Professional Documents
Culture Documents
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Short-term assets
Credit card sale
Internal control
Cash
Segregation of duties
None
Debit card sale
Order of liquidity
Electronic fund transfers (EFTs)
Assets
Question 15:
Date
Nov. 1
Description
Cash
Debit
Credit
210
Sales
200
GST Payable
10
Cash
519.80
Sales
460
PST Payable
36.80
GST Payable
23
Cash
Credit card expense
2214.80
45.20
Sales
2000
PST Payable
160
GST Payable
100
Nov. 1
Cash
Sales
5198
4600
PST Payable
368
GST Payable
230
375
375
Question 16:
Pita Perfection Business Report by Gabriel Gichuhi
Executive Summary
Pita Perfection needs an internal control system that establishes responsibilities
within the business. It is recommended that electronic cash registers would help
prevent monetary loss and would also limit the employees access to the
registers on their shifts.
Problem Statement
Pita Perfection would like to improve control of cash flow. Since its opening, the
business has had concerns on how to achieve better monetary control. This
report considers the issue and recommends a course of action to the owners
Craig and Anne.
Analysis
Currently, Pita Perfection does not have internal controls in place to protect the
business from irregularities or theft. The business needs to determine the best
methods to minimize the chances of loss.
Decision Criteria and Alternatives
Internal controls for Pita Perfection in order to protect it against theft, errors and
irregularities should include the following:
Limit access of cash registers to only those who are working as cashiers
for that shift
Use independent verification of cash at the end of the day. Have the
cashier count out the cash from the till. Match balance to amount stated on end
of day print out.
Electronic cash registers for more accurate end of shift cash totals.
Match receipt totals with daily bank deposits by the accountant of the
business
Controls would be put in place to ensure that not one single employee can
request, authorize, verify, or record expenditures
Employees that have access to cash should not be have access to the
financial statements
Description
Notes Receivable, Tiffney Supply Co.
Sales
Accepted 30-day, 7% notes receivable incl.
Interest. Due July 15
b)
Debit
Credit
16000
16000
Days in June: 15
Days in July: 15
Grace days: 3
Total:
33
Description
Cash
Debit
Credit
16101.26
16000
Interest earned
101.26
Question 18:
a)
Date
Dec. 31
Description
Bad debt expense
Debit
Credit
2700
2700
Description
Allowance for bad debts
Accounts receivable, High Tech Inc.
To write off accounts receivable from High
Tech Inc. as uncollectable
Debit
Credit
250
250
c)
Date
Mar. 15
Description
Debit
Credit
250
250
Mar. 15
Bank
250
250
Payment of account
Question 19:
Periodic Inventory
A physical count of the goods on hand
at the end of the period
Well suited for preparation of annual
statements and not statements for
shorter periods
Used on large quantities of low-priced
merchandise
Does not distinguish between
merchandise that has been sold and
merchandise that has been spoiled or
stolen
Perpetual Inventory
A continuous record of each inventory
purchase and sale is maintained
It is easier to prepare financial
statements for shorter periods since it
is continuous
Used for high unit value items such as
cars
Takes into account possible spoilage,
theft, obsolescence and miscalculation.
Question 20:
a)
Number of Units
Invent
ory,
Januar
y1
First
purcha
se,
March
5600
7420
Uni
t
Cos
t$
67.5
0
Total Cost $
70
1
Second
purcha
se,
May 15
Third
purcha
se, July
3
Fourth
purcha
se,
Oct. 25
Goods
Availab
le for
Sale
Units
sold
during
the
year
Invent
ory,
Dec. 31
4780
69.2
5
4240
72
(4240*72)=305280 (SOLD)
6400-460 SOLD=5940
73.2
5
(5600+7420+4780+4240
+6400)= 28,440
(378000+519400+331015+305280
+468800)= 2,002,495
22500
(378000+519400+331015+305280
+33695)= 1,567,390
=5600+22840-22500=
5,940
5940*73.25= 435,105
Beginning Inventory
Plus: Purchases
Cost of Goods available
for sale
Minus: Ending inventory
Cost of Goods Sold
(5600*67.50)=378,000
(7420*70)+(4780*69.25)+(4240*72)+(6400*73.2
5)=1,624,495
(378000+1624495)=2,002,495
(5940*73.25)=435,105
(2002495-435105)=1,567,390
b)
Number of Units
Invent
ory,
Januar
y1
First
purcha
se,
5600
Uni
t
Cos
t$
67.
50
Total Cost $
70
(5600*67.50)= 378,000
March
1
Secon
d
purcha
se,
May 15
Third
purcha
se, July
3
Fourth
purcha
se,
Oct. 25
Goods
Availa
ble for
Sale
Units
sold
during
the
year
Invent
ory,
Dec.
