EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Question
Chapter 17, Problem 8P
a.
Summary Introduction
To determine: The net pre-tax benefits for Monday and Friday.
Summary Introduction
To discuss: The reasons on why the answers for Monday and Friday differ.
b.
Summary Introduction
To determine: The amount of checks for Monday and Friday.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
loat is defined as the difference between the balance shown on the books and the balance in the bank account. A lag often occurs between the time receipts and disbursements are recorded on the company’s books and when the transactions clear the bank.
Consider the following scenario:
Sandberg Industries received a $100,000 check from one of its customers, deposited it into its bank account, and recorded it in its bank register. The funds were reflected in Sandberg’s bank account two days later.
What type of float does this scenario describe?
a)Collection float
b)Disbursement float
c)Net float
Next, consider the case of Windsor Flooring Company:
The management at Windsor Flooring has determined that it takes an average of eight days for checks the company writes to clear its bank account. Cash receipts from customers are reflected in Windsor’s bank account an average of four days after the checks are received. On an average day, Windsor writes checks…
Steve Ramos owns apartment buildings in Baguio City, and Tagaytay City. Each property has a manager who collects rent, arranges for repairs, and runs advertisements in the local newspaper. The property managers transfer cash to Ramos monthly and prepare their own bank reconciliations. The manager in Baguio City has been stealing large sums of money. To cover the theft, he understates the amount of the outstanding checks on the monthly bank reconciliation. As a result, each monthly bank reconciliation appears to balance. However, the balance sheet reports more cash than Ramos actually has in the bank. In negotiating the sale of the Baguio City property, Ramos is showing the balance sheet to prospective investors.
Based on Case 3, identify two parties other than Ramos who can be harmed by this theft. In what ways can they be harmed?
Steve Ramos owns apartment buildings in Baguio City, and Tagaytay City. Each property has a manager who collects rent, arranges for repairs, and runs advertisements in the local newspaper. The property managers transfer cash to Ramos monthly and prepare their own bank reconciliations. The manager in Baguio City has been stealing large sums of money. To cover the theft, he understates the amount of the outstanding checks on the monthly bank reconciliation. As a result, each monthly bank reconciliation appears to balance. However, the balance sheet reports more cash than Ramos actually has in the bank. In negotiating the sale of the Baguio City property, Ramos is showing the balance sheet to prospective investors.
1. Identify two parties other than Ramos who can be harmed by this theft. In what ways can they be harmed?
2. Discuss the role accounting plays in this situation.
Chapter 17 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Knowledge Booster
Similar questions
- Southern Company pays its employees weekly by issuing checks on its regular bank account. The owner thinks it would be too much trouble to have a second checking account. Explain to the owner why having this account might be worth the additional effort.arrow_forwardTo prevent embezzlement, what can you do to protect your operation against it? a) Make bank deposits daily. b) Ensure that the individual that makes daily deposits is bonded. c) Review and approve bank statement reconciliations each month. d) All of the above e) Only a. and b. abovearrow_forwardMuneer is a customer of Bank Muscat who made use of the service provided by the bank called Lock box services. Which of the following statement is not suitable to this? This helps efficiently handle small volumes of payments Banks will get the funds into bank's account Helps efficiently handle large volume of payments Customers can mail nearby locationsarrow_forward
- Next, consider the case of Washburn Flooring Company: The management at Washburn Flooring has determined that it takes an average of 6 days for checks the company writes to clear its bank account. Cash receipts from customers are reflected in Washburn's bank account an average of 2 days after the checks are received. On an average day, Washburn writes checks that total $40,000, and it receives checks from customers that total $50,000. Compute the collection float, the disbursement float, and the net float in dollars in the following table. (Note: By definition, collection float is always considered negative, and disbursement float is always positive. Both should be shown as positive numbers here. The net float, however, should be shown as positive if it is favorable and as negative if it is unfavorable.) Washburn Flooring Company Float Calculations Collection float Disbursement float Net float Given this information, you can deduce that on an average day, Washburn Flooring's bank…arrow_forwardTed's Toys just reconciled its bank account and has $12,300 in outstanding deposits and $31,400 in checks outstanding. The firm's checkbook has a positive balance. The firm sells on a cash basis only and deposits its receipts on a daily basis. The deposited funds are available to the firm the following day. The firm writes and mails checks on a daily basis also. These checks generally clear the bank in three days. What do you know about the firm's float given this information? A. The firm has disbursements float but no collection float. B. The collection float exceeds the disbursement float. C. The firm has a net collection float. D. The disbursement float exceeds the collection float. E. Since transactions occur daily, the firm has no float.arrow_forwardSuppose that Lena, who has an account at SunTrust Bank, writes a check for $140 to Jose, who has an account at National City Bank. Use following the T-account for SunTrust Bank to show how it is affected after the check clears. Assets Liabilitiesarrow_forward
