Accounting Study Set 8

Business

Quiz 8 :

Sarbanes Oxley,internalcontrols, Cash

Quiz 8 :

Sarbanes Oxley,internalcontrols, Cash

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Bank reconciliation and entries OBJ. 5 The cash account for Remedy Medical Co. at April 30, 2014, indicated a balance of $18,885. The bank statement indicated a balance of $23,775 on April 30, 2014. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items: a. Checks outstanding totaled $7,840. b. A deposit of $3,580, representing receipts of April 30, had been made too late to appear on the bank statement. c. The bank collected $3,780 on a note left for collection. The face of note was $3,600. d. A check for $770 returned with the statement had been incorrectly recorded by Remedy Medical Co. as $700. The check was for the payment of an obligation to Copelin Co. for a purchase on account. e. A check drawn for $330 had been erroneously charged by the bank as $3,300. f. Bank service charges for April amounted to $110. Instructions 1. Prepare a bank reconciliation. 2. Journalize the necessary entries. The accounts have not been closed. 3. If a balance sheet were prepared for Remedy Medical Co. on April 30, 2014, what amount should be reported as cash
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1.
The bank reconciliation statement is prepared to reconcile the balance as per the bank and balance as per the company by recording the omitted transactions and rectifying the incorrect entries. The bank reconciliation for RM Co. to reconcile the balance as per the bank and balance as per the company is provided below:
img Explanation:
• The amount of checks outstanding of $7,840 is deducted by the company from its cash balance but not deducted by the bank. Hence, the amount of $7,840 would be deducted from the cash balance according to the bank statement.
• The amount of deposit of $3,580 is added by the company in its cash balance but not added by the bank. Hence, the amount of $3,580 would be added in the cash balance according to the bank statement.
• The amount of note and interest of $3,780 is collected and added by the bank in cash balance according to the bank statement but not added by the company in its cash balance. Hence, the amount of $3,780 would be added in the cash balance according to the company.
• The amount of check of
img is deducted by the bank from the cash balance according to the bank statement but not deducted by the company from its cash balance. Hence, the amount of $70 would be deducted from the cash balance according to the company.
• The amount of checks of
img is erroneously deducted by the bank from the cash balance according to the bank statement. Hence, the amount of $2,970 would be added back in the cash balance according to the bank statement.
• The amount of bank service charges of $110 is deducted by the bank from the cash balance according to the bank statement but not deducted by the company from its cash balance. Hence, the amount of $110 would be deducted from the cash balance according to the company.
The calculations that are used to prepare the bank reconciliation for RM Co. are provided below:
img 2.
The journal entries are required to be recorded for the rectifications and adjustment made by the company in order to calculate the correct balance according to the company. The necessary journal entries to record the rectifications and adjustment made by the company are provided below:
img Explanation :
• The cash account would be debited by $3,780 and the notes receivable would be credited by $3,600 Interest revenue would be credited by $180 to record the note and interest collected by bank.
• The miscellaneous expense would be debited by $110, the accounts payable would be debited by $70, and the cash account would be credited by $180 to record the bank service charges and payment to payables.
3.
If a balance sheet were prepared for RM Co. on April 30, 2014 then the amount that should be reported as cash is $22,485. The calculation for the amount that should be reported as cash on April 30, 2014 balance sheet is shown below:
img Following calculations are used to calculate the amount that should be reported as cash on April 30, 2014 balance sheet:
img

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Ethics and professional conduct in business During the preparation of the bank reconciliation for Building Concepts Co., Joel Kimmel, the assistant controller, discovered that Lone Peak National Bank incorrectly recorded a $3,290 check written by Building Concepts Co. as $329. Joel has decided not to notify the bank but wait for the bank to edtect the error. Joel plans to record the $2,961 error as Other Income if the bank fails to detect the error within the next three months. Discuss whether Joel is behaving in a professional manner.
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Joel Kimmel is not at all behaving in a professional manner. Lone Peak National Bank will definitely find the mistake in the future when the receiver of the check complains about the error. Either the bank staff or the company to which we issued the check will find the error in the due course of time. Then the bank corrects the error. Anyhow Mr. Joel should not think like that. In the bank statement, we can find that words, "if any discrepancy is found, bring it to the notice of the bank" if Mr. Joel did not inform it to the bank, the company's reputation will become lean in the eyes of the banking staff.

