CHAPTER
1 PROBLEMS
PROBLEM NO. 1 COMPUTING THE CORRECT CASH BALANCE Your audit of the December 31, 2009, financial statements of Daylight Company, reveals the following: Current account at East Bank Current account at W est Bank Treasury bills, (acquired 3 months before maturity) Treasury bills, (maturity date is 12/31/12) Payroll account For Foreign bank ac account-restri tricted (t (translated using th the 12/31 /31/09 ra rate) te) Postage stamps Employee's postdated check IOU from the vice-president Credit memo from a supplier for a purchase return Traveler's check Money order Petty cash fund ($3,000 in currency and expense receipts for $7,000)
$
-15,000 43,200 150,000 2,500,000 175,000 4,000,000 450 3,500 13,000 7,200 15,000 7,000 10,000
REQUIRED: What amount would be reported as cash and cash equivalents on the balance sheet on December 31, 2009? Solution: Current account at W est Bank 43,200 Treasury bills, (acquired 3 months before maturity) 150,000 Payroll account 175,000 Traveler's check 15,000 Money order 7,000 Petty cash fund 3,000 393,200
PROBLEM NO. 2 PETTY CASH FUND The auditor of Herald, Inc., examined the petty cash fund immediately after the close of business, July 31, 2009, the end of the company's natural business year. The petty cash custodian presented the following during the count: Currency Petty Cash Vouchers: Postage Office supplies expense Transportation expense Computer repairs Advances to office staff A check drawn by by Herald, Inc., payable to the petty petty cash custodian Postage stamps An employee's check, check, returned by bank, marked NSF An envelope containing containing currency of $440 for a gift gift for a retiring employee
The general ledger shows an imprest petty cash fund balance of $8,000.
$
650
$
420 900 140 400 700 3,050 300 1,000 440 8,000
REQUIRED: 1. How much is the petty cash shortage or overage? Currency and coins Petty cash vouchers Replenishment check NSF check
650 2,560 3,050 1,000 7,260 (8,000) (740)
Petty cash fund (ledger) accountability Shortage 2. What adjusting entry should be made as of July 31, 2009?
a. Postage Office supplies Trasportation Repairs Advances to employees PCF
420 900 140 400 700
b. Unused postage stamps Postage expense
300
2,560
300
c. Advances to employees PCF
1,000 1,000
d. Cash shor or over PCF
740 740
3. What is the adjusted balance of petty cash fund at July 31, 2009?
Currency Replenishment check
650 3,050 3,700
PROBLEM NO. 3
(assignment)
COUNT OF PETTY CASH FUND AND UNDEPOSITED COLLECTIONS In connection with your audit of the financial statements of Alley Company for the year ended December 31, 2009, you conducted a surprise count of the company's petty cash fund and undeposited collections at 8:20 am on January 3, 2010. Your count disclosed the following:
B ills and coins Bills
Coins $100.00 50.00 20.00 10.00
5 40 35 27
pieces pieces pieces pieces
$1.00 0.50 0.25
205 pieces 162 pieces 32 pieces
Checks Date Dec. Dec. Dec. Dec. Dec. Dec.
30 30 31 31 31 31
Payee Cash Alley Company Alley Company Alley Company Alley Company Taiwan Corp. (not endorsed)
Maker
Custodian SLV, Inc. Marvin Lee, sales manager MSU Corp. Athens, Inc. Alley Company
Amount $
1,200 14,000 1,680 17,800 8,300 27,000
Unreimbursed vouchers Date Dec. 23 28 29 29
Payee
Maker
Marvin Lee, sales manager Central Post Office Messengers Byte, Inc.
Amount
Advance trip to Bali Postage stamps Transportation Computer repair
7,000 1,620 150 800
Other items found ins ide the cash box: 1 2
Unclaimed pay envelope of John McDermont. Indicated on the pay slip is his net salary of $7,500. Your inquiry revealed that John's salary is mingled with the petty cash fund. The sales manager's liquidation report for his Bali Trip: Cash advance received on December 23 Less: Hotel accommodation, meals, etc Bus fare for two Cash given to Paul, salesman Balance
7,000 4,500 400 300
5,200 1,800
Accounted for as follows: Cash returned by Paul to the Sales manager Personal check of the sales manager Total
120 1,680 1,800
A dditi onal information: 1 The custodian is not authorized to cash the checks. 2 The last official receipt included in the deposit on December 30 is No. 4351 and the last official receipt issued for the current year is No. 4355. The following official receipts are all dated December 31, 2009. OR No. 4352 4353 4354 4355
3
Amount $
13,600 17,800 3,600 8,300
Form of Payment Cash Check Cash Check
The petty cash balance per general ledger is $10,000. The last replenishment of the fund was made on December 22, 2009.
