Internal controls Using Wikipedia (wikipedia.com), look up the entry for Sarbanes-Oxley Act. Look over the table of contents and find the section that describes Section 404. What does Section 404 require of management's internal control report? Ramona's Clothing is a retail store specializing in women's clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under $75. If the item is more than $75, a check is mailed to the customer.Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible.This year, returns at Ramona's Clothing have reached an all-time high. There are a large number of returns under $75 without receipts.How can sales clerks employed at Ramona's Clothing use the store's return policy to steal money from the cash register?What internal control weaknesses do you see in the return policy that make cash thefts easier?Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund.Assume that Ramona's Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store's procedures regarding customer refunds in order to improve internal control? Bank reconciliationThe cash account for Capstone Medical Co. at November 30, 2016, indicated a balance of $89,620. The bank statement indicated a balance of $128,660 on November 30, 2016. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items: Checks outstanding totaled $32,700.A deposit of $18,550, representing receipts of November 30, had been made too late to appear on the bank statement.The bank collected $26,750 on a $25,000 note, including interest of $1,750.A check for $1,500 returned with the statement had been incorrectly recorded by Capstone Medical Co. as $150. The check was for the payment of an obligation to ABC Supply Co. for a purchase on account.A check drawn for $490 had been erroneously charged by the bank as $940.Bank service charges for November amounted to $60. InstructionsPrepare a bank reconciliation.Journalize the necessary entries. The accounts have not been closed.If a balance sheet were prepared for Capstone Medical Co. on November 30, 2016, what amount should be reported as cash?

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Internal controls

Using Wikipedia (wikipedia.com), look up the entry for Sarbanes-Oxley Act. Look over the table of contents and find the section that describes Section 404.

What does Section 404 require of management's internal control report?

Ramona's Clothing is a retail store specializing in women's clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under $75. If the item is more than $75, a check is mailed to the customer.

Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible.

This year, returns at Ramona's Clothing have reached an all-time high. There are a large number of returns under $75 without receipts.

How can sales clerks employed at Ramona's Clothing use the store's return policy to steal money from the cash register?
What internal control weaknesses do you see in the return policy that make cash thefts easier?
Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund.
Assume that Ramona's Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store's procedures regarding customer refunds in order to improve internal control?

Bank reconciliation

The cash account for Capstone Medical Co. at November 30, 2016, indicated a balance of $89,620. The bank statement indicated a balance of $128,660 on November 30, 2016. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

Checks outstanding totaled $32,700.
A deposit of $18,550, representing receipts of November 30, had been made too late to appear on the bank statement.
The bank collected $26,750 on a $25,000 note, including interest of $1,750.
A check for $1,500 returned with the statement had been incorrectly recorded by Capstone Medical Co. as $150. The check was for the payment of an obligation to ABC Supply Co. for a purchase on account.
A check drawn for $490 had been erroneously charged by the bank as $940.
Bank service charges for November amounted to $60.

Instructions

Prepare a bank reconciliation.
Journalize the necessary entries. The accounts have not been closed.
If a balance sheet were prepared for Capstone Medical Co. on November 30, 2016, what amount should be reported as cash?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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