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intermediate accounting volume 1

Accounting Volume 1 8th Canadian Edition Charles T. Horngren, Walter T. Harrison, M. Suzanne Oliver, Peter R. Norwood, Jo-Ann L. Johnston - Solutions

2. List three categories of receivables. State how each category is classified for reporting on the balance sheet.
1. Name the two parties to a receivable/payable transaction.Which party has the receivable? Which has the payable? The asset? The liability?
10. The best acid-test ratio among the following is (p. 470)a. 0.10c. 1.0b. 0.80d. 1.2
9. The note in Self-Study Question 8 was issued on August 31, and the company’s accounting year ends on December 31. The year-end balance sheet will report interest receivable of (pp. 466–467)a. $533c. $1,600b. $1,067d. $3,200
8. Asix-month, $40,000 note specifies interest of 8 percent.The full amount of interest on this note will be(p. 465)a. $400c. $1,600b. $800d. $3,200
7. Keady Marina also made this general journal entry:Accounts Receivable (detailed) .............. 640 Allowance for Doubtful Accounts..... 640 The purpose of this entry is to (p. 460–461)a. Write off uncollectiblesb. Close the expense accountc. Reverse the write-off of receivablesd. Record
6. Keady Marina also made this general journal entry:Allowance for Doubtful Accounts......... 1,800 Accounts Receivable (detailed)......... 1,800 The purpose of this entry is to (p. 459)a. Write off uncollectiblesb. Close the expense accountc. Age the accounts receivabled. Record bad-debt expense
5. The credit balance in Allowance for Doubtful Accounts is $12,600 prior to the adjusting entries at the end of the period. The aging of the accounts indicates that an allowance of $81,200 is needed. The amount of expense to record is (pp. 455–458)a. $12,600c. $81,200b. $68,600d. $93,800
4. Keady Marina made the following general journal entry related to uncollectibles:Bad-Debt Expense .................................... 700 Allowance for Doubtful Accounts.... 700 The purpose of this entry is to (pp. 455–458)a. Write off uncollectiblesb. Close the expense accountc. Age the
3. The function of the credit department is to (p. 453)a. Collect accounts receivable from customersb. Report bad credit risks to other companiesc. Evaluate customers who apply for creditd. Write off uncollectible accounts receivable
2. A critical element of internal control over cash receipts is (p. 452)a. Assigning an honest employee the responsibility for handling cashb. Separating the cash-handling and cash-accounting dutiesc. Ensuring that cash is deposited in the bank dailyd. Centralizing the opening of incoming mail in a
1. The party that holds a receivable is called the (p. 451)a. Creditorc. Makerb. Debtord. Security holder
1. For Sun-Rype Products Ltd., study the auditor’s report that is given in Appendix B and the Management’s Discussion & Analysis given on MyAccountingLab. Answer the following questions about Sun-Rype’s internal controls and cash position:1. What is the name of Sun-Rype’s outside auditing
1. Study Management’s Report and the auditors’ report on Canadian Western Bank’s (CWB’s)2008 financial statements, given in Appendix A. Answer the following questions about CWB’s internal controls and cash position:1. What is the name of CWB’s outside auditing firm? What office of this
1. Surrey Tech Solutions has poor internal control over cash. Recently Shikha Ghandi, the owner, has suspected the cashier of stealing. Details of the business’s cash position at April 30, 2010, follow:a. The Cash account in the ledger shows a balance of $12,900.b. The April 30 bank statement
Problem 8–2C Many companies require some person other than the person preparing the bank reconciliation to review the reconciliation. Organizations routinely require cheques over a certain amount to be signed by two signing officers. The purchasing department orders goods but the receiving
Problem 8–1C“Effective internal control must begin with top management.” “The ‘tone at the top’ is a necessary condition if an organization is to have an effective system of internal control.”Statements such as these are becoming a more important part of internal control literature
Problem 8–9B Hans Skinner is a vice-president of the Laurentian Bank in Markham, Ontario. Active in community affairs, Skinner serves on the board of directors of Orson Tool & Dye. Orson is expanding rapidly and is considering relocating its factory. At a recent meeting, board members decided to
Problem 8–8B Excel Communications had a computer failure on February 1, 2010, which resulted in the loss of data, including the balance of its Cash account and its bank reconciliation from January 31, 2010. The accountant, Brad Eyers, has been able to obtain the following information from the
Problem 8–7B Suppose that on September 1, Twain Motors opens a new showroom in Timmins, Ontario, and creates a petty cash fund with an imprest balance of $500. During September, Lisa Manfield, the fund custodian, signs the petty cash tickets shown on the next page.Ticket No. Item Amount 1 Courier
