Chapter 7: 2RQ (page 411)
Question: How does the Sarbanes-Oxley Act relate to internal controls?
Answer:
Sarbanes-Oxley Act revamped corporate governance in the United States and was introduced to establish the internal control system in an organization to prevent the accounting scandals.
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List some examples of timing differences, and for each difference, determine if it would affect the book side of the reconciliation or the bank side of the reconciliation.
Phoenix Restaurants accepts credit and debit cards as forms of payment. Assume Phoenix had $12,000 of credit and debit card
sales on June 30, 2017.
9. Suppose Phoenix’s processor charges a 2% fee and deposits sales net of the fee. Journalize the sale transaction for the
restaurant.
10. Suppose Phoenix’s processor charges a 2% fee and deposits sales using the gross method. Journalize the sale transaction for
the restaurant.
Evaluating internal control over cash payments Gary’s Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary’s, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.
Requirements
1. Identify the internal control weakness over cash payments.
2. What could the business do to correct the weakness?
Fill in the missing information concerning how companies control cash received by mail.
a. The ________ opens the mail and sends customer checks to the treasurer.
b. The ________ deposits the customer checks in the bank.
c. The ________ uses the remittance advices to record the journal entries for cash receipts.
d. The ________ compares the bank deposit to the journal entry for cash receipts.
Preparing a bank reconciliation and journal entries
The August 31 bank statement of Well Healthcare has just arrived from United Bank.
To prepare the bank reconciliation, you gather the following data:
a. The August 31 bank balance is \(4,540.
b. The bank statement includes two charges for NSF checks from customers. One is
for \)380 (#1), and the other is for \(180 (#2).
c. The following Well Healthcare checks are outstanding at August 31:
Check No. Amount
237 \) 80
288 190
291 570
294 600
295 30
296 70
d. Well collects from a few customers by EFT. The August bank statement lists a
\(1,200 EFT deposit for a collection on account.
e. The bank statement includes two special deposits that Well hasn’t recorded yet:
\)800 for dividend revenue, and \(120 for the interest revenue Well earned on its
bank balance during August.
f. The bank statement lists a \)50 subtraction for the bank service charge.
g. On August 31, the Well treasurer deposited \(260, but this deposit does not appear
on the bank statement.
h. The bank statement includes a \)1,050 deduction for a check drawn by Multi-State
Freight Company. Well notified the bank of this bank error.
i. Well’s Cash account shows a balance of $2,800 on August 31.
Requirements
1. Prepare the bank reconciliation for Well Healthcare at August 31, 2018.
2. Journalize any required entries from the bank reconciliation. Include anexplanation for each entry.
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