Professional Documents
Culture Documents
PROBLEM SET B
Problem 8-1B (20 minutes)
1. Violates both applying technological control and effective segregation
of duties. It is safe to assume that Latisha Tally has knowledge of
employee passwords since she implemented the system of password
protection companywide. It is a potentially insecure situation that
Latisha processes payroll and can now probably change employee pay
rates at will, or add a fictitious employee to the file. The company
should hire an outside consultant to rework the password protection
system so Latisha will not have the knowledge that she currently
possesses.
2. Violates applying technological controls. The theaters system needs to
be backed up at least daily, not weekly. The theater needs to change the
backup policy and make sure the backup copies are stored off premises.
3. Violates segregation of duties. The company needs to have three
employees handle these functions instead of two. One employee should
place purchase orders, one should receive merchandise, and the third
should pay vendors.
4. Violates applying technological controls. The use of the check protector
is a good internal control. However the company needs to keep the
checks and check protector in a locked environment to prevent
unauthorized use.
5. Violates segregation of duties. It is good internal control to separate
duties for cash receipts and cash disbursements.
Moreover, an
employee independent of these two functions should be given the
responsibility for reconciling the bank account monthly.
If no
employees are available, this is an acceptable duty for the owner as it
allows for owner oversight, which is good internal control.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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250
Part 2
Blues Music Center
Petty Cash Payments Report (for March)
Delivery expense
Mar. 11 Delivery of customer's merchandise..........................
$ 10.75
Mileage expense
Mar. 30 Reimbursement for mileage........................................
56.80
Postage expense
Mar. 28 Paid postage.................................................................
18.00
57.60
46.32
$189.47
Part 3
Mar. 31 Delivery Expense..........................................................
10.75
Mileage Expense..........................................................
56.80
Postage Expense..........................................................
18.00
Merchandise Inventory................................................
57.60
Office Supplies Expense.............................................
46.32
Cash Over and Short..............................................
Cash.........................................................................
1.00
188.47
50.00
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2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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150.00
14.29
19.60
38.57
12.82
2.44
87.72
50.00
50.00
48.19
78.00
6.46
182.65
50.00
Part 2
If the January 31 reimbursement is not made and no entry is recorded, then
the expenses would not be recognized and both net income and equity
would be overstated by $182.65 ($50.00 + $48.19 + $78.00 + $6.46). Also,
the petty cash asset and total assets would be overstated by $182.65.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
22
Deduct
Checks No. 1242.... $ 410.40
1273.... 4,589.30
1282.... 400.00
Adjusted bank balance............
Part 2
Dec. 31 Cash...............................................................................9.00
Office Supplies.......................................................
9.00
31 Cash...............................................................................
18,980.00
Collection Expense......................................................
20.00
Notes Receivable....................................................
19,000.00
To record note collection less fees.
762.50
31 Miscellaneous Expenses.............................................
99.00
Cash.........................................................................
99.00
Part 3
In a banking context, a debit memo is notification from the bank that it has
debited the depositor's account. Since the depositor's account is a liability of the
bank (a credit balance account), the debit notification means the bank has
reduced the depositor's account balance. Conversely, a credit memo is a
notification that the depositor's account has been credited, which means the
bank has increased the depositors cash balance.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23
Deduct
Checks No. 1780....$1,425.90
1786.... 353.10
1789.... 639.50
Adjusted bank balance..............
Part 2
May 31 Cash...............................................................................
7,350.00
Collection Expense......................................................
50.00
Notes Receivable....................................................
7,400.00
431.80
31 Miscellaneous Expenses.............................................
14.00
Cash.........................................................................
14.00
31 Utilities Expense...........................................................
10.00
Cash.........................................................................
10.00
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
24
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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