Solution Manual for Manual Practice Set for Comprehensive Assurance and Systems Tool, 4th Edition

Instructor’s Solutions Manual for Manual Module Comprehensive Assurance & Systems Tool: An Integrated Practice Set Fourth Edition Laura R. Ingraham J. Gregory Jenkins New York, NY This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. 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INSTRUCTIONAL NOTES AND SOLUTIONS GUIDE THE MANUAL ACCOUNTING INFORMATION SYSTEM: The Winery at Chateau Americana INSTRUCTIONAL OBJECTIVES By the end of this Module, students will be able to:  Prepare common business documents, accounting transactions and month-end and year-end transactions, including journal entries, journals, and ledgers in order to understand how the accounting cycle operates and to create the financial statements.  Identify and interpret common control activities designed to capture, summarize, and report business activities.  Explain the objectives of maintaining an audit trail.  Identify deficiencies in the design of common business documents.  Explain the importance of account reconciliations. CLASSROOM USE The CAST Manual AIS Module is designed to be used as an instructional aid in an introductory financial accounting course, an intermediate accounting course, an accounting information systems course, or an auditing course. It is our suggestion, that if used in an introductory financial accounting course, it is used towards the end of the course, after the students have learned the basics of transaction processing. In whatever course it is utilized, however, the Manual AIS Module can help students understand how the accounting process actually takes place by giving them the opportunity to work with authenticate source documents and then to work through the entire accounting cycle. The Manual AIS Module has been designed to be an independent, stand-alone assignment. You might find it facilitates a fast start for your students if you spend some time in the classroom introducing the assignment, going over the booklet and what it contains, and going through a timetable to keep them on track. Depending upon what course this Module is being used in and when in the semester it has been assigned, you might also find that it facilitates the process by going over some of the more complex transactions. What’s New? The fourth edition contains three new transaction sets to allow the instructor to rotate through them from semester to semester and to provide some variety between the Copyright © 2019 Pearson Education, Inc. Manual – 1 Ingraham & Jenkins transactions provided. When working the bank reconciliation, students have been instructed to obtain the bank balance from the instructor as each transaction set requires a different amount. These amounts have been provided for you in this Solution Manual under the bank reconciliation requirement in the Month-End Procedures of each transaction set. The notation for the current year is denoted as XX to avoid confusion for the students. Prior year is notated as XW and the subsequent year is denoted as XY. Copyright © 2019 Pearson Education, Inc. Manual – 2 CAST: The Manual AIS TRANSACTION SET A The books have been posted through December 15, 20XX. The following selected transactions have been extracted from the period December 16 through December 31, 20XX and are to be completed in accordance with the policies and procedures explained above. Documents to be completed can be found in the Document Packet. For all required signatures on these documents sign your name. Supporting documentation for the transactions is provided behind the Year-End Procedures followed by all necessary journals and ledgers. Note that the current year transactions are denoted as 20XX; prior year transactions are denoted as 20XW; transactions for the subsequent year are denoted as 20XY. Your instructor will provide you with the appropriate current year and you can fill in the dates accordingly for all transactions. December 16 16 16 16 17 Transaction Receive a purchase order from California Premium Beverage (page 17). Fill and ship the order. Complete Invoice No. 15535, Bill of Lading No. 136480 and record the sale in the journals and ledgers. W. A. Bierkstahler is the sales account representative. Relevant data: shipment weight – 12,532 lbs., trailer # – 122302, serial # – 999356278. The carrier is CA Express. Leave the CID No. blank. Order 32 tons of white grapes at $1,875.00 per ton from Mendocino Vineyards. The item number for the white grapes is WG1003. Complete Purchase Order No. 9682. Relevant data: date required -– January 15, 20XY, shipper – Longhorn Shippers, Inc., buyer – Franz Bieler, supplier # – M0652. Purchase a 20XW Ford truck for $26,540.00. The terms include a $4,540.00 down payment and a 