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E8-5 Listed below are five procedures followed by The Beat Company

E8-5 Listed below are five procedures followed by The Beat Company.

1. Several individuals operate the cash register using the same register drawer.

2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities.

3. Ellen May writes checks and also records cash payment journal entries.

4. One individual orders inventory, while a different individual authorizes payments.

5. Unnumbered sales invoices from credit sales are forwarded to the accounting department every four weeks for recording.

Indicate whether each procedure is an example of good internal control or of weak internal control. If it is an example of good internal control, indicate which internal control principle is being followed. If it is an example of weak internal control, indicate which internal control principle is violated. Use the table below.

Procedure IC Good or Weak? Related Internal Control Principle
1.
2.
3.
4.
5.

Chapter 15:
1) Exercise E15-1
2) Exercise E15.2
3) Exercise E15-11

E15-1 Financial information for Blevins Inc. is presented below.

December 31, 2009 December 31, 2008
Current assets $125,000 $100,000
Plant assets (net) 396,000 330,000
Current liabilities 91,000 70,000
Long-term liabilities 133,000 95,000
Common stock, $1 par 161,000 115,000
Retained earnings 136,000 150,000

Prepare a schedule showing a horizontal analysis for 2009 using 2008 as the base year.

E15-2 Operating data for Gallup Corporation are presented below.

2009 2008
Sales $750,000 $600,000
Cost of goods sold 465,000 390,000
Selling expenses 120,000 72,000
Administrative expenses 60,000 54,000
Income tax expense 33,000 24,000
Net income 72,000 60,000

Prepare a schedule showing a vertical analysis for 2009 and 2008.

E15-11 Scully Corporation's comparative balance sheets are presented below.

SCULLY CORPORATION
Balance Sheets
December 31

2008 2007
Cash $ 4,300 $ 3,700
Accounts receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated depreciation (15,000) (10,000)
Total $110,500 $120,100
Accounts payable $ 12,370 $ 31,100
Common stock 75,000 69,000
Retained earnings 23,130 20,000
Total $110,500 $120,100

Scully's 2008 income statement included net sales of $100,000, cost of goods sold of $60,000, and net income of $15,000.

Compute the following ratios for 2008.
(a) Current ratio.
(b) Acid-test ratio.
(c) Receivables turnover.
(d) Inventory turnover.
(e) Profit margin.
(f) Asset turnover.
(g) Return on assets.
(h) Return on common stockholders' equity.
(i) Debt to total assets ratio.

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Chapter 8:
Exercise E8-5
E8-5 Listed below are five procedures followed by The Beat Company.
1. Several individuals operate the cash register using the same register drawer.
2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities.
3. Ellen May writes checks and also records cash payment journal entries.
4. One individual orders inventory, while a different individual authorizes payments.
5. Unnumbered sales invoices from credit sales are forwarded to the accounting department
every four weeks for recording.
Instructions
Indicate whether each procedure is an example of good internal control or of weak internal control.
If it is an example of good internal control, indicate which internal control principle is being
followed. If it is an example of weak internal control, indicate which internal control principle is
violated. Use the table below.

Procedure IC Good or Weak? Related Internal Control Principle
1. Weak Establishment of Responsibility
2. Good Independent Internal Verification
3. Weak Segregation of Duties
4. Good Segregation of Duties
5. Weak Documentation Procedures

Chapter 15:
1) Exercise E15-1
2) Exercise E15.2
3) Exercise E15-11

E15-1 Financial information for Blevins Inc. is presented below.
December 31, 2009 December 31, 2008
Current assets $125,000 $100,000
Plant assets (net) 396,000 330,000
Current liabilities 91,000 ...

Solution Summary

The solution examines five procedures followed by The Beat Company. Different financial ratios are computed.

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