Chapter 1 Answer
Chapter 1 Answer
Chapter 1 Answer
Problem 1-1
COMPUTING THE CORRECT CASH BALANCE
Your audit of the December 31, 2018, financial statements of Daylight Company, reveals the
following:
Current account at East Bank $ (15,000)
Current account at West Bank 43,200
Treasury bills, (acquired 3 months before maturity) 150,000
Treasury bills, (maturity date is 12/31/21) 2,500,000
Payroll account 175,000
Foreign bank account-restricted (translated using the 12/31/18 rate) 4,000,000
Postage stamps 450
Employee's postdated check 3,500
IOU from the vice-president 13,000
Credit memo from a supplier for a purchase return 7,200
Traveler's check 15,000
Money order 7,000
Petty cash fund ($3,000 in currency and expense receipts for $7,000) 10,000
Required:
What amount would be reported as cash and cash equivalents on the balance sheet
on December 31, 2018?
Problem 1-2
PETTY CASH FUND
The auditor of Herald, Inc., examined the petty cash fund immediately after the close of
business July 31, 2018, the end of the company's natural business year. The petty cash
custodian presented the following during the count:
Currency $ 650
Petty Cash Vouchers:
Postage 420
Office supplies expense 900
Transportation expense 140
Computer repairs 400
Advances to office staff 700
A check drawn by Herald, Inc., payable to the petty cash custodian 3,050
Postage stamps 300
An employee's check, returned by bank, marked NSF 1,000
An envelope containing currency of $440 for a gift for a retiring
employee 440
$ 8,000
The general ledger shows an imprest petty cash fund balance of $8,000.
Required:
1. How much is the petty cash shortage or overage?
Currency and coins 650
Petty cash vouchers 2,560
Replenishment check 3,050
NSF check 1,000
7,260
Petty cash fund (ledger) accountability (8,000)
Shortage (740)
3. What is the adjusted balance of petty cash fund at July 31, 2009?
Currency 650
Replenishment check 3,050
3,700
Problem 1-3
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, 2018, you conducted a surprise count of the company's petty cash fund and
undeposited collections at 8:20 am on January 3, 2019. Your count disclosed the following:
Bills and coins
Bills Coins
$100.00 5 pieces $1.00 205 pieces
50.00 40 pieces 0.50 162 pieces
20.00 35 pieces 0.25 32 pieces
10.00 27 pieces
Checks
Unreimbursed vouchers
1 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.
2 The sales manager's liquidation report for his Bali Trip:
Additional 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, 2018.
3 The petty cash balance per general ledger is $10,000. The last replenishment of the
fund was made on December 22, 2018.
Required:
1. Prepare a cash count sheet.
Cash Count Sheet
January 3, 2010-8:20 AM
Biils and
coins:
Less:; Accountabilities
Note: The sales manager's advances will reflect a debit balance of $240 (7,000-6,760)
Problem 1-4
BANK RECONCILIATION-UNADJUSTED TO ADJUSTED BALANCE
Jingle, Inc.'s newly-hired accountant prepared the following cash reconciliation as of June 30,
2018:
Bank Book
Required:
Prepare a correct cash reconciliation on June 30, 2018.
Jingle, Inc.
Bank Reconciliation
Saturday, June 30, 2018
Book Bank
Unadjusted balances $ 79,367 $ 268,367
Deposit in transit ($15,000-$9,000) 6,000
Bank service charge -1,000
Unreleased check 12,000
Outstanding check ($36000-$11000) -25,000
NSF check -17,000
Loan proceeds 200,000
Erroneous bank debit 15,000
Post-dated check -9,000
Adjusted balances $ 264,367 $ 264,367
Problem 1-5
COMPUTATION OF RECEIPTS, DISBURSEMENTS, AND CASH BALANCE;
BANK RECONCILIATION-UNADJUSTED TO ADJUSTED
Haggler Company was organized on January 2, 2018.. The following items are from the
company's trial balance on December 31, 2018:
Additional information:
Required:
1. Compute the following:
a. Collection from sales.
Sales $ 6,235,200
Less: Accounts receivable, 12/31 165,400
Collection from sales $ 6,069,800
b. Payments for purchases.
Cost of sales ($6,325,200 x 70%) $ 4,364,640
Add: Merchandise inventory, 12/31 69,000
Purchases $ 4,433,640
Less: Accounts payable, 12/31 389,650
Payment for purchases $ 4,043,990
c. Cash balance on December 31, 2018.
Cash receipts:
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 7,416,140
Cash balance per books, December
$ 403,660
31
Book Bank
Unadjusted balances $ 403,660 $ 520,159
Deposits in Transit 45,167
Service charge (2,000)
Outstanding checks (163,666)
$ 401,660 $ 401,660
Problem 1-6
DETERMINING NET ADJUSTMENT TO CASH
Your audit of the cash account of Angel Company disclosed the following information:
Required:
Determine the net adjustment to the Cash balance per books on December 31, 2018.
