1) Financial statement fraud OBJ. 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 inventory in public warehouses so that it could be recorded as "sold," and required sales orders to be backdated so that the sale could be moved to an earlier period. The combined effect of these actions caused $25 million out of $40 million in quarterly sales to be phony.

a. Why might control procedures listed in this chapter be insufficient in stop- ping this type of fraud?

b. How could this type of fraud be stopped?

2) Bank reconciliation

Prepare reconciliation form, journal and t account. (None of the transactions reported by bank debit and credit memos have been recorded by the company.)

1. Bank service charges, $30.

2. Check of a customer returned by bank to company because of insufficient funds, $400.

3. Check for $320 incorrectly recorded by the company as $230.

4. Check for $1,100 incorrectly charged by bank as $110.

5. Deposit in transit, $3,300.

6. Outstanding checks, $7,950.

7. Note collected by bank, $10,500.

3) Bank reconciliation

The following data were gathered to use in reconciling the bank account of Conway Company:

Balance per bank $23,900

Balance per company records $8,700

Bank service charges $50

Deposit in transit $5,500

Note collected by bank with $450 interest $9,450

Outstanding checks $11,300

a.Prepare reconciliation form, journal and t account.

4) Ethics in Action

During the preparation of the bank reconciliation for Building Concepts Co., Joel Knolls, the assistant controller, discovered that Lone Peak National Bank incorrectly recorded a $3,290 check written by Building Concepts Co. as $329. Joel has decided not to notify the bank but wait for the bank to detect the error. Joel plans to record the $2,961 error as Other Income if the bank fails to detect the error within the next three months.

a, Discuss whether Joel is behaving in a professional manner and answer with three sentences or more.