Problem Set A LOT-2, LO7-3 PROBLEM 7.2A Protecting Cash Oage Farm Supply had poor internal control ever its cash transactions Facts about the company's cash position at November 30 are described below 327 The accounting records showed a cash balance of $35,400, which included a deposit in transit of $1.245. The balance indicated in the bank statement was $20,600. Included in the bank state- mont were the following debit and credit memanda Debit Memoranda Check from customer G. Davis, deposited by Osage Farm Supply, but charged back as NSF... Bank service charges for November Credit Memorandum Proceeds from collection of a note receivable from Regal Farms, which Osage Farm Supply had left with the bank's collection department $130 15 $6,255 Outstanding checks were as follows Check No. 8231 8263 8288 8294 Amount $400 524 176 5,000 Blev Escola, the company's cashier, has been taking portions of the company's cash receipts for several months. Fach month, Escola prepares the company's bank reconciliation in a manner that conceals her thefts. Her hank reconciliation for November was as follows Balance per bank statement, Nov. 30 Add Deposits in transit... Sublotal Less: Outstanding checks: Collection of note from Regal Farms $20,600 $2,145 6.255 8.400 $30,000 No. 8231 $400 8263 524 8206 170 1,000 Adjusted cash balance per bank statement. $29,000 Balance per accounting records, Nov. 30 $35,400 Add: Credit memorandum from bank Subtotal 6.255 $29.145 Less: Debit memoranda from bank NSF check of G. Davis Bank service charges... Adjusted cash balance per accounting records... $130 15 145 $29,000 Instructions Determine the amount of the cash shortage that has been concealed by Escola in her bank reconciliation (As a format, we suggest that you prepare the bank reconciliation correctly. The 328 Chapter 7 Financial Assets amount of the shortage then will be the difference between the adjusted balances per the bank statement and per the accounting records. You can then list this unrecorded cash shortage as the final adjustment necessary to complete your reconciliation.) b. Carefully review Escola's bank reconciliation and explain in detail how she concealed the amount of the shortage. Include a listing of the dollar amounts that were concealed in various ways. This listing should total the amount of the shortage determined in part a. c. Suggest some specific internal control measures that appear to be necessary for Osage Farm Supply.