31
4780
69.
25
4240
72
(4240*72)=305,280 (SOLD)
6400
73.
25
(6400*73.25)=468,800 (SOLD)
(5600+7420+4780+424
0+6400)= 28,440
(378000+519400+331015+305280+
468800)= 2,002,495
22500
(468800+305280+331015+(7080*70
))=1,600,695
=5600+22840-22500=
5,940
(340*70)+(5600*67.5)=401,800
Beginning Inventory
Plus: Purchases
Cost of Goods available
for sale
Minus: Ending inventory
Cost of Goods Sold
(5600*67.50)=378,000
(7420*70)+(4780*69.25)+(4240*72)+(6400*73.2
5)=1,624,495
(378000+1624495)=2,002,495
(340*70)+(5600*67.5)=401,800
(2002495-401800)=1,600,695
Question 21:
Date
Jan. 1
Apr. 15
June 3
Aug.
Beginning
inventory
Purchased
Purchased
Purchased
Quantit
y
200
Unit
cost $
32.8
Total Cost $
600
800
300
33.4
33.9
34.5
(600*33.4)=20040
(800*33.90=27120
(300*34.5)=10350
(200*32.8)= 6560
12
Oct. 4
Nov.
27
Dec.
25
Total
Purchased
Purchased
900
400
34.7
34.8
(900*34.7)=31230
(400*34.8)=13920
Purchased
300
34.9
(300*34.9)=10470
3500
119690
119690
(700*34.2)= 23940
(119690-23940)= 95750
Question 22:
a)
Inventory Recorded Dec. 31
FOB Goods not recorded Dec. 31
Total Inventory
300,000
45,000
345,000
b)
Account
Cost of goods sold
Current assets
Total assets
Gross profit
Net income
Owners Equity
Effect
Overstated
Understated
Understated
Understated
Understated
Understated
Question 23:
Capital expenditures
Initial cost of purchase
Cost incurred to increase efficiency of
the asset
Occurs less frequently
Additions/improvements increase
production debited to property, plant or
equipment accounts
Question 24:
Revenue expenditures
Appears on income statement
Cost incurred for maintenance or repair
Occurs more often and is considered
short term
Ordinary repairs/maintenance debits to
Repairs Expense
Date
June 20
Description
Debit
Patents
Credit
254600
Bank
254600
Question 25:
a)
Purchase price: building
Legal, administrative and brokerage
fees
Repairs and improvements to building
before use
Building cost
600000
20000
150000
5000
556000
Development costs
Registration costs
Trademark cost
1700
950
2650
124000
744000
155000
44480
11120
611600
b)
Date
Sep. 18
Description
Building
Bank
Acquired building
Debit
Credit
744000
744000
Sep. 18
Land
155000
Bank
155000
Acquired land
Date
Description
Debit
Oct. 9
Credit
611600
Bank
611600
Date
Oct. 21
Description
Debit
Trademark
Credit
2650
Bank
2650
Question 26:
Assets
Accounts receivable
Inventories
Equipment
Accounts payable
Net assets
Book value
56000
93000
42500
-19000
172500
Date
Mar. 21
Description
Accounts receivable
Debit
56000
Inventories
101000
Equipment
69000
Goodwill
96500
Accounts payable
Credit
19000
Bank
303500
Question 27:
Amortization = Cost of patent Useful life
60000 5 = 12000
Date
Dec. 9
Description
Debit
Amortization expense
Credit
12000
Patent
12000
Question 28:
a)
Inventory Recorded June 30
FOB Goods not recorded June 30
Total Inventory
1,200,000
180,000
1,380,000
b) & c)
Effect of error
Year ended June 30, 2008
Beginning inventory
Ending inventory
Cost of goods sold
Gross profit
Net income
Total assets
Owners equity
NE
U
O
U
U
U
U
Result
Financial Statement
affected
Accounts receivable
will be overstated
Revenue account
will be overstated
Accounts receivable
will be overstated
Revenue account
will be overstates
Cost of goods
available for sale
account will be
understated
Gross profit account
will be understated
Cost of goods sold
account will be
understated
Amortization
expense account will
be understated
Net profits will be
overstated
Asset account will
be overstated
Question 30:
a)
Year
200
7
200
8
Book value
beginning
of year
25000
Rat
e
40%
Amortization
expense
Accumulated
amortization
10000
10000
15000
15000
40%
6000
16000
9000
b) Understating the amortization expense causes the net income in the income
statement to be overstated since expenses are understated. This then results to
an overstatement of the capital assets in the balance sheet since the book value
will be higher.