Bank balance, December 31, 2018 $ 60,000
Deposit in Transit 15,200
Transposition error in recording deposit ($54,000-$45,000) (9,000)
Erroneous bank debit 26,700
Erroneous bank credit (11,000)
Outstanding check ($39,400-$10,000) (29,400)
Adjusted bank balance, December 31, 2018 $ 52,500
Book balance, December 31, 2018 35,000
Net adjustment-debit $ 17,500
Problem 1-7
BANK RECONCILIATION-UNADJUSTED TO ADJUSTED BALANCE
In connection with an audit, you are given the following bank reconciliation.
Bank Reconciliation
December 31, 2018
14344 $ 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
$ 18,625
Required:
1. Prepare a corrected reconciliation.
Bank Reconciliation
31-Dec-18
Book Bank
Unadjusted balances $ 34,349.72 $ 51,050.22
Deposit in transit 5,324.50
Customer's check returned -4,000.00
Bank service charge -1,000.00
Outstanding checks -22,625.00
Credit memo for note collected 8,000.00
Debit to accounts payable-understated -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
31-Dec-18
Problem 1-8
BANK RECONCILIATION AND CASH SHORTAGE COMPUTATION
In connection with your audit of the Summerville Company at December 31, 2018, you were
given a bank reconciliation by a company employee which shows:
As part of your verification, you obtain the bank statement and cancelled checks from the bank on
January 15, 2019. Checks issued from January 1 to January 15, 2019, 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 2019, $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 $ 9,600
From January 7,200 $ 16,800
Add: Disbursement per bank statement 58,438
Total $ 75,238
Less: Outstanding checks, December 31 42,756
Disbursements per book as computed $ 32,482
Disbursements per book as reported 22,482
Difference in disbursements $ 10,000
2. Suggest three possible explanations for the difference between the disbursements per books
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 1-9
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, 2018
Bank balance $ 652,000
Add: Deposit in transit 10,000
Total $ 662,000
Less: Outstanding checks
No. 640 $ 10,000
652 8,000
653 2,000 20,000
Adjusted bank balance $ 642,000
Westlake Bank
Period covered: May 31, 2018 - June 30, 2018
The paid checks accompanying this bank statement (all clearing in June) are the following:
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 deposits column of the bank statement) $ 63,200.00
c. Bank balance on June 30, 2018.
Bank balance, May 31 652,000
Add: Bank receipts, June 88,000
Total $ 740,000
Less: Bank disbursements, June 63,200
Bank balance, June 30 $ 676,800
2. Prepare a proof of cash for June. Use the bank to book format.
PROOF OF CASH
June 1-30, 2018
June
Balance Disburse- Balance
31-May Receipts ment 30-Jun
Bank balances $652,000 $88,000 $63,200 $676,800
Deposit in transit:
31-May 10,000 (10,000)
30-Jun 70,000 70,000
Outstanding checks
31-May (20,000) (20,000)
30-Jun 17,600 (17,600)
Bank service charge
31-May 800 800
30-Jun (200) 200
Bank collection in May (70,000) 70,000
May deposit recorded by
the company in June (2,000) 2,000
NSF checks:
Already redeposited (1,000) (1,000)
Not yet redeposited (3,000) 3,000
book error corrected within
the same day (1,000) (1,000)
$570,800 $218,000 $56,400 $732,400
Problem 1-10
PROOF OF CASH - UNADJUSTED TO ADJUSTED BALANCES
In your audit of Langley Company's cash account as of December 31, 2018, you ascertain the
following information:
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, 2019.
The balance per bank statement at December 31, 2018 is $17,516. This statement shows total receipts
of $373,502 and checks paid of $380,284.
1. Check no. 3413 dated November 24, 2018, 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.
4. On January 3, 2019, 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.
Required:
Prepare a proof of cash for December 2009. Use the unadjusted to adjusted balances format.
Langley Company
Proof of cash
December 1-31, 2018
December
Balance Disburse- Balance
Nov. 30 Receipts ments Dec. 31
Book Balance $15,698 $371,766 $377,668 $9,796
Bank service charges:
Nov. 30 -36 -36
Dec. 31 42 42
Overstatement of
disbursements
(check #3413) 270 270
Mutilated check 800 800
Note collected by bank 4,000 4,000
Adjusted book balance 16,732 375,766 377,674 $14,824
Problem 1-11
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, 2018.
Required:
1. What is the amount of the shortage?
Book Bank
Unadjusted balances $173,500 $135,000
Note collected by the bank 2,500
Outstanding check -16,340
Undeposited collection 46,140
Corrected balance $176,000 $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 $5,200
Underfooting of outstanding checks in reconciliation
($11,140-$10,140) 1,000
Adding (instead of deducting) the unrecorded note collected
by the bank 5,000
Total $11,200