Problem 8–6B MEI Distributors is located in Moncton, New Brunswick, with a sales territory covering the Maritime provinces and Newfoundland. Employees live in New Brunswick and all report to work at the company’s offices in Moncton.The company has established a large petty cash fund to handle
Problem 8–5B Belmont Bakery makes all sales of its bread to retailers on account. Cash receipts arrive by mail, usually within 30 days of the sale. Gary Donell opens envelopes and separates the cheques from the accompanying remittance advices. Donell forwards the cheques to another employee, who
Problem 8–4B The July 31, 2010, bank statement of Red Star Shoes has just arrived from the Royal Bank.To prepare the Red Star Shoes bank reconciliation, you gather the following data:a. The Red Star Shoes Cash account shows a balance of $39,518 on July 31.b. The bank statement includes two
Problem 8–3B The cash receipts and the cash payments of Campbell Hardware for January 2010 are as follows:Cash Receipts Cash Payments(Posting reference is CR) (Posting reference is CP)Date Cash Debit Cheque No. Cash Credit Jan. 3 $20,988 311 $ 3,672 8 1,480 312 1,668 10 1,980 313 12,562 16 7,488
Problem 8–2B Each of the following situations has an internal control weakness:a. Public accounting firms, law firms, and other professional organizations use paraprofessional employees to do some of their routine tasks. For example, a draftsman might prepare drawings to assist an architect. In
Problem 8–1B White Falls Real Estate prospered during the past 10 years. Business was so good that the company bothered with few internal controls. The recent decline in the local real estate market, however, has caused White Falls to experience a shortage of cash. Carol Stuart, the company
Problem 8–9A North Venture Capital in Sudbury, Ontario, has received a request for investment funds from Different View Products. The funds are for the production of a new product that will dramatically enhance communications on mining sites. Stewart Donolo, an account manager at North Venture,
Problem 8–8A Truro Electronics had a computer failure on March 1, 2010, which resulted in the loss of data, including the balance of its Cash account and its bank reconciliation from February 28, 2010.The accountant, Matt Vincent, has been able to obtain the following information from the records
Problem 8–7A Suppose that, on June 1, Devine Design creates a petty cash fund with an imprest balance of $400. During June, Lucie Ducharme, the fund custodian, signs the following petty cash tickets:Ticket No. Item Amount 101 Office supplies $ 26.64 102 Cab fare for executive 60.00 103 Delivery
Problem 8–6A A-1 Machines is located in Saskatoon, Saskatchewan, with a sales territory covering the province.The company has established a large petty cash fund to handle small cash payments and cash advances to the salespeople to cover frequent sales trips.The controller, Margaret Hamm, has
Problem 8–5A Calibre Interiors makes all sales on credit. Cash receipts arrive by mail, usually within 30 days of sale. Sarah Romano opens envelopes and separates the cheques from the accompanying remittance advices. Romano forwards the cheques to another employee, who makes the daily bank
Problem 8–4A The October 31, 2010, bank statement of RCI Distributors has just arrived. To prepare RCI Distributors’ bank reconciliation, you gather the following data:a. The October 31 bank balance is $38,212.b. The bank statement includes two charges for NSF cheques from customers. One was
Problem 8–3A The cash receipts and the cash payments of River Estates Development for November 2010 are as follows:Cash Receipts Cash Payments(Posting reference is CR) (Posting reference is CP)Date Cash Debit Cheque No. Cash Credit Nov. 5 $ 6,872 1221 $ 3,638 7 940 1222 2,288 13 3,446 1223 858 15
Problem 8–2A Each of the following situations has an internal control weakness:a. Waterloo Software Associates sells accounting software. Recently, the development of a new software program stopped while the programmers redesigned Waterloo Software Associates’ accounting system. Waterloo
Problem 8–1A An employee of Bonneville Marketing recently stole thousands of dollars of the company’s cash. The company has decided to install a new system of internal controls.Required As controller of Bonneville Marketing, write a memo to the owner, Elizabeth Bonneville, explaining how a
Beyond the Numbers 8–1 This case is based on a situation experienced by one of the authors. Alpha Construction Company, headquartered in Chattanooga, Tennessee, built a Roadway Inn Motel in Cleveland, 35 kilometres east of Chattanooga. The construction foreman, whose name was Slim, moved into
Exercise 8–19 Haupt Consulting Company performs systems consulting. Haupt’s February Cash from its general ledger appears below:Cash Jan. 31 Bal. 10,000 chq. 207 4,000 Feb. 1 Feb. 6 2,500 chq. 208 795 Feb. 14 Feb. 13 3,000 chq. 209 1,415 Feb. 14 Feb. 20 4,800 chq. 210 190 Feb. 28 Feb. 27 3,600
Exercise 8–18 You have a part-time job in a local delicatessen, which is part of a chain of delicatessens.You received the job through your parent’s friendship with Samantha Stevens, the deli manager. The job is going well, but you are puzzled by the actions of Samantha and her husband, Fred.
