Exam 8: Fraud, Internal Control, and Cash

Hemingway Company uses an imprest petty cash system. The fund was established on March 1 with a balance of $200. During March the following petty cash receipts were found in the petty cash box. The fund was replenished on March 15 when the fund contained $6 in cash. On March 20, the amount in the fund was increased to $300. Instructions Journalize the entries in March that pertain to the operation of the petty cash fund.

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item. Code A Add to cash balance per books B Deduct from cash balance per books C Add to cash balance per bank D Deduct from cash balance per bank E Does not affect the bank reconciliation Items: 1. Outstanding checks. 2. Bank service charge. 3. Check for $320 correctly written and paid by the bank but incorrectly entered in the cash payments journal for $230. 4. Deposit in transit. 5. Bank returns deposited check marked NSF. 6. Bank collects notes receivable and interest for depositor. 7. Bank debit memorandum for check printing fees. 8. Petty cash custodian has $86 in paid petty cash vouchers that have not been reimbursed. 9. Bank charged a check against the company which should have been charged to another company. 10. A check for $236 was correctly paid by the bank but was incorrectly entered in the cash payments journal for $263.

If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance.

The cash records of Sanders Company show the following: 1. In September, deposits per the bank statement totaled $37,600; deposits per books $39,000; and deposits in transit at September 30 were $4,300. 2. In September, cash disbursements per books were $36,500; checks clearing the bank were $37,800; and outstanding checks at September 30 were $2,500. There were no bank debit or credit memoranda and no errors were made by either the bank or Sanders Company. Answer the following questions: (a) What were the deposits in transit at August 31? (b) What were the outstanding checks at August 31?

Tyler, Inc. had the following bank reconciliation at March 31. 2010: All reconciling items at March 31, 2010 cleared the bank in April. Outstanding checks at April 30, 2010 totaled $6,000. There were no deposits in transit at April 30, 2010. What is the cash balance per books at April 30, 2010?

In preparing a bank reconciliation, outstanding checks are ______________ from the cash balance per ______________.

An adjusting entry is not required for

Wynn Company developed the following reconciling information in preparing its September bank reconciliation: Determine the cash balance per books (before adjustments) for Wynn Company.

Internal control is most effective when several people are responsible for a given task.

A segregation of duties among employees eliminates the possibility of collusion.

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

The principle of establishing responsibility does not include

Controls that enhance the accuracy and reliability of the accounting records are

Journal entries are required by the depositor for all of the following except

The Foreign Corrupt Practices Act requires that all U.S. corporations under the juris-diction of the Securities and Exchange Commission

The use of remittance advices for mail receipts is an example of

Control over cash disbursements is generally more effective when

Laymon Boat Company's bank statement for the month of September showed a balance per bank of $7,000. The company's Cash account in the general ledger had a balance of $5,459 at September 30. Other information is as follows: (1) Cash receipts for September 30 recorded on the company's books were $5,700 but this amount does not appear on the bank statement. (2) The bank statement shows a debit memorandum for $40 for check printing charges. (3) Check No. 119 payable to Mann Company was recorded in the cash payments journal and cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36 credit balance in the account of Mann Company and that the payment to them should have been for $284. (4) The total amount of checks still outstanding at September 30 amounted to $6,000. (5) Check No. 138 was correctly written and paid by the bank for $409. The cash payment journal reflects an entry for Check No. 138 as a debit to Accounts Payable and a credit to Cash in Bank for $490. (6) The bank returned an NSF check from a customer for $360. (7) The bank included a credit memorandum for $1,560 which represents collection of a customer's note by the bank for the company; principal amount of the note was $1,500 and interest was $60. Interest has not been accrued. Instructions (a) Prepare a bank reconciliation for Laymon Boat Company at September 30. (b) Prepare any adjusting entries necessary as a result of the bank reconciliation.

Internal controls are not designed to safeguard assets from

The following information was used to prepare the March 2010, bank reconciliation for Grider Machine Works. Identify the items that require adjustment to the cash balance per books and prepare the appropriate adjusting entries. 1. Included with the bank statement materials was a check from Bob Simpson for $40 stamped "NSF." 2. A personal deposit by Jim Grider to his personal account in the amount of $300 for dividends on his General Electric common stock was credited to the company account. 3. The bank statement included a debit memorandum for $22.00 for two books of blank checks for Grider Machine Works. 4. The bank statement contains a credit memorandum for $24.75 interest on the average checking account balance. 5. The daily deposits of March 30 and March 31, for $3,362 and $3,125 respectively, were not included in the bank statement postings. 6. Two checks totaling $316.86, which were outstanding at the end of February, cleared in March and were returned with the March statement. 7. The bank statement included a credit memorandum dated March 28, 2008, for $45.00 for the monthly interest on a 6-month, $15,000 certificate of deposit that the company owns. 8. Four checks, #8712, #8716, #8718, #8719, totaling $5,369.65, did not clear the bank during March. 9. On March 24, 2008, Grider Machine Works delivered to the bank for collection a $4,500, 3-month note from Don Decker. A credit memorandum dated March 29, 2008, indicated the collection of the note and $90.00 of interest. 10. The bank statement included a debit memorandum for $25.00 for the collection service on the above note and interest.