parker Company Accounting Internal Control Case Assignment
Be sure to complete all steps and sections of each problem and show all your work. Clearly label your answers, and make sure your responses to sections with pencil icons are in complete sentences.
(A.) The following is an excerpt from a conversation between two salesclerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store.
Did you hear the news?
Neal and Linda were both arrested this morning.
What? Arrested? You’re putting me on!
No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights—the whole works. It was unreal!
What did they do?
Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash.
I guess I never thought of that. How did they catch them?
The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently more than $9,000 in just three months. They’re going over the transactions of the last six months to try to determine how much Linda stole. She apparently started stealing first.
- Suggest appropriate control procedures that would have prevented or detected the theft of cash.
(B.) The records of Parker Company indicate a July 31 cash balance of $10,400, which includes undeposited receipts for July 30 and 31. The cash balance on the bank statement as of July 31 is $10,575. This balance includes a note of $2,250 plus $150 interest collected by the bank but not recorded in the journal. Checks outstanding on July 31 were as follows: No. 2670, $1,050; No. 3679, $675; No. 3690, $1,650; No. 5148, $225; No. 5149, $750; and No. 5151, $800.
On July 25, the cashier resigned, effective at the end of the month. Before leaving on July 31, the cashier prepared the following bank reconciliation:
Subsequently, the owner of Parker Company discovered that the cashier had stolen an unknown amount of undeposited receipts, leaving only $1,500 to be deposited on July 31. The owner, a close family friend, has asked for your help in determining the amount that the former cashier stole.
- Determine the amount the cashier stole from Parker Company. Show your computations in good form.
- How did the cashier attempt to conceal the theft?
- Identify two major weaknesses in internal controls that allowed the cashier to steal the undeposited cash receipts.
- Recommend improvements in internal controls so that similar types of thefts of undeposited cash receipts can be prevented.
(C.). TearLab Corp. is a health care company that specializes in developing diagnostic devices for eye disease. TearLab reported the following data (in thousands) for three recent years:
- Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place.
- Determine the ratio of cash to monthly cash expenses as of December 31 for Year 3, Year 2, and Year 1. Round to one decimal place.
- Based on (1) and (2), comment on TearLab’s ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.
(D.) I also have a second assignment, but it is on my blackboard.