Acc301 Essentials of Accounting: Week 2 Assignment (E3-14, P3-1A, BYP3-1, E4-3, P4-3A, BYP4-9)

Acc301 Essentials of Accounting
Week 2 Homework

E3-14
The bookkeeper for Biggio Corporation made these errors in journalizing and posting.

1. A credit posting of $400 to Accounts Receivable was omitted.

2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.

3. A collection on account of $100 was journalized and posted as a debit to Cash $100 and a credit to Accounts Payable $100.

4. A credit posting of $300 to Property Taxes Payable was made twice.

5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25 and a credit to Cash $25.

6. A debit of $395 to Advertising Expense was posted as $359.

For each error, indicate (a) whether the trial balance will balance; if the trial balance will not balance, indicate (b) the amount of the difference, and (c) the trial balance column that will have the larger total. Consider each error separately. Use the following form, in which error 1 is given as an example.

Problem 3-1A:

On April1 Flint Hills Travel Agency Inc. was established. These transactions were completed during the month.

Analyze transactions and compute net income.

1. Stockholders invested $25,000 cash in the company in exchange for common stock.

2. Paid $900 cash for April office rent.

3. Purchased office equipment for $2,800 cash.

4. Purchased $200 of advertising in the Chicago Tribune, on account.

5. Paid $500 cash for office supplies.

6. Earned $10,000 for services provided: Cash of $1,000 is received from customers, and the balance of $9,000 is billed to customers on account.

7. Paid $400 cash dividends.

8. Paid Chicago Tribune amount due in transaction (4).

9. Paid employees' salaries $1,200.

10. Received $9,000 in cash from customers billed previously in transaction (6).

Instructions:

(a) Prepare a tabular analysis of the transactions using these column headings: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, and Retained Earnings (with separate columns for Revenues, Expenses, and Dividends). Include margin explanations for any changes in Retained Earnings.

(b) From an analysis of the Retained Earnings columns, compute the net income or net loss for April.

BYP3-1

The financial statements of Tootsie Roll in Appendix A at the back of this book contain the following selected accounts, all in thousands of dollars.

Common Stock $24,586

Accounts Payable 11,572

Accounts Receivable 32,371

Selling, Marketing, and Administrative Expenses 97,821

Prepaid Expenses 6,551

Property, Plant, and Equipment 201,401

Net Sales 492,742

(a) What is the increase and decrease side for each account? What is the normal balance for each account?

(b) Identify the probable other account in the transaction and the effect on that account when:

(1) Accounts Receivable is decreased.

(2) Accounts Payable is decreased.

(3) Prepaid Expenses is increased.

(c) Identify the other account(s) that ordinarily would be involved when:

(1) Interest Expense is increased.

(2) Property, Plant, and Equipment is increased.

E4-3

The following control procedures are used in Falk Company for over-the-counter cash receipts.

1. Cashiers are experienced; thus, they are not bonded.

2. All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.

3. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank.

4. At the end of each day the total receipts are counted by the cashier on duty and reconciled to the cash register total.

5. The company accountant makes the bank deposit and then records the day’s receipts.

Instructions

a. For each procedure, explain the weakness in internal control and identify the control principle that is violated.

b. For each weakness, suggest a change in the procedure that will result in good internal control.

P4-3A

On July 31, 2010, Fenton Company had a cash balance per books of $6,140. The statement from Jackson State Bank on that date showed a balance of $7,695.80. A comparison of the bank statement with the cash account revealed the following facts.

1. The bank service charge for July was $25.

2. The bank collected a note receivable of $1,500 for Fenton Company on July 15, plus $30 of interest. The bank made a $10 charge for the collection. Fenton has not accrued any interest on the note.

3. The July 31 receipts of $1,193.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31.

4. Company check No. 2480 issued to H. Coby, a creditor, for $384 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $348.

5. Checks outstanding on July 31 totaled $1,980.10.

6. On July 31 the bank statement showed an NSF charge of $690 for a check received by the company from P. Figura, a customer, on account.

Instructions

a. Prepare the bank reconciliation as of July 31.

b. Prepare the necessary adjusting entries at July 31.

BYP4-9

As noted in the chapter, banks charge fees of up to $30 for “bounced” checks—that is, checks that exceed the balance in the account. It has been estimated that processing bounced checks costs a bank roughly $1.50 per check. Thus, the profit margin on bounced checks is very high. Recognizing this, some banks have started to process checks from largest to smallest. By doing this, they maximize the number of checks that bounce if a customer overdraws an account. For example, Nations Bank (now Bank of America) projected a $14 million increase in fee revenue as a result of processing largest checks first. In response to criticism, banks have responded that their customers prefer to have large checks processed first, because those tend to be the most important. At the other extreme, some banks will cover their customers’ bounced checks, effectively extending them an interest-free loan while their account is overdrawn.

Instructions

Answer each of the following questions.

a. William Preston had a balance of $1,500 in his checking account at First National Bank on a day when the bank received the following five checks for processing against his account.

Check Number Amount Check Number Amount

3150 35.00 3165 550.00

3162 400.00 3166 1,510.00

3169 180.00

Assuming a $30 fee assessed by the bank for each bounced check, how much fee revenue would the bank generate if it processed checks (1) from largest to smallest, (2) from smallest to largest, and (3) in order of check number?
b. Do you think that processing checks from largest to smallest is an ethical business practice?
c. In addition to ethical issues, what other issues must a bank consider in deciding whether to process checks from largest to smallest?
d. If you were managing a bank, what policy would you adopt on bounced checks?
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