P7-5A Cayemberg AG maintains a checking account at the Commerce Bank.

At July
31, selected data from the ledger balance and the bank statement are shown below.

Cash in Bank

Per Books Per Bank

Balance, July 1 €17,600 €16,791

July receipts 81,100

July credits 82,470

July disbursements 77,150

July debits 74,756

Balance, July 31 €21,550 €24,505

Analysis of the bank data reveals that the credits consist of €81,000 of July deposits and a
credit memorandum of €1,470 for the collection of a €1,400 note plus interest revenue of
€70. The July debits per bank consist of checks cleared €74,700 and a debit memorandum
of €65 for printing additional company checks.

You also discover the following errors involving July checks: (1) A check for €230 to a
creditor on account that cleared the bank in July was journalized and posted as €320.
(2) A salary check to an employee for €255 was recorded by the bank for €155.

The June 3o bank reconciliation contained only two reconciling items: deposits in
transit €7,000 and outstanding checks of €6,200.

Instructions

(a) Adjusted balance per books €23,045

1. Prepare a bank reconciliation at July 31, 2017.

2. Journalize the adjusting entries to be made by Cayemberg. Assume that interest on the
note has not been accrued.

Identify internal control weaknesses in cash receipts and cash disbursements.

(LO 2, 3, 4)

P7-6A Nature Hill Middle School wants to raise money for a new sound system for its
auditorium. The primary fund-raising event is a dance at which the famous disc jockey
Obnoxious Al will play classic and not-so-classic dance tunes. Rob Drexler, the music and
theater instructor, has been given the responsibility for coordinating the fund-
raising efforts. This is Rob's first experience with fund-raising. He decides to put the
eighth-grade choir in charge of the event; he will be a relatively passive observer.

Rob had 500 unnumbered tickets printed for the dance. He left the tickets in a box on his
desk and told the choir students to take as many tickets as they thought they could sell for
£5 each. In order to ensure that no extra tickets would be floating around, he told them to
dispose of any unsold tickets. When the students received payment for the tickets, they
were to bring the cash back to Rob and he would put it in a locked box in his desk drawer.

Some of the students were responsible for decorating the gymnasium for the dance. Rob
gave each of them a key to the money box and told them that if they took money out to
purchase materials, they should put a note in the box saying how much they took and
what it was used for. After 2 weeks the money box appeared to be getting full,
 so Rob asked Erik Radley to count the money, prepare a deposit slip, and deposit the
money in a bank account Rob had opened.

The day of the dance, Rob wrote a check from the account to pay the DJ. Obnoxious Al,
however, said that he accepted only cash and did not give receipts. So Rob took £200 out
of the cash box and gave it to Al. At the dance, Rob had Sobia Hamm working at the
entrance to the gymnasium, collecting tickets from students, and selling tickets to those
who had not prepurchased them. Rob estimated that 400 students attended the dance.

The following day, Rob closed out the bank account, which had £250 in it, and gave that
amount plus the £180 in the cash box to Principal Coleman. Principal Coleman seemed
surprised that, after generating roughly £2,000 in sales, the dance netted only £430 in
cash. Rob did not know how to respond.

Instructions

Identify as many internal control weaknesses as you can in this scenario, and suggest
how each could be addressed.

PROBLEMS: SET B

Identify internal control weaknesses over cash receipts.

(LO 2, 3)

P7-113 Orpheum Theater is located in the Vancouver Mall. A cashier's booth is located
near the entrance to the theater. Three cashiers are employed. One works from 1-5 p.m.,
another from 5-9 p.m. The shifts are rotated among the three cashiers. The
cashiers receive cash from customers and operate a machine that ejects serially
numbered tickets. The rolls of tickets are inserted and locked into the machine by the
theater manager at the beginning of each cashier's shift.

After purchasing a ticket, the customer takes the ticket to an usher stationed at the
entrance of the theater lobby some 6o feet from the cashier's booth. The usher tears
the ticket in half, admits the customer, and returns the ticket stub to the customer.
The other half of the ticket is dropped into a locked box by the usher.

At the end of each cashier's shift, the theater manager removes the ticket rolls from the
machine and makes a cash count. The cash count sheet is initialed by the cashier. At the
end of the day, the manager deposits the receipts in total in a bank night deposit vault
located in the mall. The manager also sends copies of the deposit slip and the
initialed cash count sheets to the theater company treasurer for verification and to the
company's accounting department. Receipts from the first shift are stored in a safe located
in the manager's office.

Instructions

1. Identify the internal control principles and their application to the cash receipts
transactions of the Orpheum Theater.

2. If the usher and cashier decide to collaborate to misappropriate cash, what actions
might they take?

Journalize and post petty cash fund transactions.

(LO 5)

P7-2B De Smet SA maintains a petty cash fund for small expenditures. The following
transactions occurred over a 2-month period.
 July 1 Established petty cash fund by writing a check on Star Bank for €100.

15 Replenished the petty cash fund by writing a check for €94.90. On this
date, the fund consisted of €5.10 in cash and the following petty cash
receipts: freight-out €51.00, postage expense €20.50, entertainment
expense €23.10, and miscellaneous expense €4.10.

31 Replenished the petty cash fund by writing a check for €92.90. At this
date, the fund consisted of €7.10 in cash and the following petty cash
receipts: freight-out €43.50, charitable contributions expense €20.00,

postage expense €20.10, and miscellaneous expense €9.30.

Aug.
15
Replenished the petty cash fund by writing a check for €98.00. On this
date, the fund consisted of €2.00 in cash and the following petty cash
receipts: freight-out €40.20, entertainment expense €21.00, postage
expense €14.(0, and miscellaneous expense €19.80.

16 Increased the amount of the petty cash fund to €15o by writing a check for

€50.

31 Replenished the petty cash fund by writing a check for €137.00. On this
date, the fund consisted of €13 in cash and the following petty cash
receipts: freight-out €74.00, entertainment expense €43.20, and postage
expense €17.70.

Instructions

(a) July 15 Cash over €3.80

(b) Aug. 31 balance €150

1. Journalize the petty cash transactions.

2. Post to the Petty Cash account.

3. What internal control features exist in a petty cash fund?

Prepare a bank reconciliation and adjusting entries.

(LO 7)

P7-3B Aglife Genetics Ltd. of Lancashire spreads herbicides and applies liquid
fertilizer for local farmers. On May 31, 2017, the company's Cash account per its
general ledger showed the following balance.

CASH NO. 101

Date Explanation Ref. Debit Credit Balance
May 31 Balance 13,287

The bank statement from Lancashire Bank on that date showed the following balance.

Checks and Debits Lancaster Bank Deposits and Credits Daily Balance

XXX XXX 5/31 12,648

A comparison of the details on the bank statement with the details in the Cash account
revealed the following facts.

1. The statement included a debit memo of £35 for the printing of additional company
checks.
2. Cash sales of £1,720 on May 12 were deposited in the bank. The cash receipts journal
entry and the deposit slip were incorrectly made for £1,820. The bank credited Aglife
Genetics for the correct amount.

3. Outstanding checks at May 31 totaled £1,425, and deposits in transit were £2,100.

4. On May 18, the company issued check no. 1181 for £1,102 to M. Datz on account. The
check, which cleared the bank in May, was incorrectly journalized and posted by Aglife
Genetics for £110.

5. A £4,000 note receivable was collected by the bank for Aglife Genetics on May 31 plus
£100 interest. The bank charged a collection fee of £25. No interest has been accrued
on the note.

6. Included with the cancelled checks was a check issued by River Lune Company to Carol
Mertz for Ow that was incorrectly charged to Aglife Genetics by the bank.

7. On May 31, the bank statement showed an NSF charge of £2,012 for a check issued by
Tyler Gricius, a customer, to Aglife Genetics on account.

Instructions

(a) Adj. cash bal. £14,223

1. Prepare the bank reconciliation at May 31, 2017.

2. Prepare the necessary adjusting entries for Aglife Genetics Ltd. at May 31, 2017.

Prepare a bank reconciliation and adjusting entries from detailed data.

(LO 7)

P7-4B The bank portion of the bank reconciliation for Brasilia SA at October 31, 2017,
was as follows.

BRASILIA SA
Bank Reconciliation
October 31, 2017

Cash balance per bank R$6,000

Add: Deposits in transit 842

6,842

Less: Outstanding checks

Check Number Check Amount

2451 R$700

2470 396

2471 464

2472 170

2.3 08
2474 578

R$4 534

Adjusted cash balance per bank

The adjusted cash balance per bank agreed with the cash balance per books at October
31.
The November bank statement showed the following checks and deposits:

Bank Statement

Checks Deposits

Date Number Amount Date Amount

11-1 2470
R$ 396 R$ 842

2471 464 666

11-2 11-4

578
11-5 2474 11-8 545

903 11-13 1,416

11-4 2475

11-8 2476 1,556 11-18 810

11-10 2477 330

11-21
1,624

11-15 2479 98o 11-25

1,412

11-18 2480 714 11-28

908

382 652
11-27 2481 11-30

R$8,875
317
11-30 2483 Total

11-29 2486 495

R$ 7,115

Total

The cash records per books for November showed the following.

Cash Payments Journal

Date Number Amount Date Number Amount
11-1 2475 R$ 903 11-20 2483 R$ 317
11-2 2476 1,556 11-22 2484 460
11-2 2477 330 11-23 2485 525
11-4 2478 300 11-24 2486 495
11-8 2479 890 11-29 2487 340
11-10 2480 714 11-30 2488 635
11-15 2481 382 Total R$8,197
11-18 2482 350

Cash Receipts Journal

Date Amount

R$ 666
11-3

11-7 545

1,416
11-12

8io
11-17

1,642
11-20
 11-24 1,412

11-27 908

11-29 652

11-30 ,1581

Total R$9,632

The bank statement contained two bank memoranda:

1. A credit of R$1,375 for the collection of a R$1,300 note for Brasilia plus interest of
R$91 and less a collection fee of R$16. Brasilia has not accrued any interest on the note.

2. A debit for the printing of additional company checks R$35.

At November 30, the cash balance per books was R$5,969, and the cash balance per
the bank statement was R$9,loo. The bank did not make any errors, but two errors
were made by Brasilia.

Instructions

(a) Adjusted cash balance per bank R$7,201

1. Using the four steps in the reconciliation procedure described on pages 350-351,
prepare a bank reconciliation at November 30.

2. Prepare the adjusting entries based on the reconciliation. (Hint: The correction of any
errors pertaining to recording checks should be made to Accounts Payable. The
correction of any errors relating to recording cash receipts should be made to Accounts
Receivable.)

Prepare a bank reconciliation and adjusting entries.

(LO 7)

P7-5B Tizani SpA's bank statement from Eastern National Bank at August 31, 2017,
shows the information below.

Balance, August 1 €11,2 84 Bank credit memoranda:

August deposits 47,521 Collection of note

Checks cleared in August 46,175 receivable plus €105

Balance, August 31 17,146 interest €4,505

Interest earned 41

Bank debit memorandum:

30
Safety deposit box rent

A summary of the Cash account in the ledger for August shows: balance, August 1,
50; disbursemen
€10,559; receipts €50,0 ts €47,794; and balance, August 31, €12,815.
Analysis reveals that the only reconciling items on the July 31 bank reconciliation were a
deposit in transit for €2,200 and outstanding checks of €2,925. The deposit in
 transit was the first deposit recorded by the bank in August. In addition, you
determine that there were two errors involving company checks drawn in August: (1) A
check for €340 to a creditor on account that cleared the bank in August was
journalized and posted for €480. (2) A salary check to an employee for €275 was
recorded by the bank for €295.

Instructions

(a) Adjusted balance per books €17,471

1. Prepare a bank reconciliation at August 31.

2. Journalize the adjusting entries to be made by Tizani at August 31. Assume that
interest on the note has not been accrued by the company.

Prepare a comprehensive bank reconciliation with theft and internal control

deficiencies.

(LO 2, 3, 4, 7)

P7-6B Stupendous Ltd. is a very profitable small business. It has not, however, given
much consideration to internal control. For example, in an attempt to keep clerical and
office expenses to a minimum, the company has combined the jobs of cashier and
bookkeeper. As a result, Jake Burnett handles all cash receipts, keeps the accounting
records, and prepares the monthly bank reconciliations.

The balance per the bank statement on October 31, 2017, was £15,313. Outstanding
checks were no. 62 for £107.74, no. 183 for £127.50, no. 284 for £215.26, no. 862 for
£132.10, no. 863 for £192.78, and no. 864 for £140.49. Included with the statement was
a credit memorandum of £460 indicating the collection of a note receivable for
Stupendous by the bank on October 25. This memorandum has not been recorded by
Stupendous.

