Exam 7: Fraud, Internal Control, and Cash

On October 1, 2018, Ellington Company establishes an imprest petty cash fund by issuing a check for $200 to Erin Angelo, the custodian of the petty cash fund. On October 31, 2018, Erin Angelo submitted the following paid petty cash receipts for replenishment of the petty cash fund when there is $32 cash in the fund: Freight-In \ 28 Supplies Expense 42 Entertainment of Clients 65 Postage Expense 30 Instructions Prepare the journal entries required to establish the petty cash fund on October 1 and the replenishment of the fund on October 31.

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

A petty cash fund should be replenished

Moyer Instruments is a rapidly growing manufacturer of medical devices. As a result of its growth, the company's management recently modified several of its procedures and practices to improve internal control. Some employees are upset with the changes. They have complained that all these changes just show that the company no longer trusts them. Required: "Internal controls exist because most people can't be trusted." Is this true? Explain.

Jolene is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

If the month-end bank statement shows a balance of $72,000, outstanding checks are $54,000, a deposit of $15,000 was in transit at month end, and a check for $3,000 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of the one best internal control principle that is related to the problem described.

Having different individuals receive cash, record cash receipts, and hold the cash is an example of

Sky Company is unable to reconcile the bank balance at January 31. Sky's reconciliation is as follows. Instructions (a) Prepare a correct bank reconciliation. (b) Journalize the entries required by the reconciliation.

The cash records of Barry Company show the following: 1. In September, deposits per the bank statement totaled $38,600; deposits per books $39,000; and deposits in transit at September 30 were $4,600. 2. In September, cash disbursements per books were $36,500; checks clearing the bank were $39,800; and outstanding checks at September 30 were $3,100. There were no bank debit or credit memoranda and no errors were made by either the bank or Barry Company. Answer the following questions: (a) What were the deposits in transit at August 31? (b) What were the outstanding checks at August 31?

Identify the internal control procedures applicable to cash receipts for Ferguson Company in each of the following cases. 1. All cashiers are bonded. 2. The treasurer compares the total cash receipts to the bank deposit daily. 3. The bookkeeper records cash receipts which are held by the treasurer. 4. Only the treasurer holds cash receipts. 5. Deposit slips are completed for each deposit.

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

The most important element of the fraud triangle is

An example of poor internal control is

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

The cash balance per books for Feagen Company on September 30, 2018 is $10,740.93. The following checks and receipts were recorded for the month of October, 2018: In addition, the bank statement for the month of October is presented below: Check No. 18 was correctly written for $708.62 for a payment on account. The NSF check was from S. Long, a customer, in settlement of an accounts receivable. An entry had not been made for the NSF check. The credit memo is for the collection of a note receivable including interest of $60 which has not been accrued. The bank service charge is $25.00. Instructions (a) Prepare a bank reconciliation at October 31. (b) Prepare the adjusting journal entries required by the bank reconciliation.

A $100 petty cash fund has cash of $16 and receipts of $82. The journal entry to replenish the account would include a

Medaid is a medical office management franchise. There are currently twenty-five medical offices managed by a Medaid franchisee. One of the services provided to franchisees is assistance in training various staff members. Medaid is preparing a manual for the front office staff to use as a reference guide. It will be used in training new employees as well. One of the reasons the manual is being prepared is to stress the importance of strong internal controls. Required: Prepare a short paragraph, to be included in the training materials, describing the benefits of sound internal control, from the viewpoint of the employee.

Bell Food Store developed the following information in recording its bank statement for the month of March. ------------------------------------------- (1) Checks written in March but still outstanding $7,000. (2) Checks written in February but still outstanding $3,100. (3) Deposits of March 30 and 31 not yet recorded by bank $5,200. (4) NSF check of customer returned by bank $1,200. (5) Check No. 210 for $593 was correctly issued and paid by bank but incorrectly entered in the cash payments journal as payment on account for $539. (6) Bank service charge for March was $50. (7) A payment on account was incorrectly entered in the cash payments journal and posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly prepared for $284. The check cleared the bank in March. (8) The bank collected a note receivable for the company for $3,000 plus $100 interest revenue. Instructions Prepare a bank reconciliation at March 31.

Unicycle Company developed the following reconciling information in preparing its September bank reconciliation: Cash balance per bank, 9/30 \ 24,000 Note receivable collected by bank 12,000 Outstanding checks 14,000 Deposits in transit 7,000 Bank service charge 150 NSF check 2,400 Determine the cash balance per books (before adjustments) for Unicycle Company.