You can use the computer-based Electronic Work-papers on the textbook website to prepare the schedule of interbank transfers required in this problem.

Ever-Ready Corporation is in the home building and repair business. Construction business has been in a slump, and the company has experienced financial difficulty over the past two years. Part of the problem lies in the company's desire to avoid laying off its skilled crews of bricklayers and cabinetmakers. Meeting the payroll has been a problem.

The auditors are engaged to audit the 2017 financial statements. Knowing of Ever-

Ready's financial difficulty and its business policy, the auditors decided to prepare a schedule of interbank transfers covering the 10 days before and after December 31, which is the company's balance sheet date.

First, the auditors used the cash receipts and disbursements journals to prepare part of the schedule shown in Exhibit 6.52.1. They obtained the information for everything except the dates of deposit and payment in the bank statements (disbursing date per bank and receiving date per bank). The auditors learned that Ever-Ready always transferred money to the payroll account at 1st National Bank from the general account at 1st National Bank. This transfer enabled the bank to clear the payroll checks without delay. The only bank accounts in the Ever-Ready financial statements are the two at 1st National Bank.

Next, the auditors obtained the December 2017 and January 2018 bank statements for the general and payroll accounts at 1st National Bank. They recorded the bank disbursement and receipt dates in the schedule of interbank transfers. For each transfer, these dates are identical because the accounts are in the same bank. An alert auditor noticed that the 1st National Bank general account bank statement also contains deposits received from Citizen National Bank and canceled check 1799 dated January 5 payable to Citizen National Bank.

This check cleared the 1st National Bank account on January 8 and was marked "transfer of funds." This led to the auditors' decision to inquire about this of Ever-Ready's chief financial officer.

Exhibit 6.52.1: Schedule of Interbank Transfers

✓Traced from cash disbursements journal.
bCheck properly listed as outstanding on bank reconciliation.
mVouched deposit cleared in bank statement.
†Traced from cash receipts journal.
nVouched deposit cleared in bank statement.
Note: We scanned the cash disbursements and cash receipts journals for checks to and deposits from other bank accounts.
Asked about the Citizen National Bank transactions, Ever-Ready's chief financial officer readily admitted the existence of an off-books bank account. He explained that it was used for financing transactions in keeping with normal practice in the construction industry. He gave the auditors the December and January bank statements for the account at Citizen National Bank. In it, the auditors found the following:
Citizen National Bank

Deposits

When asked about the Chase Bank transactions, Ever-Ready's chief financial officer admitted the existence of another off-books bank account, which he said was the personal account of the principal stockholder. He explained that the stockholder often used it to finance Ever-Ready's operations. He gave the auditors the December and January bank statements for this account at Chase Bank; in it, the auditors found the following:
Chase Bank

Deposits

An abbreviated calendar for the period is in Exhibit 6.52.2.
Exhibit 6.52.2

Required
a. Complete the Schedule of Interbank Transfers (document C-5, Exhibit 6.54.1) by entering the new information.
b. What is the actual cash balance for the three bank accounts combined, considering only the amounts given in this case information as of December 31, 2017 (before any of the December 31 payroll checks are cashed by employees)? As of January 8, 2018 (before any of the January 8 payroll checks are cashed by employees)? (Hint: Prepare a schedule of bank and actual balances.)

Transcribed Image Text:

C-5 EVERREADY CORPORATION Schedule of Interbank Transfers December 31, 2017 Prepared Date Reviewed Date Disbursing Account Recelving Account Date per Books Check 1417 1601 1982 Bank 1st National 1st National 1st National Amount 10,463 11,59331-Dec b 9,971 Date per Bank 24-Dec m 31-Dec m 08-Jan m Bank 1st National Payroll 1st National Payroll 1st National P Date per Books 24-Dec 31-Dec 08-Jan Date per Bank 24-Dec n 31-Dec n 08-Jan n 24-Dec 08-Jan Check Payable to 4050 1st National $10,000 23-Dec 29-Dec 4051 Chase Bank 12,000 28-Dec 31-Dec 4052 1st National 12,000 30-Dec 05-Jan 4053 Chase Bank 14,000 4-Jan 07-Jan 4054 1st National 20,000 8-Jan 13-Jan Amount Dated Cleared Bank Recelved from Chase Bank Chase Bank 1st National Chase Bank Amount $11,000 Date 22-Dec 5,000 30-Dec 10,000 05-Jan 12,000 07-Jan Payments Check # 2220 2221 Payable to Citizen National Bank Citizen National Bank Citizen National Bank Amount 11,000 15,000 12,000 Dated 22-Dec 30-Dec 7-Jan Cleared Bank 28-Dec 05-Jan Recelved from Amount Dated Citizen National Bank 12,000 28-Dec itzen Natonal Bank00004Jam December 20 2017 23 24 25 26 30 31 January 2018 3 6 10 12 13 14 15 16