(Bank transfer schedule; kiting) The LMN Company maintains three bank accounts: City Bank-Regular, City Bank - Payroll, and Metro Bank - Special. Your analysis of cash disbursements records for the period June 23 to July 6 reveals the following bank transfers: Check No. Date of Check Bank Drawn Payee Amount On 2476 June 23 Regular Payroll $100,000 2890 June 25 Regular Payroll 200,000 3140 June 28 Regular Special 100.000
(Bank transfer schedule; kiting) The LMN Company maintains three bank accounts: City Bank-Regular, City Bank - Payroll, and Metro Bank - Special. Your analysis of cash disbursements records for the period June 23 to July 6 reveals the following bank transfers: Check No. Date of Check Bank Drawn Payee Amount On 2476 June 23 Regular Payroll $100,000 2890 June 25 Regular Payroll 200,000 3140 June 28 Regular Special 100.000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:(Bank transfer schedule; kiting) The LMN Company maintains three bank
accounts: City Bank-Regular, City Bank - Payroll, and Metro Bank - Special.
Your analysis of cash disbursements records for the period June 23 to July 6
reveals the following bank transfers:
Check No.
Date of Check Bank Drawn
Payee
Amount
On
2476
June 23
Regular
Payroll
$100,000
2890
June 25
Regular
Payroll
200,000
3140
June 28
Regular
Special
100,000
A1006
June 29
Special
Payroll
50,000
A1245
June 30
Special
Regular
25,000
3402
June 30
Regular
Special
125,000
You determine the following facts about each of the first five checks: (1) the date
of the cash disbursements journal entry is the same as the date of the check, (2)
the payee receives the check two days later, (3) the payee records and deposits
the check on the day it is received, and (4) it takes five days for a deposited
check to clear banking channels and be paid by the bank on which it is drawn.
Check 3402 was not recorded as a disbursement until July 1. This check was
picked up by the payee on the date it was issued, and it was included in the
payee's after-hours bank deposit on June 30.
Required
a. What are the purposes of the audit of bank transfers?
b. Prepare a bank transfer schedule as of June 30.
c. Prepare separate adjusting entries for any checks that require adjustment.
d. In the reconciliation for the three bank accounts, indicate the check numbers
that should appear as (1) an outstanding check or (2) a deposit in transit.
e. Which check(s) may be indicative of kiting?
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