Chapter 6: Problem Set A

Problem 6-1A: Analyzing Internal Control (C1) 1. Case 1 (Chi Han) o Internal Control Principle Violated: Separate Recordkeeping from Custody of Assets o Recommendation: Chi Han should not have access to both the cash and the accounting records for customer payments. The duties of handling incoming cash and recording payments should be separated to prevent fraud. 2. Case 2 (Julia and Trevor) o Internal Control Principle Violated: Establish Responsibilities o Recommendation: Only one designated petty cash custodian should handle petty cash. If Julia is not available, a formal process should be followed, and a different employee should take temporary responsibility with proper documentation. 3. Case 3 (Nori Nozumi) o Internal Control Principle Violated: Apply Technological Controls o Recommendation: Nori should use password protection on her computer to safeguard patient charge and payment data, ensuring unauthorized access is prevented. 4. Case 4 (Ben Shales) o Internal Control Principle Violated: Perform Regular and Independent Reviews o Recommendation: Regular, independent reviews of employees’ work are necessary to ensure accuracy and detect any irregularities. Ben should implement periodic audits, even if the workers appear trustworthy. 5. Case 5 (Carla Farah) o Internal Control Principle Violated: Insure Assets and Bond Key Employees o Recommendation: Bonding employees is a crucial safeguard against theft. Carla should reinstate the bonding insurance to protect the company from employee theft. Additionally, raising the deductible on property insurance should be reconsidered to balance cost savings with risk management. Problem 6-2A: Establishing, Reimbursing, and Adjusting Petty Cash (P2) 1. Journal Entry to Establish the Petty Cash Fund on May 1: plaintext Debit: Petty Cash $300 Credit: Cash $300 2. Journal Entry to Replenish the Petty Cash Fund on May 15: plaintext Debit: Janitorial Expense $88.00 Debit: Miscellaneous Expense $53.68 Debit: Postage Expense $53.50 Debit: Advertising Expense $47.15 Credit: Cash $237.85 3. Journal Entry to Increase the Petty Cash Fund on May 16: plaintext Debit: Petty Cash Credit: Cash $200 $200 4. Journal Entry to Replenish the Petty Cash Fund on May 31: plaintext Debit: Postage Expense $147.36 Debit: Mileage Expense $23.50 Debit: Delivery Expense $34.75 Credit: Cash $211.80 5. Journal Entry to Decrease the Petty Cash Fund on May 31: plaintext Debit: Cash Credit: Petty Cash $100 $100 Problem 6-3A: Establishing, Reimbursing, and Increasing Petty Cash (P2) 1. Journal Entry to Establish the Petty Cash Fund: plaintext Debit: Petty Cash Credit: Cash $400 $400 2. Petty Cash Payments Report for February: Expense Category Amount Delivery Expense $20.00 Mileage Expense $68.00 Postage Expense $54.00 Merchandise Inventory $45.60 Office Supplies Expense $81.92 $269.52 Total 3. Journal Entry to Reimburse the Petty Cash Fund (Feb 28): plaintext Debit: Delivery Expense $20.00 Debit: Mileage Expense $68.00 Debit: Postage Expense $54.00 Debit: Merchandise Inventory $45.60 Debit: Office Supplies Expense $81.92 Credit: Cash $269.52 4. Journal Entry to Increase the Petty Cash Fund: plaintext Debit: Petty Cash Credit: Cash $100 $100 Problem 6-4A: Preparing a Bank Reconciliation and Recording Entries (P3) 1. Bank Reconciliation for Branch Company (July 31): Bank Reconciliation Bank Book Bank balance as of July 31 $27,233 Add: Deposits in transit $11,514 Subtract: Outstanding checks: - Check No. 3031 ($1,482) ($1,482) - Check No. 3065 ($382) ($382) - Check No. 3069 ($2,281) ($2,281) Adjusted Bank Balance $34,602 Book balance as of July 31 $27,497 Add: Bank collection of note $7,955 Subtract: NSF check (Evan Shaw) ($805) Subtract: Bank service charge ($25) Subtract: Error on Check No. 3056 ($20) Bank Reconciliation Adjusted Book Balance Bank Book $34,602 2. Journal Entries: o Bank collection of note: plaintext Debit: Cash $7,955 Credit: Notes Receivable $7,955 o NSF check (Evan Shaw): plaintext Debit: Accounts Receivable $805 Credit: Cash $805 o Bank service charge: plaintext Debit: Miscellaneous Expense $25 Credit: Cash $25 o Error correction on Check No. 3056: plaintext Debit: Utilities Expense $20 Credit: Cash $20 Problem 6-5A: Preparing a Bank Reconciliation and Recording Entries (P3) 1. Bank Reconciliation for Chavez Company (September 30): Bank Reconciliation Bank Book Bank balance as of September 30 $18,271 Add: Deposits in transit $6,200 Subtract: Outstanding checks: - Check No. 5893 ($494) ($494) Adjusted Bank Balance $18,271 Book balance as of September 30 $18,180 Add: Error correction (Check No. 5904) $30 Add: Collection of note $1,485 Subtract: NSF check (S. Nilson) ($624) Bank Reconciliation Adjusted Book Balance Bank 2. Journal Entries: o Error correction (Check No. 5904): plaintext Debit: Cash $30 Credit: Computer Equipment $30 o Collection of note: plaintext Debit: Cash $1,485 Credit: Notes Receivable $1,485 o Book $18,271 NSF check (S. Nilson): plaintext Debit: Accounts Receivable $624 Credit: Cash $624