s Vans’ actual effective interest rate on this loan.
> Gale Communications, Inc., is preparing its cash budget for 2012. Gale ended 2011 with cash of $85 million, and managers need to keep a cash balance of at least $78 million for operations. Collections from customers are expected to total $11,335 million
> Flat Flyers Company manufactures a popular line of remote airplanes. Flat Flyers employs 125 workers and keeps their employment records on time sheets that show how many hours the employee works each week. On Friday the shop foreman collects the time she
> McIntosh stores use point-of-sale terminals as cash registers. The register shows the amount of each sale, the cashreceived from the customer, and any change returned to the customer. The machine also produces a customer receipt but keeps no record of tr
> Each of the following situations reveals an internal control weakness: a. In evaluating the internal control over cash payments of Farley Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the com
> Roper stores use point-of-sale terminals as cash registers. The register shows the amount of each sale, the cashreceived from the customer, and any change returned to the customer. The machine also produces a customer receipt but keeps no record of trans
> Gretchen Cilla sells memberships to the Denver Symphony Association in Denver, Colorado. The Symphony’s procedure requires Cilla to write a patron receipt for all memberships sold. The receipt forms are prenumbered. Cilla is having personal financial pro
> Brenda Small manages Harris Manufacturing. Small fears that a trusted employee has been stealing from the company. This employee receives cash from clients and also prepares the monthly bank reconciliation. To check up on the employee, Small prepares her
> After preparing Rampart Corp.’s bank reconciliation in Short Exercise 4-8 , make the company’s journal entries for transactions that arise from the bank reconciliation. Date each transaction October 31, and include an explanation with each entry.
> The Cash account of Rampart Corp. reported a balance of $2,540 at October 31. Included were outstanding checks totaling $900 and an October 31 deposit of $400 that did not appear on the bank statement. The bank statement, which came from Tri Bank, listed
> Peacock Company requires that all documents supporting a check be cancelled by punching a hole through the packet. Why is this practice required? What might happen if it were not?
> Cash may be a small item on the financial statements. Nevertheless, internal control over cash is very important. Why is this true?
> How do computer viruses, Trojan Horses, and phishing expeditions work? How can these e-commerce pitfalls hurt you? Be specific.
> Identify the other control procedures usually found in a company’s system of internal control besides separation of duties, and tell why each is important.
> Explain why separation of duties is often described as the cornerstone of internal control for safeguarding assets. Describe what can happen if the same person has custody of an asset and also accounts for the asset.
> List the components of internal control. Briefly describe each component.
> Irish Imports is an importer of silver, brass, and furniture items from Ireland. Kathleen O’Shea is the general manager of Irish Imports. O’Shea employs two other people in the business. Molly Fitzpatrick serves as the buyer for Irish Imports. In her wor
> Refer to the facts in S5-5. Suppose that, when store personnel uncrate the shipment of merchandise, they find that ashipment of clothing worth $5,000 is defective. They notify Big Sky of the problem and return the shipment to the company. What entry will
> Define “fraud.” List and briefly discuss the three major components of the “fraud triangle.”
> Sunrise Bank recently appointed the accounting firm of Smith, Godfroy, and Hannaford as the bank’s auditor. Sunrise quickly became one of Smith, Godfroy, and Hannaford’s largest clients. Subject to banking regulations, Sunrise must provide for any expect
> Barry Galvin is executive vice president of Community Bank. Active in community affairs, Galvin serves on the board of directors of The Salvation Army. The Salvation Army isexpanding rapidly and is considering relocating. At a recent meeting, The Salvati
> A friend named Jay Barlow has asked what effect certain transactions will have on his company.Time is short, so you cannot apply the detailed procedures of journalizing and posting. Instead,you must analyze the transactions without the use of a journal.
