Hattiesburg Transaction Cycle Problem 1

Bank Transfer Problem Chapter 12 Other

Blue River Faith Company has a major branch located in Hattiesburg. The branch
deposits cash receipts daily into the bank and periodically transfers the receipts to the
companys home office in Jackson. The transfers are accounted for as inter-company
entries into the home office and branch office accounts. All accounting, however, is
performed at the home office under the direction of the assistant controller. The assistant
controller is also responsible for the transfers. The controller, however, independently
reconciles the bank account each month or assigns this reconciliation to someone in the
department. Often times the assistant controller is assigned this duty. The company is
relatively small; therefore the controller is also the financial planner and treasurer for the
company. As part of the year-end audit, you are assigned the task of conducting an audit
of bank transfers. As part of the process, you are provided the following schedule of
transfers:
Date
disbursement
per Branch
12-29-2011
01-02-2012
01-05-2012
12-31-2011
01-03-2012
12-27-2011

Dollar
Amount
$80,000
$41,000
$82,000
$54,000
$11,000
$32,000

Date
Date Cleared Bank per Date Cleared Bank
deposited
Home Office Bank
per Branch
Home
Statement
Statement
Office
12-31-2011
12-31-2011
01-07-2012
12-31-2011
12-31-2011
01-05-2012
01-03-2012
01-07-2012
01-12-2012
01-02-2012
01-03-2012
01-08-2012
01-03-2012
12-31-2011
01-05-2012
12-31-2011
12-31-2011
01-03-2012

Required:
1) Briefly explain the audit objective in obtaining the bank transfer data above which
you will use to prepare the Bank Transfer Schedule that reflects the correct
information.
2) Identify the audit procedures that would be used to test the correctness of the
clients bank transfers. Keep in mind the purpose (cutoff) of the schedule or tests.
3) Identify any adjusting journal entries that would be needed on either the home
office or branch office accounting records as a result of the preceding
transactions.
4) Indicate how each of the above transactions would be reflected on the December
31, 2011 bank statements of both the home office and the branch office.
5) Indicate which transactions require no adjustment. Indicate which transactions
indicate kiting. Indicate which transactions represent errors in cash classification
but not in dollar amount for the consolidated/combined cash for the overall
company as a whole.