Problem 3-25Comprehensive cycle problem: Perpetual system

At the beginning of 2012, the Jeater Company had the
following balances in its accounts:

During 2012, the company experienced the following events.

1. Purchased inventory that cost $2,200 on account from Blue
Company under terms 1/10, n/30. The merchandise was delivered FOB shipping
point. (Edmonds. Survey of Accounting.

Freight costs of $110 were paid in cash.

2. Returned $200 of the inventory that it had purchased
because the inventory was damaged in transit. The freight company agreed to pay
the return freight cost.

3. Paid the amount due on its account payable to Blue
Company within the cash discount period.

4. Sold inventory that had cost $3,000 for $5,500 on
account, under terms 2/10, n/45.

5. Received merchandise returned from a customer. The
merchandise originally cost $400 and was sold to the customer for $710 cash
during the previous accounting period. The customer was paid $710 cash for the returned

6. Delivered goods FOB destination in Event 4. Freight costs
of $60 were paid in cash.

7. Collected the amount due on the account receivable within
the discount period.

8. Took a physical count indicating that $7,970 of inventory
was on hand at the end of the accounting


a. Identify these events as asset source (AS), asset use
(AU), asset exchange (AE), or claims exchange(CE).

b. Record each event in a statements model like the
following one. (Edmonds. Survey of
Accounting. 2012).

c. Prepare an income statement, a statement of changes in
stockholder’ equity, a balance sheet, and a statement of cash flows.

Problem 4-23Bank reconciliation and internal control

Following is a bank reconciliation
for Surf Shop for June 30, 2012:

When reviewing the bank reconciliation, Surf’s auditor was
unable to locate any reference to the NSF check on the bank statement.
Furthermore, the clerk who reconciles the bank account and records the adjusting
entries could not find the actual NSF check that should have been included in
the bank statement. Finally, there was no specific reference in the accounts
receivable supporting records

identifying a party
who had written a bad check.


a. Prepare a corrected bank reconciliation.

b. What is the total amount of cash missing, and how was the
difference between the “true cash” per the bank and the “true cash” per the
books hidden on the reconciliation prepared by the former employee?

c. What could Surf’s Shop do to avoid cash theft in the
future? (Edmonds. Survey of Accounting.