REQUIRED: 1. Prepare a cash count sheet.
Cash Count Sheet January 3, 2010-8:20 AM Biils and coins: Denomin ation $ 100.00 50.00 20.00 10.00 1.00 0.50 0.25
Qty 5 40 35 27 205 162 32
Amount 500 2,000 700 270 205 81 8
Total
$
3,764
Checks: Date Dec. 30 Dec. 30 Dec. 31 Dec. 31 Dec. 31 Unreimbursed vouchers: Date Dec. 23 Dec. 28 Dec. 29 Dec. 29
Maker
Amount
Custodian SLV, Inc. Marvin Lee MSU Corp Athens, Inc
1,200 14,000 1,680 17,800 8,300
Account
42,980
Amount
Advances Postage Transportation Repairs
7,000 1,620 150 800
9,570
Total Cash accounted
56,314
Less:;
Accountabilities Petty cash Collections (per OR) Unclaimed salary Excess travel advance Unreceipted collections from SLV, Inc Cash Shortage
10,000 43,300 7,500 1,680 14,000
76,480 -20,166
2. Prepare the necessary adjusting journal entries on December 31, 2009.
1.
2.
3.
4.
5.
6.
Cash Accounts receivable
14,000 14,000
Advances to OE Postage Transportation Repairs PCF
7,000 1,620 150 800
Unused postage Postage
365
9,570
365
Cash Salaries payable
7,500 7,500
Receivable from custodian Cash
20,166 20,166
Travel expense (4,500+400+300-120) PCF Advances to OE
5,080 1,680 6,760
Note: The sales manager's advances will reflect a debit balance of $240 (7,000-6,760) Cash advance Less: Hotels, meal, etc. Bus fare Paul (300-120) Cash to be returned Cash actual returned Shortage due from sales manager
7,000 4,500 400 180
5,080 1,920 -1,680 240
PROBLEM NO. 4 BANK RECONCILIATION-UNADJUSTED TO ADJUSTED BALANCE Jingle, Inc.'s newly-hired accountant prepared the following cash reconciliation as of June 30, 2009: Bank Unadjusted balances Deposit in transit Bank service charge Check written and recorded on June 30 but was released on July 4 Outstanding checks NSF check Loan proceeds (company not informed) Erroneous bank debit Customer's checks received on June 29 (all dated July 6), included in deposits in transit Certified checks Unlocated difference
$
$
79,367 -15,000
1,000 -12,000 36,000 17,000 200,000 15,000 9,000 11,000 $
REQUIRED:
268,367
Book
477,367
$
345,000 477,367
Prepare a correct cash reconciliation on June 30, 2003.
Jingle, Inc. Bank Reconciliation June 30, 2009 Book
Unadjusted balances Deposit in transit ($15,000-$9,000)
$
79,367
Bank service charge
-1,000
Unreleased check
12,000
Bank
$
Outstanding check ($36000-$11000)
-25,000
NSF check Loan proceeds
-17,000 200,000
Erroneous bank debit
15,000
Post-dated check Adjusted balances
268,367 6,000
-9,000 $
264,367
$
264,367
PROBLEM NO. 5 COMPUTATION OF RECEIPTS, DISBURSEMENTS, AND CASH BALANCE; BANK RECONCILIATION-UNADJUSTED TO ADJUSTED Haggler Company was organized on January 2, 2009. The following items are from the company's trial balance on December 31, 2009: Common Stock Additional-paid-in capital Merchandise inventory Land Building Furniture and fixtures Accounts receivable Accounts payable Notes payable-bank Sales Expenses paid (excluding purchases)
$
1,200,000 50,000 69,000 1,000,000 1,400,000 367,000 165,400 389,650 500,000 6,235,200 605,150
$
45,167 2,000 163,666 520,159
A dditi onal information: Deposit in transit, December 31 Service charge for December Outstanding checks, December 31 Bank balance, December 31 Haggler Company's mark up on sales is 30%
REQUIRED: 1. Compute the following: a. Collection from sales. Sales Less: Accounts receivable, 12/31 Collection from sales b. Payments for purchases.