3-year, 6% promissory note to Ford Credit for the remaining $22,000.00. Principal and interest on the note are due monthly beginning January 4, 20XY. The company expects the truck to have a useful life of 5 years and no salvage value. Prepare Check No. 19257 payable to Potter Valley Ford for the down payment and record the transaction in the journals and ledgers. The Board of Directors of Chateau Americana authorized a $50,000 cash dividend payable on January 20th to the stockholders of record on January 15th. Receive a phone complaint from Seaside Distributors about a case of Chenin Blanc that was damaged in shipment. The case was part of Invoice No. 15175, dated November 5, 20XX, in the amount of $20,438.40. Seaside paid the invoice on November 19, 20XX and took advantage of the discount (terms 3/15, net 30). Prepare Credit Memo No. 2753 to write-off the damaged inventory that was not returned, and prepare Check No. 19286 to reimburse Seaside for the damaged goods. Record the transactions in the journals and ledgers. W. A. Bierkstahler is the sales account representative. Relevant data: customer PO # MZ5713. (Note: Be sure to review Returns and Allowances on Page 6.) Copyright © 2019 Pearson Education, Inc. Manual – 3 Ingraham & Jenkins December 19 19 19 22 26 30 30 31 31 31 Transaction Receive $850 refund from California Wine & Cheese Monthly for overpayment of advertising costs (page 18). Enter the receipt on Cash Receipts Summary No. 5712 and record the cash receipt in the journals and ledgers. Receive payment in full from Pacific Distribution Co. on Invoice No. 15243 dated November 13, 20XX, in the amount of $19,576.80 (page 19). Enter the receipt on Cash Receipts Summary No. 5712 and record the cash receipt in the journals and ledgers. Receive a purchase order (page 20) with payment (page 21) from Sonoma Distributors. Fill and ship the order. Complete Invoice No. C2489, enter the receipt on Cash Receipts Summary No. 5712, and record the sale in the journals and ledgers. W. A. Bierkstahler is the sales account representative. Relevant data: shipment weight – 7,650 lbs., trailer # – 279AJ1, serial # – 919515094. (Hint: Use the Other Account column to post Inventory and Cost of Goods Sold.) DO NOT create a Bill of Lading for this purchase order. Receive 19 tons of red grapes at $2,279.00 per ton from Mendocino Vineyards. Also received Invoice No. M7634 from Mendocino Vineyards with the shipment (page 22). Terms on the invoice are 2/10, net 30. Complete Receiving Report No. 17251 and record the inventory in the journals and ledgers using the gross method. Receive utility bill from Pacific Gas and Electric in the amount of $18,887.62 (page 23). Prepare Check No. 19402 and record the payment in the journals and ledgers. Receive Brokerage Advice from Edwards Jones for purchase of 500 shares of Microsoft at $65.73 per share plus $400 broker’s commission (page 24). Prepare Check No. 19468 and record the purchase in the journals and ledgers. Prepare Check No. 19473 payable to Mendocino Vineyards for the shipment received on December 22 and record the payment in the journals and ledgers. Receive payment in full for the December 16 purchase from California Premium Beverage (page 25). Enter the cash receipt on Cash Receipts Summary No. 5718 and record the cash receipt in the journals and ledgers. Prepare Payroll Checks (Nos. 7111-7114) for Anna Johnson, José Rodriguez, Tom Bryan, and Bob Hissom. Time cards for Tom and Bob are on pages 26-27. Prepare Check No. 19474 to transfer cash from the general cash account to the payroll account. Record the payroll transactions and all appropriate accruals in the journals and ledgers. Prepare Check No. 19475 to repay $50,000 of the principal on longterm debt to Bank of Huntington and record the payment in the journals and ledgers. Copyright © 2019 Pearson Education, Inc. Manual – 4 CAST: The Manual AIS MONTH-END PROCEDURES 1. Calculate monthly accrued interest expense for the installment note to Ford Credit (based on 365 days per year and interest starting to accrue on December 17, 20XX). Make the appropriate adjusting entry. The payable is posted to Other Accrued Expenses Payable. 2. For your convenience, depreciation in the amount of $105,341.50 has been calculated on all assets for the month of December except for any current purchases of assets. Calculate the depreciation for the Ford Pickup purchased on December 16. Post the depreciation to the Fixed Asset Subsidiary Ledger and add the amount of depreciation expense to the rest of the December depreciation. Make the appropriate adjusting entry. 