Accounting homework

Chapter 7 Homework

Due Week 4 and worth 10 points

Directions: Answer the following four questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your homework assignment using the homework assignment link in the course shell.

E7-1

Bank employees use a system known as the “maker-checker” system. An employee will record an entry in the appropriate journal, and then a supervisor will verify and approve the entry. These days, as all of a bank’s accounts are computerized, the employee first enters a batch of entries into the computer, and then the entries are posted automatically to the general ledger account after the supervisor approves them on the system.

Access to the computer system is password-protected and task-specific, which means that the computer system will not allow the employee to approve a transaction or the supervisor to record a transaction.

Instructions:

Identify the principles of internal control inherent in the “maker-checker” procedure used by banks.

E7-3

The following control procedures are used in Kelton Company for over-the-counter cash receipts.

1. Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy.

2. All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.

3. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank.

4. At the end of each day the total receipts are counted by the cashier on duty and reconciled to the cash register total.

5. The company accountant makes the bank deposit and then records the day’s receipts.

Instructions:

(a) For each procedure, explain the weakness in internal control and identify the control principle that is violated.

(b) For each weakness, suggest a change in the procedure that will result in good internal control.

E7-5

At Nunez Company, checks are not prenumbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertaining to goods purchased for resale. Prior to payment, the purchasing agent determines that the goods have been received and verifies the mathematical accuracy of the vendor’s invoice. After payment, the invoice is filed by vendor name and the purchasing agent records the payment in the cash disbursements journal. The treasurer pays all other bills following approval by authorized employees. After payment, the treasurer stamps all bills “paid,” files them by payment date, and records the checks in the cash disbursements journal. Nunez Company maintains one checking account that is reconciled by the treasurer.

Instructions:

(a) List the weaknesses in internal control over cash disbursements.

(b) Identify improvements for correcting these weaknesses.

E7-10

The cash records of Downs Company show the following.

For July:

1. The June 30 bank reconciliation indicated that deposits in transit total $580. During July, the general ledger account Cash shows deposits of $16,900, but the bank statement indicates that only $15,600 in deposits were received during the month.

2. The June 30 bank reconciliation also reported outstanding checks of $940. During the month of July, Downs Company books show that $17,500 of checks were issued, yet the bank statement showed that $16,400 of checks cleared the bank in July.

For September:

3. In September, deposits per bank statement totaled $25,900, deposits per books were $26,400, and deposits in transit at September 30 were $2,200.

4. In September, cash disbursements per books were $23,500, checks clearing the bank were $24,000, and outstanding checks at September 30 were $2,100.There were no bank debit or credit memoranda, and no errors were made by either the bank or Downs Company.

Instructions:

Answer the following questions.

(a) In situation 1, what were the deposits in transit at July 31?

(b) In situation 2, what were the outstanding checks at July 31?

(c) In situation 3, what were the deposits in transit at August 31?

(d) In situation 4, what were the outstanding checks at August 31?