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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
D. List five examples of preventive controls and three examples of detective controls.
Problem II: (18 points) Indicate whether each of the following statements is true (T) or false (F).
The Sarbanes-Oxley Act (SOX), passed by Congress in 2002, applies to both publiclyheld and privately-held corporations.
SOX requires a company?s management as well as its outside auditors to document and
assess the effectiveness of a company?s internal controls.
Detective controls are designed to keep errors or fraud from occurring and preventive
controls are designed to detect errors or fraud which already occurred.
Collusion occurs when two or more employees work together to make internal controls
Cash is the asset most susceptible to employee fraud.
Cash equivalents are defined as short-term investments which have a maturity date less
than twelve months from their date of purchase.
When a company receives a check from a customer for work performed, ?Accounts
Receivable? rather than ?Cash? should be debited.
Companies should strive to keep a large amount of petty cash on hand.
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.
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??
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
Bank service charges
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
Unadjusted Book Balance ? 3/31
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
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
Unadj Balance (3/31)
Adjusted Balance (3/31)
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:
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.
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.
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.
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.
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
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