Exercise 8–17 Refer to the Maritime Distributors petty cash fund data in Exercise 8–16. Suppose, one month later, the company decided to increase the petty cash fund by $100 to reduce the number of times the fund has to be replenished. Journalize the increase in the petty cash fund.
Exercise 8–16 Maritime Distributors created a $400 imprest petty cash fund. During the first month of use, the fund custodian authorized and signed petty cash tickets as shown below.Ticket No. Item Account Debited Amount 1 Delivery of flyers to customers Delivery Expense $128.80 2 Stamp purchase
Exercise 8–15 1. Explain how an imprest petty cash system works.2. Atlantic Press maintains an imprest petty cash fund of $200, which is under the control of Brenda Montague. At November 30, the fund holds $40 cash and petty cash tickets for office supplies, $120, and delivery expense,
Exercise 8–14 Record the following selected transactions of Kelly’s Fine Foods in general journal format(explanations are not required):2010 Jun. 1 Established a petty cash fund with an $800 balance.2 Journalized the day’s cash sales. Cash register tapes show a $9,750 total, but the cash in
Exercise 8–13 When you pay for goods at Luigi’s Discount Store, the cash register displays the amount of the sale, the cash received, and any change returned to you. Suppose the register also produces a customer receipt but keeps no record of the sales transactions. At the end of the day, the
Exercise 8–12 A jury convicted the treasurer of GTX Company of stealing cash from the company. Over a three-year period, the treasurer allegedly took almost $100,000 and attempted to cover the theft by manipulating the bank reconciliation.Required What is a likely way that a person would
Exercise 8–11 Using the data from Exercise 8–10, record the entries that Nichols should make in the general journal on May 31, 2010. Include an explanation for each of the entries.
Exercise 8–10 Bob Nichols operates two gas stations. He has just received the monthly bank statement at May 31 from Royal Bank, and the statement shows an ending balance of $23,440. Listed on the statement are an EFT rent collection of $1,600, a service charge of $60, two NSF cheques totalling
Exercise 8–9 Robbie Daechsel’s chequebook lists the entries shown here:Cheque Date No. Item Cheque Deposit Balance Jul. 1 $ 1,934 4 622 West Coast Sports $ 104 1,830 9 Dividends received $ 200 2,030 13 623 TELUS 152 1,878 14 624 Esso 138 1,740 18 625 Cash 134 1,606 26 626 Canadian Cancer
Exercise 8–8 Marshland Travel’s general ledger Cash account showed the following transactions during October 2010:Date Description Dr Cr Balance Oct. 1 Opening balance $ 12,800 2 Deposit $10,000 22,800 5 Payment, cheque 233 $6,000 16,800 8 Payment, cheque 234 8,000 8,800 9 Deposit 8,000 16,800
Exercise 8–7 Adams Enterprises began operations on January 2, 2010, depositing $20,000 in the bank.During this first month of business, the following transactions occurred that affected the Cash account in the general ledger:Date Description Dr Cr Jan. 2 Deposit $20,000 5 Payment, cheque 001 $
Exercise 8–6 The following items could appear on a bank reconciliation:a. Outstanding chequesb. Deposits in transitc. NSF chequed. Bank collection of a note receivable on our behalfe. Interest earned on bank balancef. Service charge g. Book error: We credited Cash for $100. The correct credit was
Exercise 8–5 The following questions pertain to internal control. Consider each situation separately.1. Wong Company requires that all documents supporting a cheque be cancelled (stamped Paid) by the person who signs the cheque. Why do you think this practice is required?What might happen if it
Exercise 8–4 Identify the missing internal control procedure in the following situations:a. In the course of auditing the records of a company, you find that the same employee orders merchandise and approves invoices for payment.b. Business is slow at the Ridge Theatre on Tuesday, Wednesday, and
