After comparing cash register tapes with inventory records, the accountant for Benning Convenience Stores is concerned that someone at one of the stores is not recording some of that store’s cash sales and is stealing the cash from the unreported sales. Required: 1. Explain why a comparison of sales and inventory records would reveal a situation in which cash sales are not being recorded and cash from those sales is being stolen. 2. Describe how an employee might be able to steal cash from sales. 3. What internal control procedures would you recommend to make the theft you described in Requirement 2 more difficult?
> Roeker Company provides information systems consultation services to large companies in the Chicagoland area. Due to a dip in the economy, Roeker has increased the percentage of credit sales which it believes will be uncollectible from 3.0% to 3.2% for 2
> Hula Corp. utilizes J.P. Morgan Chase in its banking transactions. For the month of August, 2019, J.P. Morgan Chase presented Hula with its bank statement as follows: Balance, August 31, 2019..............................................................
> Yarnell Electronics sells computer systems to small businesses. Yarnell engaged in the following activities involving notes receivable: a. On September 1, 2019, Yarnell sold a $10,000 system to Ross Company. Ross gave Yarnell a 6-month, 7% note as paymen
> At the beginning of the year, Tennyson Auto Parts had an accounts receivable balance of $31,800 and a balance in the allowance for doubtful accounts of $2,980 (credit). During the year, Tennyson had credit sales of $624,300, collected accounts receivable
> Cindy Bagnal, the manager of Cayce Printing Service, has provided the following aging schedule for Cayce’s accounts receivable: Cindy indicates that the $121,100 of accounts receivable identified in the table does not include $4,600 of
> The Glass House, a glass and china store, sells nearly half its merchandise on credit. During the past 4 years, the following data were developed for credit sales and losses from uncollectible accounts: * Losses from uncollectible accounts are the actual
> Yancy’s Hardware has three stores. Each store manager is paid a salary plus a bonus on the sales made by his or her store. On January 5, 2020, Bill Slick, manager of one of the stores, resigned. Bill’s store had doubled its expected December 2019 sales,
> Helmkamp Products sells golf clubs and accessories to pro shops. Gross sales in 2019 were $2,850,700 (Helmkamp’s list price) on terms 2/15, n/45. Customers paid for $2,000,000 (Helmkamp’s list price) of the merchandise within the discount period and the
> Compton Audio sells MP3 players. During 2019, Compton sold 1,750 units at an average of $225 per unit. Each unit costs Compton $150. At present, Compton offers no sales discounts. Compton’s controller suggests that a generous sales discount policy would
> Food To Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its catering service? a. At the date the meals are served b. At the date the invoice is mailed to the customer c. At the date the customer places the orde
> Under the gross method, the seller records discounts taken by the buyer a. At the time of sale. b. At the end of the period in question. c. Never; discounts are irrelevant under the gross method. d. As a reduction to sales revenue.
> Assume the same information as in Brief Exercise 5-42: Gordon’s Grocers purchases bread from Buddy’s Bread Company at $1.45 per loaf. Gordon’s engaged in a customer service contract to purchase 20,000 loaves of Buddy’s bread. Buddy offered credit at term
> Net profit margin percentage is calculated by a. Dividing operating income by (net) sales. b. Subtracting operating income from (net) sales. c. Dividing net income by (net) sales. d. Subtracting net income from (net) sales.
> The Committee of Sponsoring Organizations of the Treadway Commission (COSO) discussed five components of internal control. Required: Define and discuss these five components of internal control.
> The ‘‘principal’’ of a note receivable refers to a. The amount of interest due. b. The amount of cash borrowed. c. The present value of the note. d. The financing company that is lending the money.
> Zenephia Corp. accepted a 9-month note receivable from a customer on October 1, 2019. If Zenephia has an accounting period which ends on December 31, 2019, when would it most likely recognize interest income from the note? a. December 31, 2019, and June
> Which one of the following statements is true if a company’s collection period for accounts receivable is unacceptably long? a. Cash flows from operations may be higher than expected for the company’s sales. b. The company may offer trade discounts to le
> The process by which firm’s package factored receivables as financial instruments or securities and sell them to investors is known as a. Credit extension. b. Bundling. c. Aging of accounts receivable. d. Securitization.
> The percentage of credit sales approach is closely related to the a. Income statement. b. Balance sheet. c. Statement of retained earnings. d. Statement of cash flows.