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Name and describe the five elements of internal control, (b) Is any one element of internal control more important than another
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Internal Control are the policies, rules and regulations set up by an organisation to protect its assets, reducing errors, ensuring truthfulness of financial and accounting information, and prevention of frauds in the organisation. It also ensures operational efficiency by improving the timeliness and accuracy of financial reports of the organisation.
(a)
The five elements of internal control are as follows:
1. Control environment- It is the foundation for other four component of internal control. It sets the tone of the organisation at top level. It also provides discipline and structure. The three major factors that influences control environment of a company is the philosophy of its management and its operating style, its organisational structure, and its personnel policies.
2. Risk assessment- The identification and analysing of the potential risk should be done which prevents the company to achieve its objective. With the proper identification, a company will be able to alleviate and manage the risk.
3. Control procedures- The control procedures are set in order to ensure that the company can achieve its objective.
4. Monitoring- The top management is held responsible for the internal control monitoring and govern if they are operating as they are supposed to. If not, the management is held responsible to modify it.
5. Information and communication- It is the exchange of information within the business. The clear communication should flow not just from management to employee but also other way around. Also, the access of confidential information should be to authorized persons.
(b)
No, it is not true that one element of internal control is of more importance than another as all elements are interrelated to each other. Also, in order to ensure proper internal control all elements must be achieved.