Exercise 8–3 The following situations suggest either a strength or a weakness in internal control. Identify each as a strength or a weakness and give your reason for each answer.a. Top managers delegate all internal control procedures to the accounting department.b. The accounting department
Exercise 8–2 U.K. Trader Nick Leeson worked for Baring Securities (Singapore) Limited (BSS) as the general manager and head trader. Due to his experience in operations, he also acted as head of the “back office” that does the record keeping and tracks who owes what to whom. Leeson appeared to
Exercise 8–1 Lane & Goble Bookstore has a liberal return policy. A customer can return any product for a full refund within 30 days of purchase. When a customer returns merchandise, Lane &Goble policy specifies:• Store clerk issues a pre-numbered return slip, refunds cash from the cash
Starter 8–12 Gwen O’Malley, an accountant for Ireland Limited, discovers that her supervisor, Barney Stone, made several errors last year. Overall, the errors overstated the company’s net income by 20 percent. It is not clear whether the errors were deliberate or accidental. What should
Starter 8–11 Record the following petty cash transactions of Lexite Laminated Surfaces in general journal form (explanations are not required):Apr. 1 Established a petty cash fund with a $400 balance.30 The petty cash fund has $38 in cash and $374 in petty cash tickets that were issued to pay for
Starter 8–10 A purchasing agent for Westgate Wireless receives the goods that he purchases and also approves payment for the goods. How could this purchasing agent cheat his company? How could Westgate avoid this internal control weakness?
Starter 8–9 Review the internal controls over cash receipts by mail. Exactly what is accomplished by the final step in the process, performed by the controller?
Starter 8–8 Deirdre Chevis sells furniture for DuBois Furniture Company. Chevis is having financial problems and takes $500 that she received from a customer. She recorded the sale through the cash register. What will alert Betsy DuBois, the owner, that something is wrong?
Starter 8–7 After preparing Ranger Security Systems’ bank reconciliation in Starter 8–6, journalize the company’s transactions that arise from the bank reconciliation.Date each transaction May 31, 2010, and include an explanation with each entry.
8–6 The Cash account of Ranger Security Systems reported a balance of $4,960 at May 31, 2010. There were outstanding cheques totalling $1,800 and a May 31 deposit in transit of $400. The bank statement, which came from Royal Bank, listed a May 31 balance of $7,600. Included in the bank balance
Starter 8–4 How do external auditors differ from internal auditors? How does an external audit differ from an internal audit? How are the two types of audits similar?
Starter 8–3 Explain in your own words why separation of duties is often described as the cornerstone of internal control for safeguarding assets. Describe what can happen if the same person has custody of an asset and also accounts for the asset.
Starter 8–2 How does the Sarbanes–Oxley Act of 2002 relate to internal controls? Be specific.
8–1 Internal controls are designed to safeguard assets; encourage employees to follow company policies; promote operational efficiency; provide accurate, reliable information; and ensure accurate records. Which objective must the internal controls accomplish for the business to survive? Give your
20. “Our managers know that they are expected to meet budgeted profit figures. We don’t want excuses. We want results.” Discuss the ethical implications of this policy.
19. Why should accountants adhere to a higher standard of ethical conduct than many other members of society do?
18. Suppose a company has six bank accounts, two petty cash funds, and three certificates of deposit that can be withdrawn on demand. How many cash amounts would this company likely report separately on its balance sheet?
17. What balance does the Petty Cash account have at all times? Does this balance always equal the amount of cash in the fund? When are the two amounts equal?When are they unequal?
