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toyco a retail toy chain honors two bank credit cards and makes daily deposits of cr 738494

Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts (Bank A and Bank B). Each day, Toyco batches its credit card sales slips, bank deposit slips, and authorized sales return documents, and sends them to data processing for data entry. Each week, detailed computer printouts of the general ledger credit card cash accounts are prepared. Credit card banks have been instructed to make an automatic weekly transfer of cash to Toyco’s general bank account. The credit card banks charge back deposits that include sales to holders of stolen or expired cards. The auditor examining the Toyco financial statements has obtained copies of

the detailed general ledger cash account printouts, a summary of the bank statements, and the manually prepared bank reconcilia tions, all for the week ended December 31, as shown here.

Review the December 31 bank reconciliation and the related information contained in the following schedules and describe what actions the auditor should take to obtain evidence for each item on the bank reconciliation. Assume that all amounts are material and that all computations are accurate. Organize your answer sheet as follows, using the code contained on the bank reconciliation.

Code Number Actions to Be Taken by the Auditor to Obtain Evidence

1.

2.

3.

etc.

Toyco

Bank Reconciliation

for December 31, 2013

Bank A Bank B

Code No. Add or (Deduct)

1. Balance per bank statement, December 31

$8,600

$ 0

2. Deposits in transit, December 31

2,200

6,000

3. Redeposit of invalid deposits (deposited in wrong account)

1,000

1,400

4. Difference in deposits of December 29

(2,000)

(100)

5. Unexplained bank charge

400

6. Bank cash transfer not yet recorded

0

22,600

7. Bank service charges

8. Chargebacks not recorded—stolen cards

0

100

500

0

9. Sales returns recorded but not reported to the bank

(600)

(1,200)

10. Balance per general ledger, December 31

$9,700

$29,200

Toyco

Detailed General Ledger Credit Card Cash Accounts Printouts for the Week Ended December 31, 2013

Bank A Bank B Dr. or (Cr.)

Beginning balance, December 24

$12,100

$4,200

Deposits: December 27

2,500

5,000

December 28

3,000

7,000

December 29

0

5,400

December 30

1,900

4,000

December 31

2,200

6,000

Cash transfer, December 17

(10,700)

0

Chargebacks—expired cards

(300)

(1,600)

Invalid deposits (deposited in wrong account)

(1,400)

(1,000)

Redeposit of invalid deposits

1,000

1,400

Sales returns for week ended December 31

(600)

(1,200)

Ending balance

$9,700

$29,200

Toyco

Summary of the Bank Statements

for the Week Ended December 31, 2013

Bank A Bank B (Charges) or Credits

Beginning balance, December 24

$10,000

$ 0

Deposits dated: December 24

2,100

4,200

December 27

2,500

5,000

December 28

3,000

7,000

December 29

2,000

5,500

December 30

1,900

4,000

Cash transfers to general bank account:

December 27

(10,700)

0

December 31

0

(22,600)

Chargebacks:

Stolen cards

(100)

0

Expired cards

(300)

(1,600)

Invalid deposits

(1,400)

(1,000)

Bank service charges

0

(500)

Bank charge (unexplained)

(400)

( 0)

Ending balance

$8,600

$ 0

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