> The aging method is closely related to the a. Income statement. b. Balance sheet. c. Statement of cash flows. d. Statement of retained earnings.
> Which of the following best describes the concept of the aging method of receivables? a. An accurate estimate of bad debt expense may be arrived at by multiplying historical bad debt rates by the amount of credit sales made during a period. b. The precis
> Which of the following best describes the objective of estimating bad debt expense with the percentage of credit sales method? a. To estimate the amount of bad debt expense based on an aging of accounts receivable b. To determine the amount of uncollecti
> Gordon’s Grocers purchases bread from Buddy’s Bread Company at $1.45 per loaf. Gordon’s recently engaged in a customer service contract with Buddy’s to purchase 20,000 loaves of Buddy’s bread. Buddy offered credit to Gordon’s at terms of 2/10, n/30. Budd
> If a company uses the direct write-off method of accounting for bad debts, a. It will report accounts receivable on the balance sheet at their net realizable value. b. It is applying the matching principle. c. It will reduce the Accounts Receivable accou
> Which one of the following best describes the allowance for doubtful accounts? a. Cash flow account b. Income statement account c. Contra-account d. Liability account
> Internal controls play a crucial role in a business. Required: Discuss why internal controls are important. What are the potential consequences of an internal control failure?
> All of the following are ways in which receivables are commonly distinguished except a. Collectible or uncollectible. b. Trade or nontrade receivable. c. Current or noncurrent. d. Accounts or notes receivable.
> Which of the following statements concerning internal control procedures for merchandise sales is not correct? a. A sale and its associated receivable are recorded only when the order, shipping, and billing documents are all present. b. Shipping and bill
> On April 20, McLean Company provides lawn care services to Tazwell Corporation for $3,000 with terms 1/10, n/30. On April 28, Tazwell pays for half of the services provided, and on May 19 it pays for the other half. What is the total amount of cash McLea
> When should the net method be used to record sales revenue? a. Never—the gross method should always be used. b. When the discount terms are favorable to the customer. c. When the customer does not pay within the discount period. d. When the customer is e
> On August 31, 2019, Montana Corporation signed a 4-year contract to provide services for Minefield Company at $30,000 per year. Minefield will pay for each year of services on the first day of each service year, starting with September 1, 2019. Using the
> What does the phrase, ‘‘Revenue is recognized at the point of sale’’ mean? a. Revenue is recorded in the accounting records when the cash is received from a customer and reported on the income statement when sold to the customer. b. Revenue is recorded i
> When is revenue from the sale of merchandise normally recognized? a. When the customer takes possession of the merchandise, if sold for cash, or when payment is received, if sold on credit b. When the customer pays for the merchandise c. Either on the da
> H&R Wholesalers is a retailer providing low cost, bulk items to small companies. Companies must pay an annual membership fee of $100 to access H&R’s warehouses. H&R received yearly membership fees from 420 companies on August 1, 2019. Required: At Decem
> Arrow Products is a mail-order computer software sales outlet. Most of Arrow’s customers call on its toll-free phone line and order software, paying with a credit card. Required: Explain why the shipping and billing documents are important internal cont
> Anderson Lawn Service provides mowing, weed control, and pest management services for a flat fee of $300 per lawn per month. During November, Anderson collected $9,900 in cash from customers, which included $1,200 for lawn care provided in October. At th
> Volume Electronics sold a television to Sarah Merrifield on December 15, 2019. Sarah paid $100 at the time of the purchase and agreed to pay $100 each month for 5 months beginning January 15, 2020. Required: Determine in what month or months revenue fro
> Basque Inc. maintains a petty cash fund with a balance of $800. On December 31, Basque’s petty cash account has a balance of $60. Basque replenishes the petty cash account, as it does at the end of every month, but also decides to increase the fund balan
> Wallace Motors buys and sells used cars. Wallace made the following sales during January and February: a. Three cars were sold to Russell Taxi for a total of $75,000; the cars were delivered to Russell on January 18. Russell paid Wallace $20,000 on Janua
> The following information was taken from Logs den Manufacturing’s trial balances as of December 31, 2018, and December 31, 2019. Required: 1. Calculate the gross profit margin and operating margin percentage for 2019. (Note: Round answe
> The following information was taken from Nash Inc.’s trial balances as of December 31, 2018, and December 31, 2019. Required: 1. Calculate the net profit margin and accounts receivable turnover for 2019. (Note: Round answers to two deci
> Marydale Products permits its customers to defer payment by giving personal notes instead of cash. All the notes bear interest and require the customer to pay the entire note in a single payment 6 months after issuance. Consider the following transaction
> On November 30, 2019, Tucker Products performed computer programming services for Thomas Inc. in exchange for a 5-month, $125,000, 9% note receivable. Thomas paid Tucker the full amount of interest and principal on April 30, 2020. Required: Prepare the
> The new bookkeeper at Karlin Construction Company was asked to write off two accounts totaling $1,710 that had been determined to be uncollectible. Accordingly, he debited Accounts Receivable for $1,710 and credited Bad Debt Expense for the same amount.
