Connect Financial Accounting Chapter 6

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Connect Financial Accounting Chapter 6

Q1. Waupaca Company establishes a $380 petty cash fund on September 9. On September 30, the fund shows $121 in cash along with receipts for the following expenditures: transportation costs of merchandise purchased, $58; postage expenses, $53; and miscellaneous expenses, $143. The petty cashier could not account for a $5 shortage in the fund. The company uses the perpetual system in accounting for merchandise inventory.

Prepare (1) the September 9 entry to establish the fund, (2) the September 30 entry to reimburse the fund, and (3) an October 1 entry to increase the fund to $415.

connect financial accounting chapter 6

Q2. Palmona Co. establishes a $250 petty cash fund on January 1. On January 8, the fund shows $145 in cash along with receipts for the following expenditures: postage, $43; transportation-in, $14; delivery expenses, $16; and miscellaneous expenses, $32. Palmona uses the perpetual system in accounting for merchandise inventory.

Prepare journal entries to (1) establish the fund on January 1, (2) reimburse it on January 8, and (3) both reimburse the fund and increase it to $300 on January 8, assuming no entry in part 2. (Hint: Make two separate entries for part 3.)

connect financial accounting chapter 6

Q3. Del Gato Clinic deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on June 30, 2017, its Cash account shows an $12,439 debit balance. Del Gato Clinic’s June 30 bank statement shows $11,160 on deposit in the bank.

  • Outstanding checks as of June 30 total $1,210.
  • The June 30 bank statement lists a $55 service charge.
  • Check No. 919, listed with the canceled checks, was correctly drawn for $589 in payment of a utility bill on June 15. Del Gato Clinic mistakenly recorded it with a debit to Utilities Expense and a credit to Cash in the amount of $598.
  • The June 30 cash receipts of $2,443 were placed in the bank’s night depository after banking hours and were not recorded on the June 30 bank statement.

connect financial accounting chapter 6

Q4. Nakashima Gallery had the following petty cash transactions in February of the current year.

  • Feb 2 – Wrote a $350 check, cashed it, and gave the proceeds and the petty cashbox to Chloe Addison, the petty cashier.
  • Feb 5 – Purchased bond paper for the copier for $15.55 that is immediately used.
  • Feb 9 – Paid $34.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Nakashima uses the perpetual system to account for merchandise inventory.
  • Feb 12 – Paid $7.45 postage to express mail a contract to a client.
  • Feb 14 – Reimbursed Adina Sharon, the manager, $74 for business mileage on her car.
  • Feb 20 – Purchased stationery for $67.77 that is immediately used.
  • Feb 23 – Paid a courier $15 to deliver merchandise sold to a customer, terms FOB destination.
  • Feb 25 – Paid $10.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.
  • Feb 27 – Paid $50 for postage expenses.
  • Feb 28 – The fund had $22.57 remaining in the petty cash box. Sorted the petty cash receipts by accounts affected and exchanged them for a check to reimburse the fund for expenditures.
  • Feb 28 – The petty cash fund amount is increased by $130 to a total of $480.

Required:
1. Prepare the journal entry to establish the petty cash fund.

connect financial accounting chapter 6
2. Prepare a petty cash payments report for February with these categories: delivery expense, mileage expense, postage expense, merchandise inventory (for transportation-in), and office supplies expense. Sort the payments into the appropriate categories and total the expenditures in each category.

connect financial accounting chapter 6
3. Prepare the journal entries for required 2 to both (a) reimburse and (b) increase the fund amount.

connect financial accounting chapter 6

Connect Financial Accounting Chapter 6 Quiz

Q1. On a bank reconciliation, an unrecorded debit memorandum for printing checks is:

  • Noted as a memorandum only.
  • Added to the book balance of cash.
  • Deducted from the book balance of cash.
  • Added to the bank balance of cash.
  • Deducted from the bank balance of cash.

Q2. The entry to establish a petty cash fund includes:

  • A debit to Cash and a credit to Petty Cash.
  • A debit to Cash and a credit to Cash Over and Short.
  • A debit to Petty Cash and a credit to Cash.
  • A debit to Petty Cash and a credit to Accounts Receivable.
  • A debit to Cash and a credit to Petty Cash Over and Short.

Q3. Two clerks sharing the same cash register is a violation of which internal control principle?

  • Establish responsibilities.
  • Maintain adequate records.
  • Insure assets.
  • Bond key employees.
  • Apply technological controls.

Q4. The entry to record reimbursement of the petty cash fund for postage expense should include:

  • A debit to Postage Expense.
  • A debit to Petty Cash.
  • A debit to Cash.
  • A debit to Cash Short and Over.
  • A debit to Supplies.

Q5. Freeman Co. had net sales of $4.2 million and ending accounts receivable of $0.8 million. Its days’ sales uncollected equals:

  • 5.3 days.
  • 69.5 days.
  • 19.2 days.
  • 11.5 days.
  • 292 days.

Q6. A company had net sales of $21,500 and ending accounts receivable of $2,700 for the current period. Its days’ sales uncollected equals: (Use 365 days a year.)

  • 8.0 days.
  • 58.9 days.
  • 45.8 days
  • 7.4 days.
  • 45.2 days.

Q7. If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

  • Deduct the deposit from the bank statement balance.
  • Send the bank a debit memorandum.
  • Deduct the deposit from the September 30 book balance and add it to the October 1 book balance.
  • Add the deposit to the book balance of cash.
  • Add the deposit to the bank statement balance.

Q8. Pelcher Co. maintains a $400 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $110 for office supplies, $140 for merchandise inventory, and $70 for miscellaneous expenses. There is a cash overage of $4. Based on this information, the amount of cash in the fund before the replenishment is:

  • $400
  • $320
  • $80
  • $76
  • $84

Q9. Internal control policies and procedures have limitations not including:

  • Human error.
  • Human fraud.
  • Cost-benefit principle.
  • Collusion.
  • Establishing responsibilities.

Q10. Havermill Co. establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for merchandise inventory, and $22 for miscellaneous expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the establishment of the fund on September 1 is:

  • Debit Cash $250; credit Petty Cash $250.
  • Debit Petty Cash $250; credit Accounts Payable $250.
  • Debit Miscellaneous Expense $250; credit Cash $250.
  • Debit Petty Cash $250; credit Cash $250.
  • Debit Cash $250; credit Accounts Payable $250.

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