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Why should the employee who handles cash receipts not have the responsibility for maintaining the accounts receivable records Explain.
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Why should the responsibility for maintaining the accounting records be separated from the responsibility for operations Explain.
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Ethics and professional conduct in business Doris Tidwell and Jo Yost are both cash register clerks for Fuller's Organic Markets. Tom Ward is the store manager for Fuller's Organic Markets. The following is an excerpt of a conversation between Doris and Jo: Doris: Jo, how long have you been working for Fuller's Organic Markets Jo: Almost five years this April. You just started two weeks ago … right Doris: Yes. Do you mind if I ask you a question Jo: No, go ahead. Doris: What I want to know is, have they always had this rule that if your cash register is short at the end of the day, you have to make up the shortage out of your own pocket Jo: Yes, as long as I've been working here. Doris: Well, it's the pits. Last week I had to pay in almost $40. Jo: It's not that big a deal. I just make sure that I'm not short at the end of the day. Doris: How do you do that Jo: I just shortchange a few customers early in the day. There are a few jerks that deserve it anyway. Most of the time, their attention is elsewhere and they don't think to check their change. Doris: What happens if you're over at the end of the day Jo: Tom lets me keep it as long as it doesn't get to be too large. I've not been short in over a year. I usually clear about $20 to $30 extra per day. Discuss this case from the viewpoint of proper controls and professional behavior.
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Evaluating internal control of cash The following procedures were recently installed by Raspberry Creek Company: a. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing. b. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer's office for approval. c. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund. d. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers. e. At the end of each day, all cash receipts are placed in the bank's night depository. f. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank. g. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts. h. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer. Instructions Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.
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The ticket seller at a movie theater doubles as a ticket taker for a few minutes each day while the ticket taker is on a break. Which control procedure of a business's system of internal control is violated in this situation
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Internal controls The following is an excerpt from a conversation between two sales clerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store. Jean: Did you hear the news Sara: What news Jean: Neal and Linda were both arrested this morning. Sara: What Arrested You're putting me on! Jean: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights-the whole works. It was unreal! Sara: What did they do Jean: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash. Sara: I guess I never thought of that. How did they catch them Jean: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently over $9,000 in just three months. They're going over the last six months' transactions to try to determine how much Linda stole. She apparently started stealing first. Suggest appropriate control procedures that would have prevented or detected the theft of cash.
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Internal control elements Identify each of the following as relating to (a) the control environment, (b) control procedures, or (c) information and communication. 1. Management's philosophy and operating style 2. Report of company's conformity with environmental laws and regulations 3. Separating related operations Internal control elements Identify each of the following as relating to (a) the control environment, (b) control procedures, or (c) monitoring. 1. Hiring of external auditors to review the adequacy of controls 2. Personnel policies 3. Safeguarding inventory in a locked warehouse
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Internal controls Madonna Epstein has recently been hired as the manager of Beans Coffee Shop. Beans Coffee Shop is a national chain of franchised coffee shops. During her first month as store manager, Madonna encountered the following internal control situations: a. Beans Coffee Shop has one cash register. Prior to Madonna's joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Madonna made one employee on each shift responsible for taking orders and accepting the customer's payment. Other employees prepare the orders. b. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Madonna expects each cashier to balance the drawer to the penny every time-no exceptions. c. Madonna caught an employee putting a case of 500 single-serving tea bags in her car. Not wanting to create a scene, Madonna smiled and said, "I don't think you're putting those tea bags on the right shelf. Don't they belong inside the coffee shop " The employee returned the tea bags to the stockroom. State whether you agree or disagree with Madonna's method of handling each situation and explain your answer.
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Internal controls Ramona's Clothing is a retail store specializing in women's clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under $75. If the item is more than $75, a check is mailed to the customer. Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible. This year, returns at Ramona's Clothing have reached an all-time high. There are a large number of returns under $75 without receipts. a. How can sales clerks employed at Ramona's Clothing use the store's return policy to steal money from the cash register b. What internal control weaknesses do you see in the return policy that make cash thefts easier c. Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft List some advantages and disadvantages of issuing a store credit in place of a cash refund. d. Assume that Ramona's Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store's procedures regarding customer refunds in order to improve internal control
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Evaluating internal control of cash The following procedures were recently installed by The China Shop: a. All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register. b. Each cashier is assigned a separate cash register drawer to which no other cashier has access. c. At the end of a shift, each cashier counts the cash in his or her cash register, unlocks the cash register record, and compares the amount of cash with the amount on the record to determine cash shortages and overages. d. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank. e. Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer. f. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee. g. The bank reconciliation is prepared by the cashier. Instructions Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.
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Sarbanes-Oxley internal control report Using Wikipedia ( www.wikipedia.com ), look up the entry for Sarbanes-Oxley Act. Look over the table of contents and find the section that describes Section 404. What does Section 404 require of management's internal control report
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Bank reconciliation and entries OBJ. 5 The cash account for Stone Systems at July 31, 2014, indicated a balance of $17,750. The bank statement indicated a balance of $33,650 on July 31, 2014. Comparing the bank statement and the accompanying canceled checks and memos with the records reveals the following reconciling items: a. Checks outstanding totaled $17,865. b. A deposit of $9,150, representing receipts of July 31, had been made too late to appear on the bank statement. c. The bank had collected $6,095 on a note left for collection. The face of the note was $5,750. d. A check for $390 returned with the statement had been incorrectly recorded by Stone Systems as $930. The check was for the payment of an obligation to Holland Co. for the purchase of office supplies on account. e. A check drawn for $1,810 had been incorrectly charged by the bank as $1,180. f. Bank service charges for July amounted to $80. Instructions 1. Prepare a bank reconciliation. 2. Journalize the necessary entries. The accounts have not been closed. 3. If a balance sheet were prepared for Stone Systems on July 31, 2014, what amount should be reported as cash
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The following data were gathered to use in reconciling the bank account of Eves Company: img a. What is the adjusted balance on the bank reconciliation b. Journalize any necessary entries for Eves Company based on the bank reconciliation. The following data were gathered to use in reconciling the bank account of Conway Company: img a. What is the adjusted balance on the bank reconciliation b. Journalize any necessary entries for Conway Company based on the bank reconciliation.
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Transactions for petty cash, cash short and over Picasso Restoration Company completed the following selected transactions during May 2014: img img Instructions Journalize the transactions.
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Transactions for petty cash, cash short and over Cedar Springs Company completed the following selected transactions during June 2014: img Instructions Journalize the transactions.
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Items on company's bank statement The following items may appear on a bank statement: 1. Bank correction of an error from recording a $4,800 deposit as $8,400 2. EFT payment 3. Note collected for company 4. Service charge Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company's account The following items may appear on a bank statement: 1. Bank correction of an error from posting another customer's check (disbursement) to the company's account 2. EFT deposit 3. Loan proceeds 4. NSF check Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company's account.
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Internal controls The following is an excerpt from a conversation between the store manager of Wholesome Grocery Stores, Kara Dahl, and Lynn Shutes, president of Wholesome Grocery Stores. Lynn: Kara, I'm concerned about this new scanning system. Kara: What's the problem Lynn: Well, how do we know the clerks are ringing up all the merchandise Kara: That's one of the strong points about the system. The scanner automatically rings up each item, based on its bar code. We update the prices daily, so we're sure that the sale is rung up for the right price. Lynn: That's not my concern. What keeps a clerk from pretending to scan items and then simply not charging his friends If his friends were buying 10-15 items, it would be easy for the clerk to pass through several items with his finger over the bar code or just pass the merchandise through the scanner with the wrong side showing. It would look normal for anyone observing. In the old days, we at least could hear the cash register ringing up each sale. Kara: I see your point. Suggest ways that Wholesome Grocery Stores could prevent or detect the theft of merchandise as described.
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