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Accounting 23rd Edition Carl S. Warren - Solutions
=+2. Assuming that income before depreciation and income tax is estimated to be$500,000 uniformly per year and that the income tax rate is 40%, compute the net
=+SA 10-3 Effect of depreciation on net income
=+income for each of the years 2008, 2009, 2010, 2011, 2012, and 2013, if (a) the straightline method is used and (b) MACRS is used.
=+3. What factors would you present for Mike’s consideration in the selection of a depreciation method?
=+SA 10-4 Shopping for a delivery truck Group Project Go to the Internet and review the procedures for applying for a patent, a copyright, and a trademark. One Internet site that is useful for this purpose is idresearch.com, which is linked to the text’s Web site at
=+Prepare a written summary of these procedures.
=+SA 10-5 Applying for patents, copyrights, and trademarks Internet Project
=+The following table shows the revenues and average net fixed assets for a recent fiscal year for three different companies from three different industries: retailing, manufacturing, and communications.Average Net
=+Revenues Fixed Assets(in millions) (in millions)Wal-Mart $348,650 $83,865 Alcoa Inc. 30,379 14,495 Comcast Corporation 24,966 20,009
=+a. For each company, determine the fixed asset turnover ratio. Round to two decimal places.
=+b. Explain Wal-Mart’s ratio relative to the other two companies.
=+The bank statement for Urethane Company for June 30, 2009, indicates a balance of$9,143.11. All cash receipts are deposited each evening in a night depository, after banking hours. The accounting records indicate the following summary data for cash receipts and payments for June:Cash balance as
=+a. The bank had collected for Urethane Company $1,030 on a note left for collection.The face amount of the note was $1,000.
=+b. A deposit of $1,852.21, representing receipts of June 30, had been made too late to appear on the bank statement.
=+c. Checks outstanding totaled $5,265.27.
=+d. A check drawn for $139 had been incorrectly charged by the bank as $157.
=+e. A check for $30 returned with the statement had been recorded in the company’s records as $240. The check was for the payment of an obligation to Avery Equipment Company for the purchase of office supplies on account.
=+f. Bank service charges for June amounted to $18.20.Instructions 1. Prepare a bank reconciliation for June.2. Journalize the entries that should be made by Urethane Company.
=+2. Define internal control.
=+10. Assume that Yvonne Dauphin, accounts payable clerk for Bedell Inc., stole $73,250 by paying fictitious invoices for goods that were never received. The clerk set up
=+accounts in the names of the fictitious companies and cashed the checks at a local bank. Describe a control procedure that would have prevented or detected the fraud.
=+14. What is the purpose of preparing a bank reconciliation?
=+15. Do items reported as credits on the bank statement represent (a) additions made by the bank to the company’s balance or (b) deductions made by the bank from
=+the company’s balance? Explain.
=+17. (a) How are cash equivalents reported in the financial statements?
=+ (b) What are some examples of cash equivalents?
=+PE 8-1A Internal control elements obj. 2
=+PE 8-1B Internal control elements obj. 2 The following items may appear on a bank statement:1. Bank correction of an error from posting another customer’s check to the company’s account 2. EFT deposit
=+3. Loan proceeds
=+4. NSF check
=+Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.Appears on the
=+Bank Statement as Increases or Decreases the a Debit or Credit Balance of the Company’s Item No. Memo Bank Account
=+PE 8-2A Items on company’s bank statement The following items may appear on a bank statement:1. Bank correction of an error from recording a $3,200 deposit as $2,300 2. EFT payment 3. Note collected for company 4. Service charge
=+Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.Appears on the
=+Bank Statement as Increases or Decreases the a Debit or Credit Balance of the Company’s Item No. Memo Bank Account
=+PE 8-2B Items on company’s bank statement obj. 4 EE 8-2 p. 366 Practice Exercises The following data were gathered to use in reconciling the bank account of East Meets West Company:Balance per bank $19,340 Balance per company records 6,480 Bank service charges 50 Deposit in transit 2,500 Note
=+b. Journalize any necessary entries for East Meets West Company based on the bank reconciliation.
=+PE 8-3A Bank reconciliation obj. 5 The following data were gathered to use in reconciling the bank account of Crescent Moon Company:Balance per bank $11,200 Balance per company records 9,295 Bank service charges 25 Deposit in transit 1,650 NSF check 600 Outstanding checks 4,180a. What is the
=+b. Journalize any necessary entries for Crescent Moon Company based on the bank reconciliation.
=+PE 8-3B Bank reconciliation obj. 5 Prepare journal entries for each of the following:a. Issued a check to establish a petty cash fund of $300.