- The following includes transactions necessary to prepare a bank reconciliation. The following additional information must also be considered: Check #5454 was written in June but did not clear the bank until July 2. There were no other outstanding checks, and no deposits in transit at the end of June. The EFT (electronic funds transfer) on July 11 relates to the monthly utility bill; the Tackle Shop has authorized the utility to draft its account directly each month. The Tackle Shop is optimistic that they will recover the full amount, including the service charge, on the NSF check that was given to them during the month. The bank collected a $5,000 note for The Tackle Shop, plus 9% interest ($5,450). The Tackle Shop's credit card clearing company remitted funds on July 25; the Tackle Shop received an email notification of this posting and simultaneously journalized this cash receipt in the accounting records. The Tackle Shop made the deposit of $3,565.93 late in the day on July 31,…arrow_forwardExample One of the companies adopts a central system for the payment of payment bills through the general administration, and this requires an average of 4 days for the checks to reach the customers as well as 1,5 The day of registration of checks before they are deposited in the bank, and the average company receipts are 500 thousand dinars per day. The company is studying the possibility of using mailboxes through renting, and this will reduce the time for mailing checks by an amount 2,5 day, and the time required to prepare checks for deposit is reduced by one day. Required: 1. What is the amount of cash that can be released in this process? 2. Determine the alternative cost of the released funds if the return on financial instruments Short term 5%? 3. Is it feasible to use this system when considering the alternative cost? For the liberated money, if the costs of the local mailbox system are 75,000 dinars annually?arrow_forwardOn October 31, 2021, the bank statement for the checking account of Blockwood Video shows a balance of $12,660, while the company’s records show a balance of $12,306. Information that might be useful in preparing a bank reconciliation is as follows: Outstanding checks are $1,205. The October 31 cash receipts of $760 are not deposited in the bank until November 2. One check written in payment of utilities for $132 is correctly recorded by the bank but is recorded by Blockwood as a disbursement of $213. In accordance with prior authorization, the bank withdraws $645 directly from the checking account as payment on a note payable. The interest portion of that payment is $45 and the principal portion is $600. Blockwood has not recorded the direct withdrawal. Bank service fees of $19 are listed on the bank statement. A deposit of $562 is recorded by the bank on October 13, but it did not belong to Blockwood. The deposit should have been made to the checking account of Hollybuster Video, a…arrow_forward
- 2. Nicole has asked you to prepare a bank reconciliation for NGS. According to her records, NGS's cash balance is $6,000 at December 31, but the bank reports a balance of $5,500. a. The bank deducted $250 for an NSF check from a customer deposited on December 22 b. NGS has written checks totaling $3,500 that have not yet cleared the bank. c. The bank added $10 cash to the account for interest earned in December. d. NGS made a $3.480 deposit on December 31, which will be recorded by the bank in January. The bank deducted $10 for service charges. f. NGS wrote a check to a supplier on account for $300 but mistakenly recorded it as $30. NICOLE'S GETAWAY SPA Bank Reconciliation At December 31 Bank Statement Company's Books Ending Balance per Bank Statemer Ending alance per Cash Account Additions: Additions: Deductions: Deductions: Up-to-Date Cash Balance Up-to-Date Cash Balancearrow_forwardOn October 31, 2021, the bank statement for the checking account of Blockwood Video shows a balance of $12,660, while the company’s records show a balance of $12,306. Information that might be useful in preparing a bank reconciliation is as follows: Outstanding checks are $1,205. The October 31 cash receipts of $760 are not deposited in the bank until November 2. One check written in payment of utilities for $132 is correctly recorded by the bank but is recorded by Blockwood as a disbursement of $213. In accordance with prior authorization, the bank withdraws $645 directly from the checking account as payment on a note payable. The interest portion of that payment is $45 and the principal portion is $600. Blockwood has not recorded the direct withdrawal. Bank service fees of $19 are listed on the bank statement. A deposit of $562 is recorded by the bank on October 13, but it did not belong to Blockwood. The deposit should have been made to the checking account of Hollybuster Video, a…arrow_forwardWeyman Z. Wannamaker is the chief financial officer of Cogburn Company. He prides himself on being able to manage the company’s cash resources to minimize the interest expense. Consequently, on the second business day of each month, Weyman pays down or draws cash on Cogburn’s revolving line of credit at First National Bank in accordance with his cash requirements forecast.You are the auditor. You find the information on this line of credit in the following table. You inquired at First National Bank and learned that Cogburn Company’s loan agreement specifies payment on the first day of each month for the interest due on the previous month’s outstanding balance at the rate of “prime plus 1.5 per cent.” The bank gave you a report that showed the prime rate of interest was 8.5 per cent for the first six months of the year and 8.0 per cent for the last six months. Check the following image for payable balances Required:a. Prepare an audit estimate of the amount of interest expense you…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub