Homework Solution A201 Financial Acct Ch 7 Pearson
E7-11
Requirement 1
Internal control is the organizational plan and all the related measures adopted by an entity to
safeguard assets, encourage employees to follow company policies, promote operational
efficiency, and ensure accurate and reliable accounting records.
Requirement 2
A provision of the Sarbanes-Oxley Act requires that an outside auditor evaluate the client’s
internal controls and report on the internal controls as part of the audit report.
Requirement 3
a.
Weakness
b.
Weakness
c.
Weakness
d.
Weakness
The control environment would be more effective if top management
led in establishing internal controls.
The ordering of merchandise should be separate from the approving of
invoices for payment. Accounting department staff or the bookkeeper
could have goods sent to their homes and approve the payment.
The sales clerk should not have access to the register total, as the clerk
could change the record.
The employee signing the check needs to examine the payment packet
to ensure the amounts are correct and payments are made only for the
items ordered and received. Otherwise inappropriate payments could be
made.
E7-14
Requirement 1
The same person is responsible for verifying receipt of merchandise, authorizing payment, and
preparing the payment.
Requirement 2
To prevent these weaknesses, the following controls should be implemented:
 Purchase orders should be used to authorize inventory purchases.
 The accountant should receive the receiving report and purchase order form from other
departments before issuing payment.
 The receipt of goods should be verified by someone other than the accountant or the
person authorizing the purchase order.
 The accountant should not place the purchase order.
E7-15
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
j
k
e
l
m
i
f
a
d
h
b
g
c
E7-16
Requirement 1, 2, 3
Date
Accounts and Explanation
Petty Cash
Cash
To open the petty cash fund.
Delivery Expense
Postage Expense
Printing Expense
Miscellaneous Expense
Office Supplies
Cash Short & Over
Cash ($370 – $147)
To replenish the petty cash fund.
Cash
Petty Cash
To decrease the petty cash fund to $200.
Debit
370
Credit
370
25
15
35
55
80
13
223
170
170
P7-21A
Requirement 1
The job of receiving customers’ payments is performed by the same person who is responsible
for accounting for sales allowances.
Requirement 2
The sales allowances should be recorded by a person who does not have access to the cash
receipts.
Requirement 3
The amount that should be shown in the ledger for cash receipts is $315 ($375 − $60).
P7-24A
Requirement 1
Before replenishment, the petty cash fund should hold cash of $330. ($500 – total payments of
$170).
Requirement 2
Date
June 1
June 30
Accounts and Explanation
Petty Cash
Cash
To open the petty cash fund.
Debit
500
Postage Expense
Entertainment Expense ($25 + $75)
Office Supplies ($35 + $15)
Cash Short & Over
Cash ($500 − $325)
To replenish the petty cash fund.
20
100
50
5
Accounts and Explanation
Petty Cash
Cash
To increase the petty cash fund.
Debit
50
Credit
500
175
Requirement 3
Date
July 1
Credit
50
P7-25A Requirement 1
DUNLAP INSURANCE
Bank Reconciliation
December 31, 2015
BOOK
$ 17,350 Balance, December 31, 2015
ADD:
1,850 EFT collection on rent
19,200 Bank collection of note
BANK
Balance, December 31, 2015
ADD:
Deposit in transit
LESS:
Outstanding checks
Check 1420
Check 1421
Check 1422
Adjusted bank balance,
December 31, 2015
$ 1,440
900
630
LESS:
Correction of book error
NSF check
EFT – insurance payment
2,970 Service charge
Adjusted book balance,
$ 16,230 December 31, 2015
$ 16,740
$
300
1,400
450
1,000
700
60
Accounts and Explanation
Cash
Debit
300
Rent Revenue
To record EFT rent collection.
Dec. 31
Cash
Dec. 31
Dec. 31
Dec. 31
Rent Expense
Cash
To record error on check 1419.
Accounts Receivable
Cash
To record NSF check.
Insurance Expense
Cash
To record EFT insurance payment.
Bank Expense
Cash
To record bank service charges incurred.
Credit
300
1,400
Notes Receivable
To record bank collection of notes receivable.
Dec. 31
2,210
$ 16,230
Requirement 2
Date
Dec. 31
1,700
18,440
1,400
450
450
1,000
1,000
700
700
60
60