> Ramsden Inc. provided consulting services with a gross price of $25,000 and terms of 2/10, n/30. Required: 1. Prepare the necessary journal entries to record the sale under the gross method. 2. Prepare the necessary journal entries to record collection
> Mallard Products had a balance of $350 in cash in its petty cash fund at the beginning of November. The following transactions took place in November: a. On November 1, the custodian paid $72 out of petty cash for new pens with Mallard’s newly designed l
> The cash account of Dixon Products reveals the following information: The bank statement for May contains the following information: Bank balance, 4/30................................................... $ 11,750 Add: Deposits during May.................
> Raymond Corporation received the following bank statement for the month of October: *NSF check **Debit memo (Rent Expense) ***Service charge The cash records of Raymond Corporation provide the following information: The items on the bank statement are co
> Shortly after July 31, Morse Corporation received a bank statement containing the following information: *NSF check **Bank service charge July cash transactions and balances on Morse’s records are shown in the following T-account: Requ
> Lee and Kim Cooper are planning to open and operate a clothing boutique in a newly developed subdivision. Lee and Kim are concerned that employees may try to pocket some of the cash collected from customers. Required: Identify some internal control proc
> Describe the potential sources of difference between a cash account and its associated bank statement balance.
> Internal control systems include policies and procedures designed to provide reasonable assurance that the corporation’s objectives are being met in three areas: (a) Effectiveness and efficiency of operations, (b) Reliability of financial reporting, an
> What is the primary role of internal controls in managing a business? a. To prevent cash from being stolen b. To ensure that the financial statements are presented in such a manner as to provide relevant and reliable information for financial statement u
> Which one of the following statements is true? a. Sound internal control practice dictates that cash disbursements should be made by check, unless the disbursement is very small. b. Petty cash can be substituted for a checking account to expedite the pay
> Cash management principles do not include a. earning the greatest return possible on excess cash. b. paying suppliers promptly. c. speeding up collection from customers. d. delaying payment of suppliers.
> Effective cash management and control includes all of the following except a. the use of a petty cash fund. b. bank reconciliations. c. purchase of stocks and bonds. d. short-term investments of excess cash.
> High level cash management strategies include a. bank reconciliations b. cash over and short c. petty cash d. delaying payment for suppliers
> The operating cycle is best described as the time between a. production and sale of inventory. b. the sale of inventory and collection of receivables. c. the formation of the company and the start of operations. d. purchase of goods for resale and collec
> Which one of the following is not a cash equivalent? a. 180-day note issued by a local or state government b. 90-day U.S. Treasury bill c. 60-day corporate commercial paper d. 30-day certificate of deposit
> Which one of the following would not appear on a bank statement for a checking account? a. Deposits b. Interest earned c. Service charges d. Outstanding checks
> Deposits made by a company but not yet reflected in a bank statement are called a. deposits in transit. b. debit memoranda. c. credit memoranda. d. None of the above.
> Describe two advantages of performing reconciliations of the cash account to the balances on the bank statements.
> Allowing only certain employees to order goods and services for the company is an example of what internal control procedure? a. Adequate documents and records b. Clearly defined authority and responsibility c. Safeguarding of assets and records d. Check
> Which of the following is not generally an internal control activity? a. Establishing clear lines of authority to carry out specific tasks b. Physically counting inventory in a perpetual inventory system c. Reducing the cost of hiring seasonal employees
> The internal audit function is part of what element of the internal control system? a. Control environment b. Monitoring c. Risk assessment d. Control activities
> Which of the following is not one of the five categories of control activities? a. Checks on recorded amounts b. Defalcation and financial reporting c. Clearly defined authority and responsibility d. Segregation of duties
> Which of the following is not one of the five components of internal control? a. Analysis of control procedures b. Information and communication c. Risk assessment d. Control environment
> Which of the following is not one of the three areas for which internal control systems are intended to provide reasonable assurance? a. Reliability of financial reporting b. Compliance with applicable laws and regulations c. Effectiveness and efficiency
> a. Dither and Sly are attorneys-at-law who specialize in federal income tax law. They complete their typical case in 6 months or less and collect from the typical client within 1 additional month. b. Johnston’s Market specializes in fresh meat and fish.
