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Adelphi University/Devry
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ACC 201 Chapter 07 Homework
Mainland Supply Company recently changed its system of internal control over cash disbursements. The system includes the following features.
Instead of being unnumbered and manually prepared, all checks must now be prenumbered and written by using the new checkwriting machine purchased by the company. Before a check can be issued, each invoice must have the approval of Erin McGarry, the purchasing agent, and Barb Speas, the receiving department supervisor. Checks must be signed by either Amaika Blake, the treasurer, or Ken Yost, the assistant treasurer. Before signing a check, the signer is expected to compare the amount of the check with the amount on the invoice.
After signing a check, the signer stamps the invoice PAID and inserts within the stamp, the date, check number, and amount of the check. The “paid” invoice is then sent to the accounting department for recording.
Blank checks are stored in a safe in the treasurer's office. The combination to the safe is known only by the treasurer and assistant treasurer. Each month, the bank statement is reconciled with the bank balance per books by the assistant chief accountant. All employees who handle or account for cash are bonded.
Identify the internal control principles and their application to cash disbursements of Mainland Supply Company
Principles |
Application to Cash Disbursements |
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Only the treasurer and assistant treasurer are authorized to sign checks. |
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Invoices must be approved by both the purchasing agent and the receiving department supervisor. Payment can only be made by the treasurer or assistant treasurer, and the check signers do not record the cash disbursement transactions. |
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Checks are prenumbered. Following payment, |
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Blank checks are kept in a safe in the treasurer’s office. Only the treasurer and assistant treasurer have access to the safe. A checkwriting machine is used in writing checks. |
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The check signer compares the check with the approved invoice prior to issue. Bank and book balances are reconciled monthly by the assistant chief accountant. |
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All employees who handle or record cash are bonded. |
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Problem 7-3A
On May 31, 2014, Terrell Company had a cash balance per books of $6,781.50. The bank statement from Home Town State Bank on that date showed a balance of $6,804.60. A comparison of the statement with the cash account revealed the following facts.
1. |
The statement included a debit memo of $40 for the printing of additional company checks. |
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2. |
Cash sales of $836.15 on May 12 were deposited in the bank. The cash receipts journal entry and the deposit slip were incorrectly made for $886.15. The bank credited Terrell Company for the correct amount. |
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3. |
Outstanding checks at May 31 totaled $276.25. Deposits in transit were $1,916.15. |
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4. |
On May 18, the company issued check No. 1181 for $685 to Barry Dietz on account. The check, which cleared the bank in May, was incorrectly journalized and posted by Terrell Company for $658. |
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5. |
A $3,000 note receivable was collected by the bank for Terrell Company on May 31 plus $80 interest. The bank charged a collection fee of $20. No interest has been accrued on the note. |
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6. |
Included with the cancelled checks was a check issued by Bridges Company to Jon Newton for $600 that was incorrectly charged to Terrell Company by the bank. |
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7. |
On May 31, the bank statement showed an NSF charge of $680 for a check issued by Sandy Grifton, a customer, to Terrell Company on account. |
(a) Prepare the bank reconciliation at May 31, 2014. (Reconcile the bank balance first and then the book balance.)
Problem 7-4A
The bank portion of the bank reconciliation for Rintala Company at November 30, 2014, was as follows.
Rintala Company |
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Cash balance per bank |
$14,367.90 |
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Add: Deposits in transit |
2,530.20 |
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Less: Outstanding checks |
16,898.10 |
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Check Number |
Check Amount |
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3451 |
$ 2,260.40 |
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3470 |
720.10 |
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3471 |
844.50 |
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3472 |
1,426.80 |
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3474 |
1,050.00 |
6,301.80 |
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Adjusted cash balance per bank |
$10,596.30 |
The adjusted cash balance per bank agreed with the cash balance per books at November 30.
The December bank statement showed the following checks and deposits.
Bank Statement |
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Checks |
Deposits |
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Date |
Number |
Amount |
Date |
Amount |
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12-1 |
3451 |
$2,260.40 |
12-1 |
$ 2,530.20 |
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12-2 |
3471 |
844.50 |
12-4 |
1,211.60 |
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12-7 |
3472 |
1,426.80 |
12-8 |
2,365.10 |
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12-4 |
3475 |
1,640.70 |
12-16 |
2,672.70 |
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12-8 |
3476 |
1,300.00 |
12-21 |
2,945.00 |
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12-10 |
3477 |
2,130.00 |
12-26 |
2,567.30 |
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12-15 |
3479 |
3,080 |
12-29 |
2,836.00 |
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12-27 |
3480 |
600.00 |
12-30 |
1,025.00 |
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12-30 |
3482 |
475.50 |
Total |
18,152.90 |
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12-29 |
3483 |
1,140.00 |
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12-31 |
3485 |
540.80 |
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Total |
$15,438.70 |
The cash records per books for December showed the following.
Cash Payments Journal |
Cash Receipts Journal |
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Date |
Number |
Amount |
Date |
Number |
Amount |
Date |
Amount |
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12-1 |
3475 |
$1,640.70 |
12-20 |
3482 |
$475.50 |
12-3 |
$ 1,211.60 |
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12-2 |
3476 |
1,300.00 |
12-22 |
3483 |
1,140.00 |
12-7 |
2,365.10 |
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12-2 |
3477 |
2,130.00 |
12-23 |
3484 |
798.00 |
12-15 |
2,672.70 |
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12-4 |
3478 |
621.30 |
12-24 |
3485 |
450.80 |
12-20 |
2,954.00 |
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12-8 |
3479 |
3,080 |
12-30 |
3486 |
1,889.50 |
12-25 |
2,567.30 |
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12-10 |
3480 |
600.00 |
Total |
$14,933.20 |
12-28 |
2,836.00 |
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12-17 |
3481 |
807.40 |
12-30 |
1,025.00 |
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12-31 |
1,190.40 |
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Total |
$16,822.10 |
The bank statement contained two memoranda:
1. |
A credit of $3,645 for the collection of a $3,500 note for Rintala Company plus interest of $160 and less a collection fee of $15. Rintala Company has not accrued any interest on the note. |
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2. |
A debit of $572.80 for an NSF check written by D. Chagnon, a customer. At December 31, the check had not been redeposited in the bank. |
At December 31, the cash balance per books was $12,485.20, and the cash balance per the bank statement was $20,154.30. The bank did not make any errors, but two errors were made by Rintala Company.
(a) Using the four steps in the reconciliation procedure, prepare a bank reconciliation at December 31. (Reconcile the bank balance first and then the book balance.)
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