The company's ledger showed one cash account with a balance of £18,608.81. The
balance included undeposited cash on hand. Because of the lack of internal controls,
Burnett took for personal use all of the undeposited receipts in excess of £3,226.18. He
then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Bank Reconciliation

Cash balance per books, October 31 £18,608.81

Add: Outstanding checks

No. 862 £L132.10

No. 863 192.78

No. 864 140.49 290.37

18,999.18

'1.226.18
Less: Undeposited receipts

Unadjusted balance per bank, October 31 15,773.00

Less: Bank credit memorandum 460.00

L15,313.00
Cash balance per bank statement, October 31
I
 Instructions

(a) Adjusted balance per books £17,623.31

1. Prepare a correct bank reconciliation. (Hint: Deduct the amount of the theft from the
adjusted balance per books.)

2. Indicate the three ways that Burnett attempted to conceal the theft and the pound
amount pertaining to each method.

3. What principles of internal control were violated in this case?

COMPREHENSIVE PROBLEM

CP7 On December 1, 2017, Papadopoulos SA had the following account balances.

Debit Credit

Cash €18,200 Accumulated Depreciation—

Equipment

2,000 € 3,000
Notes Receivable

Accounts 7,500 Accounts Payable 6,100

Receivable

Inventory 16,000 Share Capital—Ordinary 50,000

Prepaid Insurance 1,600 Retained Earnings 14,200

Equipment 28,000 €73,300

€73,300

During December, the company completed the following transactions.

Dec. 7 Received €3,600 cash from customers in payment of account (no

discount allowed).

12
Purchased merchandise on account from Spiro Co. €12,000, terms 1/10,
n/3o.

17
Sold merchandise on account €16,000, terms 2/1o, n/30. The cost of the
merchandise sold was €io,000.

19 Paid salaries €2,200.

22
Paid Spiro Co. in full, less discount.

26
Received collections in full, less discounts, from customers billed on
December 17.

31 Received €2,700 cash from customers in payment of account (no

discount allowed).

Adjustment data:
1. Depreciation €200 per month.

2. Insurance expired €400.

Instructions

1. Journalize the December transactions. (Assume a perpetual inventory system.)

2. Enter the December 1 balances in the ledger T-accounts and post the December
transactions. Use Cost of Goods Sold, Depreciation Expense, Insurance Expense,
Salaries and Wages Expense, Sales Revenue, and Sales Discounts.

3. The statement from Athens Bank on December 31 showed a balance of €25,930. A

comparison of the bank statement with the Cash account revealed the following facts.

1. The bank collected a note receivable of €2,000 for Papadopoulos on December 15.

2. The December 31 receipts were deposited in a night deposit vault on December 31.
These deposits were recorded by the bank in January.

3. Checks outstanding on December 31 totaled €1,210.

4. On December 31, the bank statement showed an NSF charge of €68o for a check
received by the company from A. Quinn, a customer, on account.

Prepare a bank reconciliation as of December 31 based on the available information.

(Hint: The cash balance per books is €26,100. This can be proven by finding the
balance in the Cash account from parts (a) and (b).)

4. Journalize the adjusting entries resulting from the bank reconciliation and adjustment
data.

5. Post the adjusting entries to the ledger T-accounts.

6. Prepare an adjusted trial balance.

7. Prepare an income statement for December and a classified statement of financial

position at December 31.

MATCHA CREATIONS

(Note: This is a continuation of the Matcha Creations problem from Chapters 1-6.)

•
MC7 Part 1 Mei-ling is struggling to keep up with the recording of her accounting
transactions. She is spending a lot of time marketing and selling mixers and giving her
cookie classes. Her friend Mike is an accounting student who runs his own accounting
service. He has asked Mei-ling if she would like to have him do her accounting. Mike and
Mei-ling meet and discuss her business.

Part 2 Mei-ling decides that she cannot afford to hire Mike to do her accounting. One
way that she can ensure that her cash account does not have any errors and is accurate
and up-to-date is to prepare a bank reconciliation at the end of each month. Mei-ling
would like you to help her.

Go to the book's companion website, www.wiley.comJcollege/weygandt

(http://www.wiley.com/college/weygandt), to see the completion of this problem.

BROADENING YOUR PERSPECTIVE

FINANCIAL REPORTING AND ANALYSIS

Financial Reporting Problem: TSMC, Ltd. (TWN)