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Ch 4 Graded Assignment

 

Note: To receive partial credit on problems which require calculations, calculations must be shown.

 

Problem I: (19 points)

 

A. What are the three elements of the ?fraud triangle?? Which of these elements does a company?s

 

management have the most control over? ( 2 ? 3 sentences)

 


 

B. To eliminate the opportunity for fraud, companies implement a system of procedures called internal

 

controls. What are the two primary goals of internal control procedures? ( 1 ? 2 sentences)

 


 

C. List the five components of internal control suggested by the Committee of Sponsoring Organizations

 

(COSO)?

 


 

D. List five examples of preventive controls and three examples of detective controls.

 


 

1

 


 

Problem II: (18 points) Indicate whether each of the following statements is true (T) or false (F).

 

a.

 


 

___

 


 

The Sarbanes-Oxley Act (SOX), passed by Congress in 2002, applies to both publiclyheld and privately-held corporations.

 


 

b.

 


 

___

 


 

SOX requires a company?s management as well as its outside auditors to document and

 

assess the effectiveness of a company?s internal controls.

 


 

c.

 


 

___

 


 

Detective controls are designed to keep errors or fraud from occurring and preventive

 

controls are designed to detect errors or fraud which already occurred.

 


 

d.

 


 

___

 


 

Collusion occurs when two or more employees work together to make internal controls

 

more effective.

 


 

e.

 


 

___

 


 

Cash is the asset most susceptible to employee fraud.

 


 

f.

 


 

___

 


 

Cash equivalents are defined as short-term investments which have a maturity date less

 

than twelve months from their date of purchase.

 


 

g.

 


 

___

 


 

When a company receives a check from a customer for work performed, ?Accounts

 

Receivable? rather than ?Cash? should be debited.

 


 

h.

 


 

___

 


 

Companies should strive to keep a large amount of petty cash on hand.

 


 

i.

 


 

___

 


 

When the bank makes an error, the company should correct for this error on the bank side

 

of the reconciliation.

 


 

Problem III: (4 points)

 

A. During the month of October, Wolfpack Inc. wrote checks totaling $6,000. Wolfpack?s bank statement for

 

the month of October shows that checks totaling $5,400 cleared the bank. How much should Wolfpack

 

deduct on its bank reconciliation for ?outstanding checks?? Assume there were no outstanding checks in

 

the prior month.

 

Answer: $_______

 

B. During the month of October, Wolfpack Inc. accepted checks from customers totaling $25,000.

 

Wolfpack?s bank statement for the month of October shows that its bank account balance was increased

 

by only $23,000 of this amount. How much should Wolfpack add on its bank reconciliation for ?depositsin-transit??

 

Answer: $_____

 

A.

 


 

2

 


 

Problem IV: (32 points)

 

Assume that on March 31, 20X6, Woodberry Corp. had the following information available:

 


 


 


 


 


 


 


 


 

Balance per the bank (Mar 31)

 

Balance per the books (Mar 31)

 

Deposits in transit

 

NSF check

 

Outstanding checks

 

Bank service charges

 

Interest earned

 


 

$ 8,400

 

$ 8,867

 

$ 900

 

$

 

50

 

$ 500

 

$

 

25

 

$

 

8

 


 

A. Prepare the bank reconciliation for March. Note: The number of lines in the template is not necessarily

 

indicative of how many will be used. A description of each reconciling item amount should be included

 

on your template (ex. ?Deposits-in-Transit?).

 

Unadjusted Bank Balance ? 3/31

 


 

Adjusted Bank Balance ? 3/31

 


 

$8,400

 


 

Unadjusted Book Balance ? 3/31

 


 

$8,867

 


 

Adjusted Book Balance ? 3/31

 


 

B. Prepare the month-end journal entry(ies) to reconcile the unadjusted book balance to the adjusted book

 

balance. Note: You may prepare one large compound entry or separate journal entries for each

 

reconciling item.

 

Date

 

Debit

 

Credit

 

3/31/X6

 


 

3

 


 

C. Accounting Check ? Below is Woodberry?s Cash t-account which shows the unadjusted balance on

 

3/31. Post the cash portion from your entry(ies) in part ?B? to the t-account and compute a new ?Cash?

 

account balance. Does the ending ?Cash? account balance in the t-account equal the ?Adjusted Book

 

Balance ? 3/31? from part ?A?? If your answer is not ?yes?, please go back and check your calculations

 

and/or entries.

 

Cash

 

Unadj Balance (3/31)

 

8,867

 

8 25

 

50

 

Adjusted Balance (3/31)

 


 

8,800

 


 

Problem V: (6 points) Errors on the part of the company and/or its bank which affect ?Cash? are also part of

 

a bank reconciliation.

 

Below are two different errors. For each error, indicate whether the error should be listed as a reconciling

 

item on the bank or book (company) side of the bank reconciliation by placing either a plus (+) or minus (-)

 

sign along with the necessary amount of the adjustment in the correct column.

 

The first one has been done as an example.

 


 

Description of error:

 

Ex

 

.

 


 

The company, in error, recorded a deposit of $65 as a debit to

 

Cash for $650 and a credit to Sales Revenue for $650. The

 

amounts in the entry should have been for $65.

 


 

a.

 


 

Adjust the

 

company side

 

of the

 

reconciliation

 

as follows:

 


 

Wolfpack discovered that a check it wrote for $760 for

 

supplies purchased was recorded in the journal entry for $670.

 

The amount in the entry should have been for $760.

 


 

b.

 


 

Adjust the

 

bank side

 

of the

 

reconciliation as

 

follows:

 


 

Wolfpack discovered that the bank incorrectly recorded a $100

 

deposit belonging to Tarheel Corp. into Wolfpack?s bank

 

account. The bank should have recorded the deposit in

 

Tarheel?s account rather than Wolfpack?s.

 


 

- $585

 


 

4

 


 

Problem VI: (21 points)

 

Spellings Corp. established a petty cash fund of $200 on April 1 by taking out $200 from its checking

 

account and depositing the bills into a petty cash box.

 

At the end of April, postage expense receipts in the fund totaled $50 and entertainment expense receipts

 

totaled $75. The remaining cash balance in the fund on April 30 was $75.

 

Spellings replenishes the fund at the end of each month to bring its balance back up to $200.

 

Required: Prepare the journal entries needed to (1) establish the petty cash fund on April 1, and to (2)

 

replenish the petty cash fund at the end of April.

 

Date

 

April 1

 


 

Debit

 


 

Credit

 


 

April 30

 


 

Accounting Check ? Post the above entries to their respective t-accounts. Does the ?Petty Cash? account

 

have an ending balance of $200? If your answer is not ?yes?, please go back and check your calculations

 

and/or entries.

 


 

5

 


 

 


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