Student Name:

Class: McGraw-Hill/Irwin
Problem 07-02

OSAGE FARM SUPPLY

Corrected bank reconciliation for November

Balance per bank statement, November 30

Add: Deposit in transit
Subtotal
Less: Outstanding checks:
no. 8231
no. 8263
no. 8288
no. 8294
Total outstanding checks
Adjusted cash balance per bank statement

Balance per accounting records

Add: Note receivable collected by bank
Subtotal
Less: NSF check returned
Bank service charges
Adjusted cash balance per accounting records
prior to recognition of cash shortage
Less: Indicated cash shortage
Adjusted cash balance per accounting records

OSAGE FARM SUPPLY

Intentional Errors

Escola attempted to conceal the shortage by making

the following intentional errors in her reconciliation:
Errors leading to a $13,255 overstatement of
the adjusted balance per the bank statement:
Overstating deposit in transit with a transposition error
Improperly adding the amount of the note collected
by the bank to the bank balance
Making an addition error in adding adjustments to
the balance per the bank statement
Omitting check no. 8294 from the outstanding check list
Understating the sum of the outstanding checks listed

Error causing a $12,510 understatement of the adjusted

balance per the accounting records:
Subtracting the $6,255 amount of the credit memorandum
even though the caption stated that this amount should
be added
Total shortage concealed in Escola's bank reconciliation
Student Name:
Class: McGraw-Hill/Irwin
Problem 07-02
 Student Name:
Class: McGraw-Hill/Irwin
Problem 07-02

c. Suggest some specific internal control measures that appear to be necessary

for Osage Farm Supply.
Given Data P07-02:

OSAGE FARM SUPPLY

Cash per accounting records at November 30 $35,400.00

Deposit in transit 1,245.00
Cash per bank statement at November 30 20,600.00
Debit Memorandum: NSF check from G. Davis 130.00
Debit Memorandum: Bank service charges for November 15.00
Credit Memorandum: Proceeds from Regal Farms' note 6,255.00
Outstanding check: 8231 400.00
Outstanding check: 8263 524.00
Outstanding check: 8288 176.00
Outstanding check: 8294 5,000.00

November Bank Reconciliation

Prepared by Bev Escola

Balance per bank statement, November 30 $20,600.00

Add: Deposit in transit 2,145.00
Collection of note from Regal Farms 6,255.00 8,400.00
Subtotal $30,000.00
Less: Outstanding checks:
no. 8231 $400.00
no. 8263 524.00
no. 8288 176.00 1,000.00
Adjusted cash balance per bank statement $29,000.00

Balance per accounting records $35,400.00

Add: Credit memorandum from bank 6,255.00
Subtotal $29,145.00
Less: Debit Memoranda from bank:
NSF check of G. Davis $130.00
Bank service charge 15.00 145.00
Adjusted cash balance per accounting records $29,000.00
 Student Name:
Class: McGraw-Hill/Irwin
Problem 07-03

SUPER STAR
Accounts Receivable by Age Group

Percentage Estimated
Considered Uncollectible
Amount Uncollectible Accounts
Not yet due 1%
1-30 days past due 3%
31-60 days past due 10%
61-90 days past due 20%
Over 90 days past due 50%
Totals

SUPER STAR
General Journal

Trans.
Date Account Titles no. Debit Credit
b. Dec. 31 Uncollectible Accounts Expense
Allowance for Doubtful Accounts

c. Jan. 10 Allowance for Doubtful Accounts

Accounts Receivable (April Showers)

d. What advantages would there be to adopting a

policy requiring accounts receivable over 60 days
to have interest bearing notes on the balance?
Given Data P07-03:

SUPER STAR

Accounts receivable aging:

Not yet due $500,000
1-30 days past due 210,000
31-60 days past due 80,000
61-90 days past due 15,000
Over 90 days past due 30,000
Totals $835,000

Uncollectible percentages:
Group 1 1%
Group 2 3%
Group 3 10%
Group 4 20%
Group 5 50%

Allowance for Doubtful Accounts $11,800

Worthless account receivable - April Showers 8,250