3. The accounting clerk receives the bank statement on a monthly basis and reconciles it to the cash receipts and cash disbursements journals, identifying the necessary adjusting journal entries such as bank services charges, etc. The bank statement for the General Checking Account (Account #111000) reports a balance of $2,190,989.75 as of December 31, 2017. (NOTE: You will need to obtain the bank statement balance for the current year from your instructor.) The accounting clerk notes that there are outstanding checks totaling $88,097.31 (checks 19469, 19470, and 19471) and deposits in transit of $41,261.47. In addition, the bank statement indicates bank charges of $30, a returned check from Alota Wine Distributors in the amount of $19,475.26, and a check printing fee of $60. Reconcile the cash balance for the General Checking Account. 4. Foot and cross foot the journals & registers. Post all monthly totals from the journals/registers to the General Ledger and post the individual entries in the General Journal to the General Ledger. 5. Reconcile the Accounts Receivable Subsidiary Ledger, Accounts Payable Subsidiary Ledger and the Perpetual Inventory Subsidiary Ledger to the General Ledger. YEAR-END PROCEDURES 1. Prepare the unadjusted trial balance using the electronic year-end worksheet provided to you on the CAST web site (your instructor will provide you with the URL for this web site). 2. Foot and cross foot the Payroll Subsidiary Ledgers. 3. Prepare the year-end adjusting journal entries: a. Calculate the allowance for bad debts using the net sales method. Experience indicates that 0.05% of net sales should be set aside for bad debts. Make the appropriate adjusting entry. b. The calculation of federal income tax expense is a year-end adjusting entry but it cannot be made until all other entries have been made and net income before taxes has been determined. Therefore, you Copyright © 2019 Pearson Education, Inc. Manual – 5 Ingraham & Jenkins must first complete the year-end worksheet and calculate net income before taxes. Then calculate federal income tax expense and post the adjusting entry to the worksheet. (HINT: Use rates in effect as of January 20XX. You can find these rates in any tax text book or by referring to the instructions for Schedule J, Form 1120.) 4. Complete the remainder of the electronic year-end worksheet. 5. Prepare the financial statements including the income statement, the statement of retained earnings, balance sheet, and the statement of cash flows (using the indirect method). 6. Prepare and record the closing journal entries in the journal and general ledger. 7. Prepare the electronic post-closing trial balance worksheet. NOTES TO THE INSTRUCTOR  The solution was prepared assuming that all investments are considered trading securities and are, therefore, current assets. You might wish to make other assumptions or to alter your assumptions in different classes so that the answers for different classes are different.  To avoid having students turn in other students’ assignments from prior semesters, you should have them initial and sign each page of the booklet in ink prior to submitting it to you.  If you are having your students complete the Excel assignment in the Computerized Accounting Information Systems Module, you might choose to omit step 4. The Excel assignment will have them prepare financial statements.  The federal income tax withheld calculations contained in this Solutions Manual are reflective of the information contained in IRS Publication 15 for the year 2017.  The solution for the YE spreadsheet, financial statements, and reconciliations are contained in the Excel solution manual. Copyright © 2019 Pearson Education, Inc. Manual – 6 CAST: The Manual AIS SOLUTIONS GUIDE GENERAL JOURNAL Date GL Acct # Explanation Post Ref* Debit 12 312000 Dividends – Common GL51 50 239000 Dividends Payable GL52 16 Credit 000 00 50 000 00 To authorized and accrue dividends declared 12 31 602100 FICA Tax Expense GL54 530 16 602200 Medicare Tax Expense GL54 123 99 223100 FICA Payable – Employer GL51 530 16 223200 Medicare Payable – GL51 123 99 54 25 107 995 50 19 565 26 10 989 33 155 146 90 Employer To accrue employee payroll taxes 12 31 793000 Interest Expense GL59 230000 Other Accrued Expenses GL51 54 25 Payable To accrue monthly interest expense 12 31 670000 Depreciation Expense GL57 180000 Accumulated Depreciation GL50 107 995 50 To accrued depreciation for the month of December 12 31 792000 Miscellaneous Expense GL59 121000 Accounts Receivable GL48 111000 Cash GL48 19 90 00 475 26 To record bank charges and returned check per monthly bank statement 12 31 791000 Bad Debt Expense GL59 129000 Allowance for Bad Debts GL49 10 989 33 To accrue bad debts 12 31 711000 Federal Income Tax GL58 155 146 90 Expense 235000 Federal Income Taxes GL51 Payable To accrue federal income taxes *Note: Posting reference is “GL and Page Number.” For example, GL52. Initials Date Copyright © 2019 Pearson