16. What documents make up the payment packet?Describe three procedures that use the payment packet to ensure that each payment is appropriate.
15. Describe internal control procedures for cash received by mail.
14. What role does a cash register play in an internal control system?
13. What purpose does a bank reconciliation serve?
12. Each of the items in the following list must be accounted for in the bank reconciliation. Next to each item, enter the appropriate letter from the following possible treatments: (a) bank side of reconciliation—add the item; (b) bank side of reconciliation—subtract the item; (c) book side of
11. How can internal control systems be circumvented?
10. Are internal control systems designed to be foolproof and perfect? What is a fundamental constraint in planning and maintaining systems?
9. Briefly state how each of the following serves as an internal control measure over cash: bank account, signature card, deposit slip, and bank statement.
8. Why should the same employee not write the computer programs for cash payments, sign cheques, and mail the cheques to payees?
7. How has an accounting system’s reliance on electronic devices altered internal control?
6. Why are documents and records a feature of internal control systems?
5. What is an audit? Identify the two types of audit and the differences between them.
4. Separation of duties may be divided into three parts.What are they?
3. Identify at least seven features of an effective system of internal control.
2. Which company employees bear primary responsibility for a company’s financial statements and for maintaining the company’s system of internal control? How do these persons carry out this responsibility?
1. Which of the features of effective internal control is the most fundamental? Why?
10. Ethical judgments in accounting and business (p. 426)a. Require employees to break laws to get aheadb. Force decision makers to think about what is good and badc. Always hurt someoned. Are affected by internal controls but not by external controls
9. The internal control feature that is specific to petty cash is (p. 424)a. Separation of dutiesb. Assignment of responsibilityc. Proper authorizationd. The imprest system
8. Which of the following reconciling items requires a journal entry on the books of the company? (p. 417)a. Book errorb. Outstanding chequec. NSF chequed. Interest revenue earned on bank balancee. All of the above, except (b)f. None of the above
7. Which of the following items appears on the book side of a bank reconciliation? (pp. 414–415)a. Outstanding chequesc. Both a and bb. Deposits in transitd. None of the above
6. Which of the following items appears on the Bank side of a bank reconciliation? (p. 414)a. Book errorb. Outstanding chequec. NSF chequed. Interest revenue earned on bank balance
5. The bank account serves as a control device over (p. 410)a. Cash receiptsc. Both of the aboveb. Cash paymentsd. None of the above
4. Encryption (p. 409)a. Creates firewalls to protect datab. Cannot be broken by hackersc. Avoids the need for separation of dutiesd. Rearranges messages by a special process
3. What internal control function is performed by auditors?(p. 407)a. Objective opinion on the fair presentation of the financial statementsb. Assurance that all transactions are accounted for correctlyc. Communication of the results of the audit to regulatory agenciesd. Guarantee that company
2. Janice Gould receives cash from customers. Her other assigned job is to post the collections to customer accounts receivable. Her company has weak (pp. 406–408)a. Ethicsb. Assignment of responsibilitiesc. Computer controlsd. Separation of duties
1. Which of the following is an objective of internal control?(pp. 403–404)a. Safeguarding assetsb. Providing information for decision making while maintaining reliable records and control systemsc. Encouraging operating efficiency and optimizing the use of resourcesd. Preventing and detecting
Starter 7–8 The cash receipts journal of Austin Sound Centre appears in Exhibit 7–8, page 355, along with the company’s various ledger accounts. Use the data in Exhibit 7–8 to answer the following questions raised by Steve Austin, owner of the business.1. How much were total cash receipts
Starter 7–7 1. A business that sells on account must have good accounts receivable records to ensure collection from customers. What is the name of the detailed record of amounts collectible from individual customers?2. Where does the total amount receivable from all the customers appear?Be
Starter 7–6 Use the sales journal and the related ledger accounts in Exhibit 7–7, page 352, to answer these questions about Austin Sound Centre.1. How much inventory did Austin Sound have on hand at the end of November? Where can you get this information?2. What amount did Austin Sound post to
7–5 Use the following abbreviations to indicate the journal in which you would record transactions a through n.G General journal P Purchases journal S Sales journal CP Cash payments journal CR Cash receipts journal Transactions:a. ________ Cash sale of inventoryb. ________ Payment of

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