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E3-14

The bookkeeper for Biggio Corporation made these errors in journalizing and posting.

 

  • 1.A credit posting of $400 to Accounts Receivable was omitted.
  • 2.A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
  • 3.A collection on account of $100 was journalized and posted as a debit to Cash $100 and a credit to Accounts Payable $100.
  • 4.A credit posting of $300 to Property Taxes Payable was made twice.
  • 5.A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25 and a credit to Cash $25.
  • 6.A debit of $395 to Advertising Expense was posted as $359.

Instructions

For each error, indicate (a) whether the trial balance will balance; if the trial balance will not balance, indicate (b) the amount of the difference, and (c) the trial balance column that will have the larger total. Consider each error separately. Use the following form, in which error 1 is given as an example.

 

 

 

P3-1A

On April 1 Flint Hills Travel Agency Inc. was established. These transactions were completed during the month.

  • 1.Stockholders invested $25,000 cash in the company in exchange for common stock.
  • 2.Paid $900 cash for April office rent.
  • 3.Purchased office equipment for $2,800 cash.
  • 4.Purchased $200 of advertising in the Chicago Tribune, on account.
  • 5.Paid $500 cash for office supplies.
  • 6.Earned $10,000 for services provided: Cash of $1,000 is received from customers, and the balance of $9,000 is billed to customers on account.
  • 7.Paid $400 cash dividends.
  • 8.PaidChicago Tribune amount due in transaction (4).
  • 9.Paid employees’ salaries $1,200.
  • 10.Received $9,000 in cash from customers billed previously in transaction (6).

Instructions

  • (a)Prepare a tabular analysis of the transactions using these column headings: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, and Retained Earnings (with separate columns for Revenues, Expenses, and Dividends). Include margin explanations for any changes in Retained Earnings.
  • (b)From an analysis of the Retained Earnings columns, compute the net income or net loss for April.

 

 

 

BYP3-8

Clean Sweep Company offers home cleaning service. Two recurring transactions for the company are billing customers for services provided and paying employee salaries. For example, on March 15 bills totaling $6,000 were sent to customers, and $2,000 was paid in salaries to employees.

Instructions

Write a memorandum to your instructor that explains and illustrates the steps in the recording process for each of the March 15 transactions. Use the format illustrated in the text under the heading “The Recording Process Illustrated” (pp. 120–126).

 

 

E4-3

The following control procedures are used in Falk Company for over-the-counter cash receipts.

  • 1.Cashiers are experienced; thus, they are not bonded.
  • 2.All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.
  • 3.To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank.
  • 4.At the end of each day the total receipts are counted by the cashier on duty and reconciled to the cash register total.
  • 5.The company accountant makes the bank deposit and then records the day’s receipts.

Instructions

  • (a)For each procedure, explain the weakness in internal control and identify the control principle that is violated.
  • (b)For each weakness, suggest a change in the procedure that will result in good internal control.

 

 

 

P4-3A

On July 31, 2010, Fenton Company had a cash balance per books of $6,140. The statement from Jackson State Bank on that date showed a balance of $7,695.80. A comparison of the bank statement with the cash account revealed the following facts.

  • 1.The bank service charge for July was $25.
  • 2.The bank collected a note receivable of $1,500 for Fenton Company on July 15, plus $30 of interest. The bank made a $10 charge for the collection. Fenton has not accrued any interest on the note.
  • 3.The July 31 receipts of $1,193.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31.
  • 4.Company check No. 2480 issued to H. Coby, a creditor, for $384 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $348.
  • 5.Checks outstanding on July 31 totaled $1,980.10.
  • 6.On July 31 the bank statement showed an NSF charge of $690 for a check received by the company from P. Figura, a customer, on account.

Instructions

  • (a)Prepare the bank reconciliation as of July 31.
  • (b)Prepare the necessary adjusting entries at July 31.

(a) Cash bal.

$6,909.00

 

 

 

DECISION MAKING ACROSS THE ORGANIZATION

BYP4-7

Alternative Distributor Corp., a distributor of groceries and related products, is headquartered in Medford, Massachusetts.

During a recent audit, Alternative Distributor Corp. was advised that existing internal controls necessary for the company to develop reliable financial statements were inadequate. The audit report stated that the current system of accounting for sales, receivables, and cash receipts constituted a material weakness. Among other items, the report focused on nontimely deposit of cash receipts, exposing Alternative Distributor to potential loss or misappropriation, excessive past due accounts receivable due to lack of collection efforts, disregard of advantages offered by vendors for prompt payment of invoices, absence of appropriate segregation of duties by personnel consistent with appropriate control objectives, inadequate procedures for applying accounting principles, lack of qualified management personnel, lack of supervision by an outside board of directors, and overall poor recordkeeping.

Instructions

  • (a)Identify the principles of internal control violated by Alternative Distributor Corporation.
  • (b)Explain why managers of various functional areas in the company should be concerned about internal controls.
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