$ $
Cost of sales ($6,325,200 x 70%) Add: Merchandise inventory, 12/31 Purchases Less: Accounts payable, 12/31 Payment for purchases
$ $ $
6,235,200 165,400 6,069,800
4,364,640 69,000 4,433,640 389,650 4,043,990
c. Cash balance on December 31, 2009.
Cash receipts: Issue price of common stock ($1,200,000 + $50,000 Notes payable-bank Collection Total Cash Disbursements: Land $ 1,000,000 Building 1,400,000 Furniture and fixtures 367,000 Expenses paid 605,150 Payment for purchases 4,043,990 Cash balance per books, December 31
$
$
1,250,000 500,000 6,069,800 7,819,800
7,416,140 403,660
2. Prepare a bank reconciliation as of December 31, 2009.
Haggler Company Bank Reconciliation June 30, 2009 Book
Unadjusted balances Deposits in Transit Service charge Outstanding checks
$
403,660
Bank
$
520,159 45,167
-2,000 $
401,660
$
-163,666 401,660
PROBLEM NO. 6 DETERMINING NET ADJUSTMENT TO CASH Your audit of the cash account of Angel Company disclosed the following information: Cash balance per books, 12/31/09 Bank statement balance, 12/31/09 Loan proceeds (no entry on company books) Debit memo for a checkbook Deposit in transit, 12/31/09 Transposition error made by bank in recording deposit of 'December 28: Correct amount $ Recorded as Erroneous bank debit Included in the cash count is petty cash fund of $10,000. Your count on December 31, 2009, revealed the following fund items: Currency and coins $ Supplies Transportation IOUs Erroneous bank credit Outstanding checks (including a certified check of $10,000)
$
45,000 54,000
3,500 2,400 100 4,000
35,000 60,000 300,000 100 15,200
9,000 26,700
10,000 11,000 39,400
REQUIRED:
Determine the net adjustment to the Cash balance per books on December 31, 2009. Bank balance, December 31, 2009 Deposit in Transit Transposition error in recording deposit ($54,000-$45,000) Erroneous bank debit Erroneous bank credit Outstanding check ($39,400-$10,000) Adjusted bank balance, December 31, 2009 Book balance, December 31, 2009 Net adjustment-debit
$
60,000 15,200 -9,000 26,700 -11,000 -29,400 52,500 35,000 17,500
$ $
PROBLEM NO. 7 BANK RECONCILIATION-UNADJUSTED TO ADJUSTED BALANCE In connection with an audit, you are given the following bank reconciliation. Bank Reconciliation December 31, 2009 Balance per ledger, 12/31/09 Add: Collections received on the last day of December and charged to "Cash in Bank" on books but not deposited Debit memo for customer's check returned unpaid (check is on hand but no entry has been made on the books) Debit memo for bank service charge for December Deduct:
Outstanding checks (see detailed below) $ Credit memo for proceeds of a note receivable which has been left at the bank for collection but which has not been recorded as collected Check for an account payable entered on books as $12,625 but drawn and paid by bank as $16,225 Computed balance Unlocated difference Balance per bank (checked to confirmation)
$ 34,349.72
5,324.50 4,000.00 1,000.00 $ 46,674.22
18,625
8,000
3,600
32,225.00 $ 14,449.22 36,601.00 $ 51,050.22
Li s t of outstanding checks , December 31, 2009 Check No. 14344 14358 14367 14399 14401 14407
Amount $
$
5,820 1,295 3,543 2,001 4,892 5,074 18,625
REQUIRED: 1. Prepare a corrected reconciliation.
Bank Reconciliation December 31, 2009 Book Unadjusted balances Deposit in transit Customer's check returned Bank service charge Outstanding checks Credit memo for note collected Debit to accounts payable-understated
$ 34,349.72
Bank $
51,050.22 5,324.50
-4,000.00 -1,000.00 -22,625.00 8,000.00 -3,600.00 $ 33,749.72
$
33,749.72
2. Prepare journal entries for items which should be adjusted prior to closing the books. ADJUSTING JOURNAL ENTRIES December 31, 2009
a.
b.
c.
d.
Accounts receivable $ Cash in bank To record check returned to customers
4000
Bank service charge Cash in bank To record bank charges.
1000
Cash in bank Notes receivable To record note collected by bank.