Education, Inc. Manual – 7 Ingraham & Jenkins GENERAL JOURNAL Date GL Acct # 12 410000 Sales GL53 342 575 63 491000 Dividend Income GL53 4 000 00 492000 Interest Income GL53 23 482 56 420000 Sales Discounts GL53 348 218 60 430000 Sales Returns/Allowances GL53 15 693 00 390000 Retained Earnings GL52 006 146 59 50 000 00 31 Explanation Post Ref* Debit 22 Credit 22 To close income accounts to retained earnings 12 31 390000 Retained earnings GL52 312000 Dividends – Common GL52 50 000 00 To close out Dividends account *Note: Posting reference is “GL and Page Number.” For example, GL52. Initials Date Copyright © 2019 Pearson Education, Inc. Manual – 8 CAST: The Manual AIS GENERAL JOURNAL Date GL Acct # 12 390000 Retained Earnings GL49 510000 Cost of Goods Sold GL50 11 557 835 23 601000 Wages & Salaries Expense GL51 1 973 715 17 601500 Sales Commission GL51 771 665 60 68 31 Explanation Post Ref* Debit 20 040 Credit 234 38 Expense 602100 FICA Tax Expense GL51 244 654 602200 Medicare Tax Expense GL51 57 217 61 602300 FUTA Expense GL51 7 392 00 602400 SUTA Expense GL51 22 176 00 611000 Utilities Expense GL52 325 954 67 611300 Irrigation & Waste GL52 230 910 91 Disposal Expense 612000 Landscaping Expense GL52 142 475 69 621000 Advertising Expense GL52 295 944 33 623000 Marketing Expense GL52 192 865 67 624000 Festivals & Competitions GL52 238 654 75 Expense 631000 Telephone Expense GL53 37 584 73 632000 Internet & Computer GL53 14 475 00 Expense 633000 Postage Expense GL53 35 117 66 641000 Legal & Accounting Fees GL53 88 425 50 643000 Other Consulting Fees GL53 12 500 00 651000 Office Supplies Expense GL53 58 689 68 660000 Data Processing Expense GL54 9 743 89 670000 Depreciation Expense GL54 200 828 16 680000 Travel & Entertainment GL54 169 405 86 691000 Other Insurance Expense GL54 115 058 55 692000 Medical Insurance GL54 192 154 80 693000 Workmen’s Compensation GL54 139 750 00 1 Insurance 699000 Other Employee Benefits GL55 175 643 90 700000 Dues & Subscriptions GL55 32 076 00 711000 Federal Income Tax GL55 012 742 66 712000 Property Tax Expense GL55 19 875 00 721000 Repairs & Maintenance Gl55 71 974 93 731000 Automobile Expense GL55 81 493 45 740000 Lease Expense GL56 113 607 56 791000 Bad Debt Expense GL56 10 989 33 792000 Miscellaneous Expense GL56 26 665 63 793000 Interest Expense GL56 359 969 78 1 To close expense accounts to retained earnings *Note: Posting reference is “GL and Page Number.” For example, GL52. Initials Date Copyright © 2019 Pearson Education, Inc. Manual – 9 Ingraham & Jenkins SALES REGISTER Date Dec 16 Customer California Premium Beverage Invoice/ Document Number A/R Acct # Accounts Receivable 121000 Sales 410000 15535 0504 49 241 28 49 241 28 27 793 68 27 793 68 49 28 49 28 27 68 27 68 241 Copyright © 2019 Pearson Education, Inc. Manual – 10 241 Inventory 145000 793 Cost of Goods Sold 510000 Initials Date 793 CAST: The Manual AIS CASH RECEIPTS JOURNAL Accounts Receivable 121000 Date Description 12 19 CA Wine & Cheese 12 19 Pacific Distribution 12 19 Sonoma Distributors 12 31 California Premium Sales Discount 420000 Cash 111000 850 00 19 576 80 28 903 20 A/R Acct # 0505 Other Account Transaction Amount 19 576 Sales 410000 764 04 1 477 24 97 094 04 1 477 24 0504 Transaction Amount 621000 850 00 GL55 49 241 28 68 818 08 28 903 903 20 20 510000 -15 949 44 GL54 145000 15 949 44 GL49 850 00 *Note: Posting reference is “GL and Page Number.” For example, GL52. Copyright © 2019 Pearson Education, Inc. Manual – 11 Post Ref* 80 28 47 GL Acct # Initials Date Ingraham & Jenkins PURCHASES JOURNAL Accounts Payable 210000 Other Account Date 12 22 Vendor Invoice # Vendor Mendocino Vineyards M7634 G/L Acct # Inventory 141000 43 301 00 43 301 00 Transaction Amount Post Ref* A/P Acct # M0652 Transaction Amount 43 301 00 43 301 00 *Note: Posting reference is “GL and Page Number.” For example, GL52. Initials Date Copyright © 2019 Pearson Education, Inc. Manual – 12 CAST: The Manual AIS CASH DISBURSEMENTS JOURNAL Check Number Date 12 16 19257 Description Potter Valley Ford 12 17 19286 Seaside Distributors 12 22 12402 Pacific Gas & Electric 12 30 19468 12 31 12 12 Cash 111000 4 540 Accounts Payable 210000 A/P Transaction Acct Amount # Inventory 141000 Other Account GL Acct # 00 Transaction Amount Post Ref* 170000 26 540 00 GL49 261000 -22 000 00 GL52 104 53 GL53 104 53 430000 18 887 62 611000 18 887 62 GL55 Edward Jones Financial Services 33 265 00 191000 33 265 00 GL50 19473 Mendocino Vineyards 42 434 98 31 19474 Chateau Americana Payroll Acct 7 070 21 112000 7 070 21 GL48 31 19475 Bank of Huntington 50 000 00 261000 50 000 00 GL52 156 302 34 113 867 36 866 866 02 02 M0652 43 43 301 301 00 00 *Note: Posting reference is “GL and Page Number.” For example, GL52. Initials Date Copyright © 2019 Pearson Education, Inc. Manual – 13