Task 1: Journalize sales transactions.
Presented below are transactions related to Rebecca Company.
1. On December 3, Rebecca Company sold $480,000 of merchandise to Simonis Co., terms 2/10, n/30, FOB shipping point. The cost of the merchandise sold was $350,000.
2. On December 8, Simonis Co. was granted an allowance of $27,000 for merchandise purchased on December 3.
3. On December 13, Rebecca Company received the balance due from Simonis Co.
Prepare the journal entries to record these transactions on the books of Rebecca Company using a perpetual inventory system.
Assume that Rebecca Company received the balance due from Simonis Co. on January 2 of the following year instead of December 13. Prepare the journal entry to record the receipt of payment on January 2.
Task 2: Prepare sales revenues section of income statement.
Piccola Company provides the following information for the month ended October 31, 2006: Sales on credit $280,000, cash sales $100,000 sales discounts $13,000, sales returns and allowances $21,000. Prepare the sales revenues section of the income statement based on this information.
Task 3: Compute net purchases and cost of goods purchased.
Assume that E. Guard Company uses a periodic inventory system and has these account balances: Purchases $400,000; Purchase Returns and Allowances $11,000; Purchase Discounts $8,000; and Freight-in $16,000. Determine net purchases and cost of goods purchased.
Sue Ernesto is the owner of Ernesto's Pizza. Ernesto's is operated strictly on a carryout basis. Customers pick up their orders at a counter where a clerk exchanges the pizza for cash. While at the counter, the customer can see other employees making the pizzas and the large ovens in which the pizzas are baked.
Instructions
Identify the six principles of internal control and give an example of each principle that you might observe when picking up your pizza. (Note: It may not be possible to observe all the principles.)
Task 4: Identify internal control weaknesses over cash receipts and suggest improvements.
The following control procedures are used at Sandwich Company for over-the-counter cash receipts.
1. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank.
2. All over-the-counter receipts are registered by three clerks who use a cash register with a single cash drawer.
3. The company accountant makes the bank deposit and then records the day's receipts.
4. At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.
5. Cashiers are experienced; they are not bonded.
Instructions
1. For each procedure, explain the weakness in internal control, and identify the control principle that is violated.
2. For each weakness, suggest a change in procedure that will result in good internal control.