> A list of businesses is presented below: Required: 1. Match each business with a description of the operating cycle for that business. 2. How does a longer operating cycle (such as Description c or d) change a company’s financing needs
> Business activity is often described as being cyclical in nature. Required: Describe the cyclical nature of business activity.
> The office manager for Stony Company had accumulated the following information at the end of a recent year: Required: Calculate the total cash amount Stony will report on its balance sheet. Item Amount Accounts receivable Change for cash registers (c
> Why is it important to segregate the duties for handling cash from the duties for keeping the accounting records for cash?
> Brown Industries has the following items: Currency................................................................................................ $15,500 Customer checks that have not been deposited.................................... 675 Cash in savin
> During March, Anderson Company engaged in the following transactions involving its petty cash fund: a. On March 1, Anderson Company established the petty cash fund by issuing a check for $1,500 to the fund custodian. b. On March 4, the custodian paid $85
> Hawk Enterprises identified the following items on its January reconciliation that may require adjusting entries: a. A deposit of $1,190 was recorded in Hawk’s accounting records, but not on the January 31 bank statement. b. A check for $3,371 was outsta
> Bank Reconciliation Conway Company reported the following information: Cash balance on balance sheet (12/31)..................................... $22,066 Pre-reconciliation cash account balance (12/31)...................... 23,916 Bank statement (12/31)
> Valentine Investigations has the following information for its cash account: Balance, 1/31.............................................................. $ 7,444 Deposits during February......................................... 106,780 Checks written duri
> The cash account for Pitt Corporation contains the following information for June: Cash balance, 5/31...................................................... $18,130 Cash received during June.......................................... 42,650 $60,780
> Johnson Corporation’s bank statement for October reports an ending balance of $22,381, whereas Johnson’s cash account shows a balance of $22,025 on October 31. The following additional information is available: a. A $855 deposit made on October 31 was no
> Miller Enterprises deposits the cash received during each day at the end of the day. Miller deposited $48,287 on October 3 and $50,116 on October 4. Cash register records and other documents supporting the deposits are summarized as follows: Required: 1.
> Hannah Thatcher, a longtime employee of a local shoe store, is responsible for maintaining the company’s cash records and for opening the daily mail, through which the company receives about 25% of its daily cash receipts. Virtually all cash received by
> Required: Match each of the control procedures listed below with the most closely related control procedures type. Your answer should pair each of the numbers 1 through 10 with the appropriate letter. Control Procedure Types a. Adequate documents and rec
> Why does a company give particular attention to internal controls for cash?
> Required: A list of terms and a list of definitions and examples are presented below. Make a list numbered 1 through 7 and match the letter of the most directly related definition or example with the number of each term. Definition or Example Term 1.
> Required: A list of terms and a list of definitions and examples are presented below. Make a list numbered 1 through 5 and match the letter of the most directly related definition or example with the number of each term. Definition or Example Term 1
> What is the operating cycle?
> Why do companies invest their cash in short-term investments?
> What are cash equivalents?
> Why do most companies have petty cash funds?
> Why do companies hold short-term investments?
> Describe the basic cash management principles.
> Describe how cash over and short can be used for internal control purposes.
> Over the next 2 months, Front Row Entertainment continued to enjoy success in signing artists and promoting their events. However, the increased business has put considerable stress on keeping timely and up-to-date financial records. In particular, both
> How do control activities relate to the accounting system?
> What is the purpose of an internal control system?
> Would you be willing to participate in an ethnographic research study within your own home? Why or why not?
> Explain decoy pricing. Is decoy pricing ethical?
> Divide the following list of topics among your team and ask each person to be responsible for developing a set of questions to ask during the interview to learn about the company’s program: • What customer segments the company targets. • How it determine
> You work as a marketer for a large chain of upscale boutique-like stores that sells all-natural and other fresh beauty products. Your research tells you that the market won’t tolerate a price increase, so to save money during tough times you have decided
