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    Internal Control

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    PAGE 3636 Student objective page 363
    E8-1 Sue Ernesto is the owner of Ernesto's Pizza. Ernesto's is operated strictly on a carryout
    basis. Customers pick up their orders at a counter where a clerk exchanges the pizza for cash.
    While at the counter, the customer can see other employees making the pizzas and the large
    ovens in which the pizzas are baked.
    Identify the six principles of internal control and give an example of each principle that you
    might observe when picking up your pizza. (Note: It may not be possible to observe all the principles.)

    Chapter 8: E8-3 PAGE 363 STUDENT OBJECTIVE 2 PAGE 336 AND SO PAGE 345
    E8-3 The following control procedures are used in Morgan's Boutique Shoppe for cash disbursements.
    1. The company accountant prepares the bank reconciliation and reports any discrepancies to
    the owner.
    2. The store manager personally approves all payments before signing and issuing checks.
    3. Each week, Morgan leaves 100 company checks in an unmarked envelope on a shelf behind
    the cash register.
    4. After payment, bills are filed in a paid invoice folder.
    5. The company checks are unnumbered.
    (a) For each procedure, explain the weakness in internal control, and identify the internal control
    principle that is violated.
    (b) For each weakness, suggest a change in the procedure that will result in good internal

    Chapter 8: E8-6 PAGE 364 STUDENT OBJECTIVE 7 PAGE 353
    E8-6 Lisa Ceja is unable to reconcile the bank balance at January 31. Lisa's reconciliation is
    as follows.
    Cash balance per bank $3,660.20
    Add: NSF check 590.00
    Less: Bank service charge 25.00
    Adjusted balance per bank $4,225.20
    Cash balance per books $3,875.20
    Less: Deposits in transit 530.00
    Add: Outstanding checks 930.00
    Adjusted balance per books $4,275.20
    (a) Prepare a correct bank reconciliation.
    (b) Journalize the entries required by the reconciliation.
    E8-7 On April 30, the bank reconciliation of Ottawa Company shows th

    Chapter 8: E8-8 PAGE 365 STUDENT OBJECTIVE 7 PAGE 363
    E8-8 The following information pertains to Worthy Video Company.
    1. Cash balance per bank, July 31, $7,263.
    2. July bank service charge not recorded by the depositor $28.
    3. Cash balance per books, July 31, $7,284.
    4. Deposits in transit, July 31, $1,500.
    5. Bank collected $800 note for Worthy in July, plus interest $36, less collection fee $20. The
    collection has not been recorded by Worthy, and no interest has been accrued.
    6. Outstanding checks, July 31, $691.
    (a) Prepare a bank reconciliation at July 31.
    (b) Journalize the adjusting entries at July 31 on the books of Worthy Video Company.

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    Solution Summary

    The solution explains various questions relating to internal control and bank reconciliation.