> Refer to the RadioShack Corporation financial statements in Appendix B at the end of the book. Suppose you are an investor consideringbuying RadioShack Corporation common stock. The following questions are important: Show amounts in millions. 1. Explain
> Refer to Amazon.com, Inc.’s financial statements in Appendix A at the end of the book. Assume that Amazon.com completedthe following selected transactions during 2010. a. Made company sales (revenue) of $34,204 million, all on account (debit accountsrece
> Sophia Loren opened anItalian restaurant. Business has been good, and Loren is considering expanding the restaurant.Loren, who knows little accounting, produced the following financial statements for Little Italy,Inc., at December 31, 2012, the end of th
> This case is based on RadioShack Corporation’s consolidated balance sheets, consolidated statements of income, and Note 2 of its financial statements (Significant Accounting Policies) in Appendix B at the end of this book. 1. Describe RadioShack Corporat
> Refer to Amazon.com, Inc.’s Consolidated financial statements in Appendix A at the end of this book. 1. Examine the account “marketable securities” in the consolidated balance sheet. a. What does this account consist of? b. Why do you think the company h
> Scrumptious Crumpets Bakery is budgeting cash for 2012. The cash balance at December 31, 2011, was $14,000. Scrumptious Crumpets Bakery budgets 2012 cash receipts at $81,000. Estimated cash payments include $44,000 for inventory, $34,000 for operating ex
> A fire during 2012 destroyed most of the accounting records of Clearview Cablevision, Inc. The only accounting data for 2012 that Clearview can come up with are the following balances at December 31, 2012. The general manager also knows that bad-debt exp
> Refer to the facts in S5-5. The sales terms on the invoice are 2/10, net 30. What does this mean? What is Sports R Us’ potential savings, if any? How much time does the company have to take advantage of these savings? In S5-5 On December 23, 2012, Big S
> Suppose you work in the loan department of Superior Bank. Dean Young, owner of Dean Young Beauty Aids, has come to you seeking a loan for $500,000 to expand operations. Young proposes to use accounts receivable as collateral for the loan and has provided
> Suppose Overpriced, Inc., reported net receivables of $2,582 million and $2,269 million at January 31, 2013, and 2012, after subtracting allowances of $71 million and $67 million at these respective dates. Overpriced earned total revenue of $26,667 milli
> Retro Shirt Company sells on credit and manages its own receivables. Average experience for the past three years has been as follows: Jed Rivers, the owner, is considering whether to accept bankcards (VISA, MasterCard). Rivers expects total sales to in
> The comparative financial statements of Lakeland Pools, Inc., for 2013,2012, and 2011 included the following select data: Requirements 1. Compute these ratios for 2013 and 2012: a. Current ratio b. Quick (acid-test) ratio c. Days’ sal
> Easy Nutrition completed thefollowing selected transactions: 2012 Oct 31 Sold goods to Basic Foods, receiving a $38,000, three-month, 5.00% note. Dec 31 Made an adjusting entry to accrue interest on the Basic Foods note. 2013 Jan 31 Collected the Basic F
> Assume Cline & Nichols, the accounting firm, advises Derbyshire Seafood that its financial statement must be changed to conform to GAAP. AtDecember 31, 2012, Derbyshire’s accounts include the following: Cash...............................................
> The September 30,2013, records of Media Communications include these accounts: Accounts Receivable.................................... $242,000 Allowance for Doubtful Accounts .................. (8,300) During the year, Media Communications estimates do
> This problem takes you through the accounting forsales, receivables, and uncollectibles for Ship Fast Corp, the overnight shipper. By selling on credit,the company cannot expect to collect 100% of its accounts receivable. At July 31, 2012, and 2013,respe
> Before paying an invoice for goods received on account, the controller or treasurer should ensure that a. The company is paying for the goods it ordered. b. The company is paying for the goods it actually received. c. The company has not already paid thi
> Mini ComputerSolutions makes all sales on account, so virtually all cash receipts arrive in the mail. Luke Hill,the company president, has just returned from a trade association meeting with new ideas for thebusiness. Among other things, Hill plans to in
> During the fourthquarter of 2012, California, Inc., generated excess cash, which the company invested in tradingsecurities, as follows: 2012 Nov 17 Purchased 1,200 common shares as an investment in trading securities,paying $11 per share. Dec 19 Received
> On December 23, 2012, Big Sky Sports Manufacturing sells a truckload of sporting goods to the Sports R Us store in Amarillo, Texas. The terms of the sale are FOB destination. The truck runs into bad weather on the way to Amarillo and doesn’t arrive until
> The comparative financial statements of True Beauty Pools, Inc., for 2013,2012, and 2011 included the following select data: Requirements 1. Compute these ratios for 2013 and 2012: a. Current ratio b. Quick (acid-test) ratio c. Days’
> Yummy Foods completed thefollowing selected transactions. 2012 Oct 31 Sold goods to Bob’s Foods, receiving a $36,000, three-month, 6% note. Dec 31 Made an adjusting entry to accrue interest on the Bob’s Foods note. 2013 Jan 31 Collected the Bob’s Foods n
> Assume Adams & Murray, theaccounting firm, advises Pappadeaux Seafood that its financial statements must be changed toconform to GAAP. At December 31, 2012, Pappadeaux’s accounts include the following: Cash................................................
> The September 30,2013, records of Up-To-Date Communications include these accounts: Accounts Receivable.................................... $243,000 Allowance for Doubtful Accounts................... (8,100) During the year, Up-To-Date Communications es
> This problem takes you through the accounting forsales, receivables, and uncollectibles for Quick Mail Corp., the overnight shipper. By selling on credit,the company cannot expect to collect 100% of its accounts receivable. At July 31, 2012, and 2013,res
> Lance Products,Inc., makes all sales on account. Selena Camp, accountant for the company, receives and opensincoming mail. Company procedure requires Camp to separate customer checks from the remittanceslips, which list the amounts that Camp posts as cre
> During the fourth quarter of2012, Spring, Inc., generated excess cash, which the company invested in trading securities as follows: 2012 Nov 16Purchased 1,300 common shares as an investment in trading securities,paying $8 per share. Dec 16 Received cash
> In a bank reconciliation, interest revenue earned on your bank balance is a. Deducted from the book balance. b. Added to the bank balance. c. Added to the book balance. d. Deducted from the bank balance.
