An examination of the cash activities during the year shows the following.
Suzie has not reconciled the company’s cash balance with that of the bank since the company was started. She asks Summit Bank to provide her with a six-month bank statement. To save time, Suzie makes deposits at the bank only on the first day of each month.
After comparing the two balances, Suzie has some concern because the bank’s balance of $50,500 is substantially less than the company’s balance of $64,200.
Required:
1. Discuss any problems you see with Great Adventures’ internal control procedures related to cash.
2. Prepare Great Adventures’ bank reconciliation for the six-month period ended December 31, 2018, and any necessary entries to adjust cash.
3. How did failure to reconcile the bank statement affect the reported amounts for assets, liabilities, stockholders’ equity, revenues, and expenses?
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Financial Accounting
- Alexix Gracie's current checkbook balance is $8,900.15. She opened up the bank statement and saw the bank's balance at $7,000.10. After reviewing her records with the bank statement, she discovered a deposit on July 1 not recorded on the statement for $9,821.55. A check written for $7,986.05 had not been returned by the bank. This month the company earned interest of $33.10. The bank charged the company $48.10 for printing new checks. Alexis also discovered that a check written for $49.55 was not recorded in the check stubs. The reconciled balance is:arrow_forwardNatalie decides that she cannot afford to hire John to do her accounting. One way that she can ensure that her cash account does not have any errors and is accurate and up-to-date is to prepare a bank reconciliation at the end of each month. Natalie would like you to help her. She asks you to prepare a bank reconciliation for June 2020 using the information below.Please refer to the image attached Additionally, take the following information into account. On June 30th, there were two outstanding checks: #595 for $238 and #604 for $297. Premier Bank made a posting error to the bank statement: Check #603 was issued for $425, not $452. The deposit made on June 20 was for $125, which Natalie received for teaching a class. Natalie made an error in recording this transaction. The electronic funds transfer (EFT) was for Natalie’s cell phone use. Remember that she uses this phone only for business. The NSF check was from Ron Black. Natalie received this check for teaching a class to Ron’s…arrow_forwardHenry Mills is responsible for preparing checks, recording cash disbursements, and preparing bank reconciliations for Signet Corporation. While reconciling the October bank statement, Mills noticed that several checks totaling $9,370 had been outstanding for more than one year. Concluding that these checks would never be presented for payments, Mills prepared a check for $9,370 payable to himself, forged the treasurer’s signature, and cashed the check. Mills made no entry in the accounts for this disbursement and attempted to conceal the theft by destroying the forged check and omitting the long-outstanding checks from subsequent bank reconciliations. Required: a. Identify the weaknesses in Signet Corporation’s internal control. b. Explain several audit procedures that might disclose the fraudulent disbursement.arrow_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_forwardJohn’s bank statement shows a closing balance for a given month as $2,200, and his personal account register shows a closing balance for the same month as $2,050. John investigated his accounts to identify the following discrepancies: · The bank charged $200 in bank charges. · Checks for $200 were not yet paid. · Deposits not yet credited were $300. · The bank credited $450 to John’s account. What will be the reconciled amount of John’s bank account?arrow_forwardHenry Mills is responsible for preparing checks, recording cash disbursements, and preparing bank reconciliations for Signet Corporation. While reconciling the October bank statement, Mills noticed that several checks totaling $937 had been outstanding for more than one year. Concluding that these checks would never be presented for payments, Mills prepared a check for $937 payable to himself, forged the treasurer’s signature, and cashed the check. Mills made no entry in the accounts for this disbursement and attempted to conceal the theft by destroying the forged check and omitting the long-outstanding checks from subsequent bank reconciliations. Required: Identify the weaknesses in Signet Corporation’s internal control. Explain several audit procedures that might disclose the fraudulent disbursement.arrow_forward
- Weyman 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_forwardOn February 15, 2019, Kate Collins, owner of Kate’s Cards, asks you to investigate the cash han-dling activities in her business. She believes that a new employee might be stealing funds. “I have no proof,” she says, “but I’m fairly certain that the January 31, 2019, undeposited receipts amounted to more than $12,000, although the January 31 bank reconciliation prepared by the cashier (who works in the treasurer’s department) shows only $7,238.40. Also, the January bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he had notified the bank to stop payment on them and he had made the necessary adjustment on the books. Does that sound reasonable to you?”At your request, Kate shows you the following (unaudited) January 31, 2019, bank reconciliation prepared by the cashierYou discover that the $1,200 unrecorded bank credit represents a note collected by the bank on…arrow_forwardKay Breeze receives the March bank statement for success systems on April 11, 2005. The March 31 bank statement shows and ending cash balance of $77,354. A comparison of the bank statement with the general ledger Cash account, No. 101, reveals the following: Breeze notices that the bank erroneously cleared a $500 check against her account that she did not issue. The check documentation included with the bank statement shows that this check was actually issued by a company named Sierra Systems. On March 25, the bank issues a $50 debit memorandum for the safety deposit box that Success Systems agreed to rent from the bank beginning March 25. On March 26, the bank issues a $102 debit memorandum for printed checks that Success Systems ordered from the bank. On March 31, the bank issues a credit memorandum for $33 interest-earned on Success Systems checking account for the month of March. Breeze notices that the check she issued for $128 on March 31, 2005, has not yet cleared the bank.…arrow_forward
- Bev is completing the monthly bank reconciliation for her checking account for the month of October. The following facts apply: The balance per the bank on Oct 31st = $3,000 The balance per her checkbook on Oct 31st = $6,000 Deposits in Transit = $2,000 Outstanding Checks = $500 EFT’s ‘into’ her account = $4,000 EFT’s ‘out of’ her account = $5,500 No interest was earned on the account, and there were no bank fees during the month.arrow_forwardOn 30 June 20X0, Cook's cash book showed that he had an overdraft of $300 on his current account at the bank. A bank statement as at the end of June 20X0 showed that Cook was in credit with the bank by $65. On checking the cash book with the bank statement you find the following. (a) Cheques drawn, amounting to $500, had been entered in the cash book but had not been presented. (b) Cheques received, amounting to $400, had been entered in the cash book, but had not been credited by the bank. (c) On instructions from Cook the bank had transferred interest received on his deposit account amounting to $60 to his current account, recording the transfer on 5 July 20X0. However, this amount had been credited in the cash book as on 30 June 20X0. (d) Bank charges of $35 shown in the bank statement had not been entered in the cash book. (e) The payments side of the cash book had been undercast by $10. (f) Dividends received amounting to $200 had been paid direct to the bank and not entered in…arrow_forwardThe proprietor of the ABC Flora has identified a possible cash theft in the month of January. He expects your support to find out any cash loss in the Month. • Balance as per Bank Statement is $ 10,000 • Balance as per cash book(Bank Account) is $22,200 • Reasons for the difference:• Bank charges deducted by the bank of $200 are not recorded in the bank account. • Customers direct depots to the bank account is $5,000• Unrealized deposits = $7,200• Un-presented cheques= $3,000 Do necessary changes in the bank (cash) accountPrepare bank reconciliation statement for the month of Marcharrow_forward
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