=+b. The amount of cash in the petty cash fund is $95. Issued a check to replenish the fund, based on the following summary of petty cash receipts: store supplies, $120 and miscellaneous selling expense, $75. Record any missing funds in the cash short and over account.
=+PE 8-4A Petty cash fund obj. 6 EE 8-3 p. 370 EE 8-3 p. 370 EE 8-4 p. 372 Prepare journal entries for each of the following:a. Issued a check to establish a petty cash fund of $500.
=+b. The amount of cash in the petty cash fund is $140. Issued a check to replenish the fund, based on the following summary of petty cash receipts: repair expense, $260 and miscellaneous selling expense, $84. Record any missing funds in the cash short and over account.
=+PE 8-4B Petty cash fund obj. 6 EE 8-4 p. 372 Exercises Using Wikpedia (www.wikpedia.com), look up the entry for Sarbanes-Oxley Act. Look over the table of contents and find the section that describes Section 404.
=+What does Section 404 require of management’s internal control report?
=+EX 8-1 Sarbanes-Oxley internal control report obj. 1 Blake Gable has recently been hired as the manager of Jittery Jim’s Canyon Coffee. Jittery Jim’s Canyon Coffee is a national chain of franchised coffee shops. During his first month as store manager, Blake encountered the following internal
=+b. Jittery Jim’s Canyon Coffee has one cash register. Prior to Blake’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Blake made one employee on each shift responsible for taking orders and accepting the
=+c. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Blake expects each cashier to balance the drawer to the penny
=+State whether you agree or disagree with Blake’s method of handling each situation and explain your answer.
=+EX 8-2 Internal controls objs. 2, 3 Anasazi Earth Clothing is a retail store specializing in women’s clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through
=+Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned
=+This year, returns at Anasazi Earth Clothing have reached an all-time high. There are a large number of returns under $100 without receipts.
=+a. How can sales clerks employed at Anasazi Earth Clothing use the store’s return policy to steal money from the cash register?
=+b. What internal control weaknesses do you see in the return policy that make cash thefts easier?
=+c. Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund.
=+d. Assume that Anasazi Earth Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store’s procedures regarding customer refunds in order to improve internal control?
=+EX 8-3 Internal controls objs. 2, 3 First Kenmore Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than $100,000) may be approved by an individual loan officer, while larger loans (greater than $100,000) must be approved by a board
=+Bank has instituted a policy whereby he has the individual authority to approve loans up to $5,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy.As an internal auditor of First Kenmore Bank, how
=+EX 8-4 Internal controls for bank lending objs. 2, 3 382 Chapter 8 Sarbanes-Oxley, Internal Control, and Cash An employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement
=+Why would it take so long to discover such a fraud?
=+EX 8-6 Internal controls objs. 2, 3 Bizarro Sound Co. discovered a fraud whereby one of its front office administrative employees used company funds to purchase goods, such as computers, digital cameras, compact disk players, and other electronic items for her own use. The fraud was discovered
=+What general internal control weaknesses contributed to this fraud?
=+EX 8-7 Internal controls objs. 2, 3 A former chairman, CFO, and controller of Donnkenny, Inc., an apparel company that makes sportswear for Pierre Cardin and Victoria Jones, pleaded guilty to financial statement fraud.These managers used false journal entries to record fictitious sales, hid
=+a. Why might control procedures listed in this chapter be insufficient in stopping this type of fraud?
=+b. How could this type of fraud be stopped?
=+EX 8-8 Financial statement fraud objs. 2, 3 The procedures used for over-the-counter receipts are as follows. At the close of each day’s business, the sales clerks count the cash in their respective cash drawers, after which they determine the amount recorded by the cash register and prepare
=+b. How can the weakness be corrected?
=+EX 8-9 Internal control of cash receipts objs. 2, 3 Victor Blackmon works at the drive-through window of Buffalo Bob’s Burgers.Occasionally, when a drive-through customer orders, Victor fills the order and pockets the customer’s money. He does not ring up the order on the cash
=+discuss what can be done to prevent this theft.
=+EX 8-10 Internal control of cash receipts objs. 2, 3 One of the largest losses in history from unauthorized securities trading involved a securities trader for the French bank, Societe Generale. The trader was able to circumvent internal controls and create over $7 billion in trading losses in
=+What general weaknesses in Societe Generale’s internal controls contributed to the occurrence and size of the losses?
=+EX 8-5 Internal controls objs. 2, 3 Chapter 8 Sarbanes-Oxley, Internal Control, and Cash 383 The mailroom employees send all remittances and remittance advices to the cashier.The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the
=+b. How can the weakness be corrected?
=+EX 8-11 Internal control of cash receipts objs. 2, 3 The actual cash received from cash sales was $36,183, and the amount indicated by the cash register total was $36,197. Journalize the entry to record the cash receipts and cash sales.
=+EX 8-13 Entry for cash sales;cash over objs. 2, 3 El Cordova Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely
=+EX 8-14 Internal control of cash payments objs. 2, 3 Digital Com Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Digital Com’s procedures for the purchase of
=+The fraud scheme involves Matt DuBois, the manager of plant and facilities. Matt arranged for his uncle’s company, Urban Industrial Supply and Service, to be placed on Digital Com’s approved vendor list. Matt did not disclose the family relationship.On several occasions, Matt would submit a
=+Explain what changes should be made to Digital Com’s procedures for ordering and paying for services in order to prevent such occurrences in the future.
=+EX 8-15 Internal control of cash payments objs. 2, 3 Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to
=+2. Check drawn by company for $160 but incorrectly recorded as $610.
=+EX 8-16 Bank reconciliation obj. 5 384 Chapter 8 Sarbanes-Oxley, Internal Control, and Cash Which of the reconciling items listed in Exercise 8-16 require an entry in the company’s accounts?
=+EX 8-17 Entries based on bank reconciliation obj. 5 The following data were accumulated for use in reconciling the bank account of Commander Co. for March:a. Cash balance according to the company’s records at March 31, $13,065.b. Cash balance according to the bank statement at March 31,
=+e. A check for $180 in payment of an account was erroneously recorded in the check register as $810.
=+f. Bank debit memo for service charges, $15.
=+Prepare a bank reconciliation, using the format shown in Exhibit 7.
=+EX 8-18 Bank reconciliation obj. 5✔ Adjusted balance:$13,680 Using the data presented in Exercise 8-18, journalize the entry or entries that should be made by the company.EX 8-19 Entries for bank reconciliation obj. 5 Accompanying a bank statement for Euthenics Company is a credit memo for
=+EX 8-20 Entries for note collected by bank obj. 5 An accounting clerk for Grebe Co. prepared the following bank reconciliation:Grebe Co.Bank Reconciliation August 31, 2010 Cash balance according to company’s records . . . . . . . . . . . . . . . . $ 4,690 Add: Outstanding checks . . . . . . . .
=+a. From the data in the above bank reconciliation, prepare a new bank reconciliation for Grebe Co., using the format shown in the illustrative problem.
=+b. If a balance sheet were prepared for Grebe Co. on August 31, 2010, what amount should be reported for cash?
=+EX 8-21 Bank reconciliation obj. 5✔ Adjusted balance:$11,740 3. Check for $500 incorrectly charged by bank as $5,000.4. Check of a customer returned by bank to company because of insufficient funds,$3,000.5. Deposit in transit, $15,500.6. Outstanding checks, $9,600.7. Note collected by bank,
=+Bank Reconciliation For the Month Ended April 30, 2010 Cash balance according to bank statement . . . . . . . . . . . . . . . . $11,320 Add outstanding checks:No. 315 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450 360 . . . . . . . . . . . . . . . . . . . . . .
=+EX 8-22 Bank reconciliation obj. 5✔ Corrected adjusted balance:$11,960 First Impressions Co. records all cash receipts on the basis of its cash register tapes.First Impressions Co. discovered during June 2010 that one of its sales clerks had stolen an undetermined amount of cash receipts when
=+a. Determine the amount of cash receipts stolen by the sales clerk.
=+b. What accounting controls would have prevented or detected this theft?
=+EX 8-23 Using bank reconciliation to determine cash receipts stolen objs. 2, 3, 5 Journalize the entries to record the following:a. Check No. 8193 is issued to establish a petty cash fund of $800.
=+b. The amount of cash in the petty cash fund is now $294. Check No. 8336 is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, $295; miscellaneous selling expense, $120; miscellaneous administrative expense, $75. (Since the amount of the check
=+EX 8-24 Petty cash fund entries obj. 6 Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie™ fashion dolls and accessories, Hot Wheels™, and Fisher-Price brands.For a recent year, Mattel reported the following net cash flows from operating
=+Explain why Mattel reports negative net cash flows from operating activities during the first three quarters yet reports positive cash flows for the fourth quarter and net positive cash flows for the year.
=+EX 8-25 Variation in cash flows obj. 7 386 Chapter 8 Sarbanes-Oxley, Internal Control, and Cash During 2010, Bezel Inc. has monthly cash expenses of $250,000. On December 31, 2010, the cash balance is $1,750,000.a. Compute the ratio of cash to monthly cash expenses.
=+b. Based on (a), what are the implications for Bezel Inc.?
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