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In-Class problems
Franco Company is a rapidly growing start-up business. Its recordkeeper, who was
hired six months ago, left town after the company’s manager discovered that a
large sum of money had disappeared over the past three months. An audit
disclosed that the record keeper had written and signed several checks made
payable to her fiancé and then recorded the checks as salaries expense. The
fiancé, who cashed the checks but never worked for the company, left town with
the record keeper. As a result, the company incurred an uninsured loss of
$184,000.
Evaluate Franco’s internal control system and indicated which principles of
internal control appeared to have been ignored.
Exercise 6-2/6-4 internal control recommendations
What internal control procedures would you recommend in each of the following
situations?
1. A concession company has one employee who sells towels, coolers, and
sunglasses at the beach. Each day, the employee is given enough towels,
coolers, and sunglasses to last through the day and enough cash to make
change. The money is kept in a box at the stand.
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
$400.
QS 6-8 Days’ sales uncollected
The following annual account balances are taken from Armour Sports at
December 31
2017 2016
Accounts receivable $ 100,000 $ 85,000
Net sales 2,500,000 2,000,000
What is the change in the number of days’ sales uncollected between years 2016
and 2017? (Round the number of days to one decimal)