Financial Accounting: An Integrated Statements Approach, 2nd Edition

Prometheus Co. records all cash receipts on the basis of its cash register receipts. Prometheus

Co. discovered during April 2006 that one of its sales clerks had stolen an undetermined amount

of cash receipts when she took the daily deposits to the bank. The following data have been gath-

ered for April:

Cash in bank according to the general ledger $12,573.22

Cash according to the April 30, 2006, bank statement 13,271.14

Outstanding checks as of April 30, 2006 1,750.20

Bank service charge for April 45.10

Note receivable, including interest collected by bank in April 5,200.00

No deposits were in transit on April 30, which fell on a Sunday.

a. Determine the amount of cash receipts stolen by the sales clerk.

b. What accounting controls would have prevented or detected this theft?

Journalize the entries to record the following:

a. Established a petty cash fund of $750.

b. The amount of cash in the petty cash fund is now $119.57. Replenished the fund, based

on the following summary of petty cash receipts: office supplies, $415.83; miscellaneous

selling expense, $126.50; miscellaneous administrative expense, $88.10.

Journalize the entries to record the following:

a. Established a petty cash fund of $500.

b. The amount of cash in the petty cash fund is now $89.60. Replenished the fund, based on

the following summary of petty cash receipts: office supplies, $267.25; miscellaneous sell-

ing expense, $110.85; miscellaneous administrative expense, $32.30.

Toys“R”Usis one of the world’s leading retailers of toys, children’s apparel, and baby products,

operating over 1,500 retail stores. For a recent year, Toys“R”Us reported the following net cash

flows from operating activities (in thousands):

Explain how Toys“R”Us can report negative net cash flows from operating activities during the

first three quarters yet report net positive cash flows for the year.

Avon Products Inc.is a global manufacturer and marketer of beauty products. Avon distributes

its products to customers in the United States through independent sales representatives. The

following operating results (in thousands) are for years ending December 31:

a. Compute the ratio of cash flow to net income for each year. Round to one decimal place.

b. Is there a significant difference between the ratios for 2004 and 2003? If so, what are some

possible causes for the difference?

338 Chapter 7 Sarbanes-Oxley, Internal Control, and Cash

Exercise 7-23

Using bank reconciliation to

determine cash receipts stolen

Goals4, 5

Exercise 7-24

Petty cash fund entries

Goal 6

Exercise 7-25

Petty cash fund entries

Goal 6

Exercise 7-26

Variation in cash flows

Goal 7

Exercise 7-27

Cash flow to net income

ratio

Goal 8

a. 2004: 1.0

First quarter ending May 1, 2004 $(246,000)

Second quarter ending July 31, 2004 (63,000)

Third quarter ending October 30, 2004 (415,000)

Year ending January 29, 2005 746,000

2004 2003

Net cash flows from operating activities $882,600 $745,300

Net income 846,100 664,800