8000
$
4,000
1,000
8,000
Accounts payable 3600 Cash in bank To record understatement of accounts payable
3,600
PROBLEM NO. 8 BANK RECONCILIATION AND CASH SHORTAGE COMPUTATION In connection with your audit of the Summerville Company at December 31, 2009, you were given a bank reconciliation by a company employee which shows: Balance per bank Deposits in transit
$ $
Outstanding checks Balance per books
$
30,534 37,856 68,390 42,756 25,634
As part of your verification, you obtain the bank statement and cancelled checks from the bank on January 15, 2010. Checks issued from January 1 to January 15, 2010, per books were $22,482. Checks returned by the bank on January 15 amounted to $58,438. Of the checks outstanding December 31, $9,600 were not returned by the bank with the January 15 statement, and of those issued per books in January 2010, $7,200 were not returned.
REQUIRED: 1. Calculate the disbursements per books based on the above data.
Outstanding checks, January 15: From December or before From January Add: Disbursement per bank statement Total Less: Outstanding checks, December 31 Disbursements per book as computed Disbursements per book as reported Difference in disbursements
$
9,600 7,200
$ $ $ $
16,800 58,438 75,238 42,756 32,482 22,482 10,000
2. Suggest three possible explanations for the difference between the disbursements per books as computed and as reported.
a.
The bank disbursements ($58,438) may be overstated by $10,000. Another company check for $10,000 may have been charged erroneously by the bank against the client's account.
b.
The December 31 outstanding checks may be understated by $10,000. Since the bank reconciliation given in the problem was prepared by a company employee, there is no assurance that it is correct.
c.
The client's employee may have failed to record check/s issued in January thus understating the book disbursements ($22,482).
PROBLEM NO. 9 PROOF OF CASH You have been instructed by your supervisor on an audit to prepare a four-column proof of cash receipts and disbursements for the month of June. RECONCILIATION May 31, 2009 Bank balance Add: Deposit in transit Total Less: Outstanding checks No. 640
$ $ $
10,000
652,000 10,000 662,000
652 653 Adjusted bank balance
8,000 2,000
Book balance Add: Proceeds for note receivable collected in May $ Deposit on May 31 not recorded on books until June Total Less: Bank charges Adjusted book balance
$
20,000 642,000
$
570,800
70,000 2,000 $ $
72,000 642,800 800 642,000
The J une 2009 bank s tatement is s hown below: Westlake Bank Period covered: May 31, 2009 - June 30, 2009 Date
Checks
01-Jun 08-Jun 11-Jun 13-Jun 16-Jun 21-Jun 27-Jun 29-Jun 30-Jun 30-Jun S V EC
$
Deposits
8,000 2,000 14,000 1,000 DM 4,000 12,000 18,000 1,000 E C 200 S V 3,000 DM
S ervi ce Ch arg e E rror Corrected
$
10,000 20,000 1,000 56,000 1,000 E C
DM CM
Debit Memo Credit Memo
The paid checks accompanying this bank statement (all clearing in June) are the following: No. 652 No. 653 No. 654
$
8,000 2,000 14,000
No. 655 No. 657 No. 658
$4,000 12,000 18,000
The check register reveals that the last check issued in June is No, 659 for $5,000 and that check no. 656 is for $2,600. Cash received for the period June 22 through June 30 of $70,000 was deposited in the bank on July 1. the debit memos on June 13 and June 30 represent customers' NSF checks returned by the bank. The June 13 NSF check was immediately redeposited without entry. The June 30 NSF check was redeposited on July 1 without entry.
REQUIRED: 1. Determine the following: a. Bank receipts in June. Bank receipts in June (arrived at footing the Deposits column of the bank statement
$
88,000
b. Bank disbursements in June. Bank disbursements in June (arrived at footing the Checks column of the bank statement $
63,200
c. Bank balance on June 30, 2009. Bank balance, May 31 Add: Bank receipts, June Total Less: Bank disbursements, June Bank balance, June 30
$ $
652,000 88,000 740,000 63,200 676,800
2. Prepare a proof of cash for June. Use the bank to book format. PROOF OF CASH June 1-30, 2009
June
Bank balances Deposit in transit:
Balance May 31
Receipts
Disbursements
Balance June 30
$652,000
$88,000
$63,200
$676,800
May 31 June 30 Outstanding checks May 31 June 30 Bank service charge May 31 June 30 Bank collection in May May deposit recorded by the company in June NSF checks: Already redeposited Not yet redeposited book error corrected within the same day
10,000
-10,000 70,000
70,000
-20,000
800 -70,000
70,000
-2,000
2,000 -1,000
-1,000 $218,000
$570,800
-20,000 17,600
-17,600
800 -200
200
-1,000 -3,000
3,000
-1,000 $56,400
$732,400
PROBLEM NO. 10 PROOF OF CASH - UNADJUSTED TO ADJUSTED BALANCES In your audit of Langley Company's cash account as of December 31, 2009, you ascertain the following information: The bookkeeper's bank reconciliation on November 30, 2009, is as follows: Balance per bank statement, November 30 Add: Deposits in transit Total Less: Outstanding checks No. 3408 No. 3413 No. 3414 No. 3416 No. 3417 Balance Add: Bank service charge for November Balance per general ledger, November 30
$
$
440 300 6,820 3,924 800 $ $
24,298 3,648 27,946
12,284 15,662 36 * 15,698
*Entered in Check Register in December.
