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Chapter 7: Q10RQ (page 411)
What are the steps taken to ensure control over purchases and payments by check?
Control over purchases and payments by checks includes three different steps.
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What are some limitations of internal controls?
Preparing a bank reconciliation
Hardy Photography鈥檚 checkbook lists the following:
Date Check No. Item Check Deposit Balance
Nov. 1 \( 500
4 622 Quick Mailing \) 45 455
9 Service Revenue \( 135 590
13 623 Photo Supplies 85 505
14 624 Utilities 45 460
18 625 Cash 50 410
26 626 Office Supplies 110 300
28 627 Upstate Realty Co. 290 10
30 Service Revenue 1,235 1,245
Hardy鈥檚 November bank statement shows the following:
Learning Objective 6
1. Adjusted Balance \)1,137
Balance
Deposits
Checks: No. Amount
622 \( 45
623 85
624 105*
625 50
Other charges:
Printed checks
Service charge
Balance
*This is the correct amount for check number 624.
\) 500
135
(285)
(48)
$ 302
23
25
Requirements
1. Prepare Hardy Photography鈥檚 bank reconciliation at November 30, 2018.
2. How much cash does Hardy actually have on November 30, 2018?
3. Journalize any transactions required from the bank reconciliation.
Accounting for petty cash transactions
On September 1, Party Salad Dressings creates a little cash fund with an imprest
balance of \(600. During September, Michael Martell, the fund custodian, signs the
following petty cash tickets:
Petty Cash
Ticket Number Item Amount
101 Office supplies \) 60
102 Cab fare for executive 25
103 Delivery of package across town 45
104 Business dinner 55
105 Merchandise inventory 75
On September 30, prior to replenishment, the fund contains these tickets plus cash
of \(355. The accounts affected by petty cash payments are Office Supplies, Travel
Expense, Delivery Expense, Entertainment Expense, and Merchandise Inventory.
Requirements
1. Explain the characteristics and the internal control features of an imprest fund.
2. On September 30, how much cash should the petty cash fund hold before it isreplenished?
3. Journalize all required entries to create the fund and replenish it. Include explanations.
4. Make the October 1 entry to increase the fund balance to \)800. Include an explanationand briefly describe what the custodian does.
Preparing a bank reconciliation and journal entries
The October 31 bank statement of Wyndham鈥檚 Healthcare has just arrived from State
Bank. To prepare the bank reconciliation, you gather the following data:
a. The October 31 bank balance is \(6,290.
b. The bank statement includes two charges for NSF checks from customers. One is
for \)370 (#1), and the other is for \(180 (#2).
c. The following Wyndham鈥檚 checks are outstanding at October 31:
Check No. Amount
237 \) 120
288 140
291 570
294 570
295 30
296 110
d. Wyndham鈥檚 collects from a few customers by EFT. The October bank statement
lists a \(2,200 EFT deposit for a collection on account.
e. The bank statement includes two special deposits that Wyndham鈥檚 hasn鈥檛 recorded
yet: \)900 for dividend revenue and \(100 for the interest revenue Wyndham鈥檚
earned on its bank balance during October.
f. The bank statement lists a \)80 subtraction for the bank service charge.
g. On October 31, the Wyndham鈥檚 treasurer deposited \(270, but this deposit does
does not appear on the bank statement.
h. The bank statement includes a \)750 deduction for a check drawn by Multi-State
Freight Company. Wyndham鈥檚 notified the bank of this bank error.
i. Wyndham鈥檚 Cash account shows a balance of $3,200 on October 31.
Requirements
1. Prepare the bank reconciliation for Wyndham鈥檚 Healthcare at October 31, 2018.
2. Journalize any required entries from the bank reconciliation. Include an explanation for each entry.
Preparing a bank reconciliation and journal entries
The December cash records of Davidson Insurance follow:
Davidson鈥檚 Cash account shows a balance of \(17,450 at December 31. On December
31, Davidson Insurance received the following bank statement:
Additional data for the bank reconciliation follow:
a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.
b. The NSF check was received from a customer.
c. The \)1,400 bank collection was for a note receivable.
d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson鈥檚
controller mistakenly recorded the check for \)1,390.
Requirements
1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.
2. Journalize any required entries from the bank reconciliation.
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