CP 8-5 Bank reconciliation and internal control – Parker Company

| November 28, 2016

Question
Chapter 8 Sarbanes-Oxley, Internal Control, and Cash Page 402
CP 8-5 Bank reconciliation and internal control
The records of Parker Company indicate a July 31 cash balance of $10,400, which includes
undeposited receipts for July 30 and 31. The cash balance on the bank statement as of July
31 is $10,575. This balance includes a note of $2,250 plus $150 interest collected by the bank
but not recorded in the journal. Checks outstanding on July 31 were as follows: No. 2670,
$1,050; No. 3679, $675; No. 3690, $1,650; No. 5148, $225; No. 5149, $750; and No. 5151, $800.
On July 25, the cashier resigned, effective at the end of the month. Before leaving on
July 31, the cashier prepared the following bank reconciliation:
Cash balance per books, July 31 ……………………………… $10,400
Add outstanding checks:
No. 5148 ……………………………………………….. $225
5149 ……………………………………………….. 750
5151 ……………………………………………….. 800 1,675
$12,075
Less undeposited receipts ………………………………….. 1,500
Cash balance per bank, July 31 ………………………………. $10,575
Deduct unrecorded note with interest ………………………… 2,400
True cash, July 31………………………………………….. $ 8,175
Calculator Tape of Outstanding Checks:
0*
225?
750?
800?
1,675*
Subsequently, the owner of Parker Company discovered that the cashier had stolen an unknown amount of undeposited receipts, leaving only $1,500 to be deposited on July 31.
The owner, a close family friend, has asked your help in determining the amount that the
former cashier has stolen.
1. Determine the amount the cashier stole from Parker Company. Show your computations in good form.
2. How did the cashier attempt to conceal the theft?
3. a. Identify two major weaknesses in internal controls, which allowed the cashier to
steal the undeposited cash receipts.
b. Recommend improvements in internal controls, so that similar types of
thefts of undeposited cash receipts can be prevented.
Warren, Carl S.; Reeve, James M.; Duchac, Jonathan (2013-01-01). Accounting (Page 402). Cengage Textbook. Kindle Edition.
unknown amount of undeposited receipts, leaving only $1,500 to be deposited on July 31.
Heather Cruz

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