menu
bartleby
search
close search
Hit Return to see all results

D.J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decide to “borrow” $3,000 from the company and to conceal his theft.As a first step, Fletcher removed $3,000 in currency from the cash register. This amount represents the bulk of the cash received over the counter during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer, Michael Adams in full payment in his account. Fletcher made no journal entry to the record the $3,000 collection from Adams but deposited the check in Bluestem Product’s bank account in place of the $3,000 over-the-counter cash receipts he had stolen.In order to keep Adams from protecting when his month-end statement reached him. Fletcher made a journal entry debiting Sales Returns and Allowances and crediting account receivables Michael Adams. Fletcher posted this entry to the two general ledger accounts affected and to Adam’s account in the subsidiary ledger for account receivables.a. Did these actions by Fletcher cause the general ledger to be out of balance or the subsidiary ledger to disagree with the control account? Explain.b. Assume that Bluestem Products prepare financial statements at the end of the month without discovering the theft. Would any items in the balance sheet or the income statement be in error? Explain.c. Several weaknesses in the internal control apparently exist at Bluestem Products. Indicate three specific changes needed to strengthen internal control cover cash receipts

Question

D.J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decide to “borrow” $3,000 from the company and to conceal his theft.

As a first step, Fletcher removed $3,000 in currency from the cash register. This amount represents the bulk of the cash received over the counter during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer, Michael Adams in full payment in his account. Fletcher made no journal entry to the record the $3,000 collection from Adams but deposited the check in Bluestem Product’s bank account in place of the $3,000 over-the-counter cash receipts he had stolen.

In order to keep Adams from protecting when his month-end statement reached him. Fletcher made a journal entry debiting Sales Returns and Allowances and crediting account receivables Michael Adams. Fletcher posted this entry to the two general ledger accounts affected and to Adam’s account in the subsidiary ledger for account receivables.

a. Did these actions by Fletcher cause the general ledger to be out of balance or the subsidiary ledger to disagree with the control account? Explain.

b. Assume that Bluestem Products prepare financial statements at the end of the month without discovering the theft. Would any items in the balance sheet or the income statement be in error? Explain.

c. Several weaknesses in the internal control apparently exist at Bluestem Products. Indicate three specific changes needed to strengthen internal control cover cash receipts

 

 

 

check_circleAnswer
Step 1

a.

The fraudulent activities by D. J. Fletcher would neither make the general ledger out of balance nor would these activities stop the subsidiary ledgers accounts from agreeing with the control account.

Step 2

b.

In the income statement, due to the overstatement of the Sales Returns and Allowances account by $3,000, net sales are understated by $3,000. Therefore, Net income would also be understated by $3,000.

 

In case,...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Our solutions are written by experts, many with advanced degrees, and available 24/7

See Solution
Tagged in

Business

Accounting

Related Accounting Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods...

A: The Taxable Income needs to be calculated by subtracting the depreciation from  Pretax income. Once ...

question_answer

Q: The following information was drawn from the Year 5 balance sheets of two companies:  Company Ass...

A: Return on equity ratio:  Rate of return on equity ratio is used to determine the relationship betwee...

question_answer

Q: Manahan Corporation received its August 31 bank statement showing total funds on deposit of $288,090...

A: a) Manahan's bank reconciliation statement as of August 31, 20X5 is as follows:

question_answer

Q: What is the definition of 'taxable income'?

A: Income: Income includes the income of an individual in the form of wages, salary, pension, etc. The ...

question_answer

Q: How is the earned income credit determined?

A: Earned income credit: Earned income credit is a refundable tax credit system designed by the federal...

question_answer

Q: Shamrock, Inc.’s income statement contained the condensed information below. Shamrock, Inc.Incom...

A: Statement of cash flows: This statement reports all the cash transactions which are responsible for ...

question_answer

Q: LO 3,8 Citron, a calendar year taxpayer, began business in January 2017. It had a long-term capital ...

A: Provision of long-term capital gain as an individual. Long-term capital gain of $5,000 in 2017 is ta...

question_answer

Q: I need help solving this problem. The picture attached is the information which was given. I copy an...

A: Income Statement: It includes the total cost incurred by the business and revenue earned by the busi...

question_answer

Q: I am resubmitting this question as I am getting flagged that there is information missing.    Losses...

A: Contribution format segmented income statement shows the difference between the fixed costs as trace...

Sorry about that. What wasn’t helpful?