10-60     LO 8 Eagle River Plastics Company has a major branch located in Phoenix. The branch deposits cash receipts daily and periodically transfers the receipts to the company’s home office in Eagle River. The transfers are accounted for as intercompany entries into the home office and branch office accounts. All accounting, however, is performed at the home office under the direction of the assistant controller. The assistant controller is also responsible for the trans- fers. The controller, however, independently reconciles the bank account each month or assigns the reconciliation to someone in the department (in some cases, could be the assistant controller). The company is relatively small; therefore, the controller is also the financial planner and treasurer for the company. As part of the

year-end audit, you are assigned the task of conducting an audit of

 

 

 

 

 

 

 

bank transfers. As part of the process, you prepare the following schedule of transfers:

 

Information from Client’s Records                   Information per Bank Statements

 

  Date per Branch	  Date per Amount	  Date Deposited Home Office	Date Cleared   per Home Bank      per Branch Bank
12-27	$23,000	12-31	12-31	1-3
12-29	$40,000	12-31	12-31	1-7
12-31	$45,000	1-2	1-3	1-8
1-2	$14,000	12-31	12-31	1-5
1-5	$28,000	1-3	1-7	1-12
1-3	$10,000	1-3	12-31	1-5

 

a.       Identify the substantive audit procedures that would be used to test the correctness of the client’s bank transfers.

b.       Identify any adjusting journal entries that would be needed on either the home or branch office accounting records as a result of the preceding transactions.