Question

In: Accounting

Mastery Problem: Internal Control and Cash Murdstone, Inc., You’ve just been hired as an accountant at...

Mastery Problem: Internal Control and Cash

Murdstone, Inc.,

You’ve just been hired as an accountant at Murdstone, Inc., a retailer of supplies for arts and crafts. Since the previous accountant left his position suddenly, the controller of Murdstone, Inc. has asked for your assistance in filling in some missing data for the company’s January accounting records. You’ll also be responsible for training the company’s new accounting intern.

Cash Short and Over

The controller has completed the T accounts for the cash and sales accounts as of January 30, but needs to attend an important conference in another city. She has requested that you prepare the T account for the cash short and over account as of January 30 also. You are told that the balance of the account is zero as of the beginning of January, and that all the company’s sales are in cash. To simplify, this problem assumes that a company has only one bank account, which is identified in the Ledger as “Cash.”

Review the following T accounts, and then scroll down to complete the cash short and over T account and answer the associated question that follows it.

Cash
Balance 1/1 5,500     1/2 Establish Petty Cash 500  
1/5 2,775        
1/12 6,355        
1/23 3,270        
1/30 4,450        
Balance 21,850        
Sales
  Balance 1/1 0  
1/5 2,780  
   1/12 6,320  
   1/23 3,290  
   1/30 4,380  
     Balance 16,770  

Review the preceding T accounts, and then complete the cash short and over T account and associated question that follows it.

Cash Short and Over
Balance 1/1 0 1/12
1/5 1/30
1/23
     Balance

What will happen to the ending balance in the cash short and over account at the end of the accounting period?

The discrepancy must be reported on the company website.

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Petty Cash

Murdstone, Inc. issued a check on January 2 to establish a petty cash fund of $500. On January 31, the amount of cash in the petty cash fund is $443. The company would like to issue a check to replenish the fund, based on the following summary of petty cash receipts:

Account Amount on
Receipt
Office Supplies $28
Miscellaneous Administrative Expense 23

The company’s policy is to record any missing funds in the cash short and over account.

The new intern has prepared a proposed journal entry to record the replenishing of the petty cash fund:

Date Description Debit Credit
Jan. 31 Petty Cash 51
        Cash 51

Prepare for your discussion with the intern by journalizing the correct entry for the replenishment of the petty cash fund. If an amount box does not require an entry, leave it blank.

Jan. 31 Inventory
Miscellaneous Administrative Expense
Cash
Cash

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Bank Reconciliation

The company’s accounting intern has prepared the end-of-January bank reconciliation from the bank statement, and is worried because the adjusted balance amounts do not agree. After reviewing the bank reconciliation, scroll down for the next steps in helping the intern.

Murdstone, Inc.
Bank Reconciliation
January 31, 20Y5
Cash balance according to bank statement $23,557.98
Adjustments:
Add: Deposit in transit on January 31 12,125.25
Deduct: Outstanding Check No. 124 $(62.00)
            Outstanding Check No. 125 (42.00)
            Outstanding Check No. 129 (1,250.00)
                  Total deductions (1,354.00)
Adjusted balance $34,329.23
Cash balance according to Murdstone, Inc. $51,596.88
Adjustments:
Add: Note and interest collected by bank 15,250.75
Deduct: Check returned because of insufficient funds $(23,475.40)
            Bank service charge (250.00)
            Error in recording Check No. 123 (9,000.00)
                  Total deductions (32,725.40)
Adjusted balance $34,122.23

You assist the intern to check source documents, and find that most of the dollar amounts are correct; however, two dollar amounts are incorrect. After reviewing the following table, scroll down for the next steps in helping the intern.

Item Correct in
Intern's Reconciliation?
If "No,"
Corrected Amount
Cash balance according to bank statement Yes
Deposit in transit on January 31 Yes
Outstanding Check No. 124 Yes
Outstanding Check No. 125 No $24.00
Outstanding Check No. 129 Yes
Cash balance according to Murdstone, Inc. Yes
Check returned because of insufficient funds Yes
Note and interest collected by bank Yes
Bank service charge No $25.00
Murdstone error in recording Check No. 123 as $12,435.00 rather than the correct amount of $21,435.00 Yes

After asking the intern to search for other errors by comparing her reconciliation to prior bank reconciliations prepared by the former accountant, you work together to compute the corrected adjusted balance. Round your answer to two decimal places.

Corrected adjusted balance amount: $

Solutions

Expert Solution

Dr Cr
Cash Short and Over account
Date Particulars Amount Date Particulars Amount
   43,831.00 Opening Balance                -           43,842.00 Sales                       35.00
   43,835.00 Sales           5.00         43,860.00 Sales                       70.00
   43,853.00 Sales         20.00
   43,861.00 Cash         80.00
(Balance)
Closing Balance                -  
I Balance Amount will be transferrred to cash
Cash Short and Over account Dr                  80.00
Cash Cr                  80.00
II There is an excess sales recorded in companys books
This should be reported on company's websites
III Petty Cash replenishment Journal entry
Office Supplies Dr                  28.00
Misellaneous Administrative Expenses Dr                  23.00
Cash Short and Over account Dr                    6.00
Cash Cr                  57.00
Murdstone, Inc.
Bank Reconciliation
January 31, 20Y5
Cash balance according to bank statement                                      23,557.98
Adjustments:
Add: Deposit in transit on January 31                                      12,125.25
Deduct: Outstanding Check No. 124               (62.00)
             Outstanding Check No. 125               (24.00)
             Outstanding Check No. 129         (1,250.00)
                   Total deductions                                      (1,336.00)
Adjusted balance                                      34,347.23
Cash balance according to Murdstone, Inc.                                      51,596.88
Adjustments:
Add: Note and interest collected by bank

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