The Cash Receipts Journal shows total receipts for December of $371,766. The Check Register reflects total checks issued in December of $377,632. A collection was recorded on company books on December 31 but was not deposited until January 2, 2010. The balance per bank statement at December 31, 2009 is $17,516. This statement shows total receipts of $373,502 and checks paid of $380,284. Your examination reveals the following additional information: 1.
Check no. 3413 dated November 24, 2009, was entered in the Check Register as $300. Your examination of the paid checks returned with the December bank statement reveals that the amount of this check is $30.
2.
Check no. 3417 was mutilated and returned by the payee. A replacement check (no. 3453) was issued. Both checks were entered in the Check Register but no entry was made to cancel no. 3417.
3.
The December bank statement includes an erroneous charge of $480.
4.
On January 3, 2010, the bank informed your client that a December bank service charge of $42 was omitted from the statement.
5.
Your examination of the bank credit memo accompanying the December bank statement discloses that it represent proceeds from the note receivable collection in December for $4,000.
6.
The outstanding checks at December 31, 2009 are as follows: No. No. No. No.
REQUIRED:
3408 3417 3418 3419
$
440 800 2,814 5,788
Prepare a proof of cash for December 2009. Use the unadjusted to adjusted balances format.
Langley Company Proof of cash December 1-31, 2009 Balance Nov. 30
Receipts
December Disbursements
Book Balance Bank service charges: Nov. 30 Dec. 31 Overstatement of disbursements (check #3413) Mutilated check Note collected by bank Adjusted book balance
$15,698
$371,766
$377,668
Bank balance Deposit in Transit Nov. 30 Dec. 31 Erroneous bank charge Bank service charge Outstanding checks Nov. 30 Dec. 31 Adjusted bank balance
$24,298
Note:
-36
Balance Dec. 31
$9,796
-36 42
42
377,674
270 800 4,000 $14,824
270 800 4,000 375,766
16,732
$373,502
3,648
$380,284
$17,516
-3,648 5,912
-11,214 $16,732
$375,766
-480 42
5,912 480 -42
-11,214 9,042 $377,674
-9,042 $14,824
$377,632 + $36 = $377,668 $15,698 + $371,766 - $377,668 = $9,796
PROBLEM NO. 11 CASH IN BANK - CASH SHORTAGE COMPUTATION The Hummingbird Company does not have adequate controls over its cash transactions. During your audit, you found the following data concerning its cash position at December 31, 2009. 1. 2. 3. 4.
On the company's records, the cash balance was $173,500. A credit of $2,500 for a note collected by the bank does not appear on the company's records. The bank statement balance is $135,000. Outstanding checks are as follows: Number 1428 1431 1445 1446
$
Amount 5,200 3,600 4,080 3,460
The cas hier made the following reconciliation: Balance per bank statement Deduct: Outstanding checks 1431 1445 1446 Undeposited collections (per count) Collected note Cash per books, December 31, 2009
$
$
135,000
$
10,140 124,860
$
48,640 173,500
3,600 4,080 3,460
Add:
$
46,140 2,500
REQUIRED: 1. What is the amount of the shortage?
Unadjusted balances Note collected by the bank Outstanding check Undeposited collection Corrected balance
Book
Bank
$173,500 2,500
$135,000
$176,000
-16,340 46,140 $164,800
SHORTAGE
-11,200 $164,800
$164,800
2. How did the cashier attempt to hide the shortage?
The cashier attempted to conceal the shortage as follows: Omission of outstanding check #1428 Underfooting of outstanding checks in reconciliation ($11,140-$10,140) Adding (instead of deducting) the unrecorded note collected by the bank Total
$5,200 1,000 5,000 $11,200
