Demonstration Problems Chapter 7 Internal Control and Cash Copyright © 2016 Pearson Education, Inc. 7-1

Demonstration Problems

Chapter 7

Internal Control and Cash

Copyright © 2016 Pearson Education, Inc. 7-1


Demonstration of E7-16

Wave Dance Studio created a $500 imprest petty cash fund. During the month, the fund custodian authorized and signed petty cash tickets as follows:

Petty Cash

Ticket No. Item Account Debited Amount

1 Delivery of programs to customers Delivery Expense $30

2 Mail package Postage Expense 20

3 Newsletter Printing Expense 50

4 Key to closet Miscellaneous Expense 75

5 Copier paper Office Supplies 100

Requirements

1. Make the general journal entry to create the petty cash fund.

2. Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $150.

3. Assume that Wave Dance Studio decides to decrease the petty cash fund to $300. Make the general journal entry to record this decrease.


Date Accounts and Explanation Debit Credit

1. Petty Cash 500

Cash 500

To open the petty cash fund.

Make the general journal entry to create the petty cash fund.

Demonstration of E7-16-Req. 1



2. Delivery Expense 30

Postage Expense 20

Printing Expense 50

Miscellaneous Expense 75

Office Supplies 100

Cash Short & Over 75

Cash ﴾$500 − $150﴿ 350

To replenish the petty cash fund.

Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $150.




3. Cash 200

Petty Cash 200

To decrease the petty cash fund to $300.

Assume that Wave Dance Studio decides to decrease the petty cash fund to $300. Make the general journal entry to record this decrease.




Date Check No. Item Check Deposit BalanceAug. 1 $1,000

4 701 Quick Mailing $500 500 9 Service Revenue $2,000 2,500

13 702 Salaries Expenses 250 2,250 14 703 Utilities 150 2,100 18 704 Cash 75 2,025 26 705 Office Supplies 85 1,940 28 706 Alpha Printers 300 1,640 30 Service Revenue 1,500 3,140

Peter Publishers' check book lists the following:


Balance $1,000

Deposits 2,000

Debit Checks: No. Amount

701 $500

702 250

703 175 *

704 75 (1,000)

Other charges:

Printed checks 50

Service charge 25 (75)

Balance $1,925

*This is the correct amount for check number 703.

Peter’s August bank statement shows the following:

Requirements

1. Prepare Peter Publisher's bank reconciliation at August 31, 2016.

2. How much cash does Peter actually have on August 31, 2016?

3. Journalize any transactions required from the bank reconciliation.



Calculation of ending book balance:

Aug. 1 Book Balance $1,000 Add: Deposits ($2,000 + $1,500) 3,500 Less: Checks ($500 + $250 + $150 + $75 + $85 + $300) 1,360

Aug. 31 Book Balance $3,140



PETER PUBLISHERSBank Reconciliation

August 31, 2016BANK BOOK

Balance, August 31, 2016 [Previous slide] $3,140ADD:

3,140

LESS:Book error check 703 $25 Printed checks 50 Service charge 25 100





Balance, August 31, 2016 $3,140ADD:

3,140

LESS:Book error check 703 $25 Printed checks 50 Service charge 25 100

Adjusted book balance, August 31, 2016 $3,040





Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140

LESS:Book error check 703 $25 Printed checks 50 Service charge 25 100 Adjusted book balance, August 31, 2016

$3,040





Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140 LESS: LESS:Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100

Adjusted book balance, August 31, 2016

$3,040





Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140 LESS: LESS:Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted bank balance, August 31, 2016 $3,040


$3,040





Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140 LESS: LESS:Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted bank balance, August 31, 2016 $3,040


$3,040

Peter has $3,040 on August 31, 2016.




Aug. 31 Utilities Expense 25

Cash 25

To record check error #703.





Cash 25


31 Bank Expense 50

Cash 50

To record printed check charge incurred.





Cash 25


31 Bank Expense 50

Cash 50

To record printed check charge incurred.

31 Bank Expense 25

Cash 25

To record bank service charges incurred.




Robin Knight Company operates four bowling alleys. The owner just received the September 30 bank statement from City National Bank, and the statement shows an ending balance of $1,000. Listed on the statement are an EFT rent collection of $300, a service charge of $15, NSF checks totalling $60, and a $25 charge for printed checks. In reviewing his cash records, Knight identified outstanding checks totalling $500 and a deposit in transit of $1,500. During September, he recorded a $250 check by debiting Salaries Expense and crediting Cash for $50. His Cash account shows a September 30 balance of $2,000.

Requirements

1. Prepare the bank reconciliation at September 30.

2. Journalize any transactions required from the bank reconciliation.

ROBIN KNIGHT COMPANY Bank Reconciliation

September 30BANK BOOK

Balance, September 30 $2,000






Balance, September 30 $2,000ADD:EFT collection on rent 300

2,300






2,300LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300






2,300LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300Adjusted book balance, September 30 $2,000





Balance, September 30 $1,000 Balance, September 30 $2,000ADD:EFT collection on rent 300

2,300LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300Adjusted book balance, September 30 $2,000





Balance, September 30 $1,000 Balance, September 30 $2,000ADD: ADD:Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300

LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300Adjusted book balance, September 30 $2,000





Balance, September 30 $1,000 Balance, September 30 $2,000ADD: ADD:Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300LESS: LESS:

Correction of book error $200NSF checks 60Printed checks 25

Outstanding checks 500 Service charge 15 300Adjusted book balance, September 30 $2,000





Balance, September 30 $1,000 Balance, September 30 $2,000ADD: ADD:Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300LESS: LESS:

Correction of book error $200NSF checks 60Printed checks 25

Outstanding checks 500 Service charge 15 300Adjusted bank balance, September 30 $2,000

Adjusted book balance, September 30 $2,000



Date Accounts and Explanation Debit CreditSept. 30 Cash 300

Rent Revenue 300 To record EFT rent collection.





30 Salaries Expense 200 Cash 200 To record error on salary check.






30 Accounts Receivable 60 Cash 60 To record NSF checks.







30 Bank Expense 25 Cash 25 To record printed check charge incurred.







30 Bank Expense 25 Cash 25 To record printed check charge incurred.

30 Bank Expense 15Cash 15

To record bank service charges incurred.


End of Chapter 7

7-32Copyright © 2016 Pearson Education, Inc.

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Demonstration Problems Chapter 7 Internal Control and Cash Copyright © 2016 Pearson Education, Inc. 7-1