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Chapter 7: Q1DC (page 430)

Conduct an Internet search for information on internal control and the Sarbanes-Oxley Act. Write a report of your findings. In your account, discuss some of the advantages and disadvantages of the Sarbanes-Oxley Act. Present it to your class (if required by your instructor).

Short Answer

Expert verified

Four main areas in which the Sarbanes-Oxley Act focused

  • Increasing criminal punishment
  • Accounting regulation
  • New protections
  • Corporate responsibility

Step by step solution

01

Definition of the Sarbanes-Oxley Act

The Sarbanes -Oxley Act is established in 2002. This act is established for auditing and the financial regulations of the company.

02

Advantages of the Sarbanes-Oxley Act

  1. The first advantage of the Sarbanes-Oxley is that it provides more accurate accounting. This act makes rules and regulations for the companies that make the companies’ accounting more accurate.
  2. The second advantage of the Sarbanes-Oxley Act is that it gives more information to the companies. Because this act states that the companies’ financial statements must be accurate and no mispresent of the data is present in the financial statements.
  3. The third advantage of the act is that the accountant is personally liable for any mispresent in the financial statements
03

Disadvantages of the Sarbanes-Oxley Act

  1. The first disadvantage of this act is that it includes high costs.
  2. The second disadvantage of the act is that it negatively affects the profitability of the company because this act denied some criteria to decide the profitability of the company. This will negatively affect the profitability of the company

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Most popular questions from this chapter

Question: Understanding bank account controls

Answer the following questions about the controls in bank accounts:

Requirements

1. Which bank control protects against forgery?

2. Which bank control reports the activity in the customer’s account each period?

3. Which bank control confirms the amount of money put into the bank account?

Preparing a bank reconciliation and journal entries

The October 31 bank statement of Wyndham’s Healthcare has just arrived from State

Bank. To prepare the bank reconciliation, you gather the following data:

a. The October 31 bank balance is \(6,290.

b. The bank statement includes two charges for NSF checks from customers. One is

for \)370 (#1), and the other is for \(180 (#2).

c. The following Wyndham’s checks are outstanding at October 31:

Check No. Amount

237 \) 120

288 140

291 570

294 570

295 30

296 110

d. Wyndham’s collects from a few customers by EFT. The October bank statement

lists a \(2,200 EFT deposit for a collection on account.

e. The bank statement includes two special deposits that Wyndham’s hasn’t recorded

yet: \)900 for dividend revenue and \(100 for the interest revenue Wyndham’s

earned on its bank balance during October.

f. The bank statement lists a \)80 subtraction for the bank service charge.

g. On October 31, the Wyndham’s treasurer deposited \(270, but this deposit does

does not appear on the bank statement.

h. The bank statement includes a \)750 deduction for a check drawn by Multi-State

Freight Company. Wyndham’s notified the bank of this bank error.

i. Wyndham’s Cash account shows a balance of $3,200 on October 31.

Requirements

1. Prepare the bank reconciliation for Wyndham’s Healthcare at October 31, 2018.

2. Journalize any required entries from the bank reconciliation. Include an explanation for each entry.

Preparing a bank reconciliation

Jim Root Corporation operates four bowling alleys. The business just received the

On October 31, 2018, bank statement from City National Bank, and the statement shows

an ending balance of \(910. Listed on the statement are an EFT rent collection of

\)440, a service charge of \(7, NSF checks totaling \)50, and a \(23 charge for printed

checks. In reviewing the cash records, the business identified outstanding checks totaling

\)440 and a deposit in transit of \(1,800. During October, the business recorded a

\)260 check by debiting Salaries Expense and crediting Cash for \(26. The business’s

Cash account shows an October 31 balance of \)2,144.

Requirements

1. Prepare the bank reconciliation at October 31.

2. Journalize any transactions required from the bank reconciliation.

Classifying bank reconciliation items

The following items could appear on a bank reconciliation:

a. Outstanding checks, \(670.

b. Deposits in transit, \)1,500.

c. NSF check from customer, no. 548, for \(175.

d. Bank collection of note receivable of \)800, and interest of \(80.

e. Interest earned on bank balance, \)20.

f. Service charge, \(10.

g. The business credited Cash for \)200. The correct amount was \(2,000.

h. The bank incorrectly decreased the business’s account by \)350 for a check written

by another business.

Classify each item as (1) an addition to the book balance, (2) a subtraction from the

book balance, (3) an addition to the bank balance, or (4) a subtraction from the bank

balance.

Using Excel for a Bank Reconciliation

Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren.

Lori Anders of Wilderness Associates is getting ready to prepare the October bank reconciliation.

The cash balance on the books of Wilderness Associates on October 31 is \(3,546.

Lori reviews the bank statement, and notes the checking account balance at October 31 is \)2,445. The bank statement also

reveals that the bank collected a note receivable on behalf of Wilderness Associates—the principal was \(1,500 and the interest

was \)15. One customer’s check for \(29 was returned by the bank for insufficient funds. Two additional items on the bank statement

were the monthly EFT for the utilities, \)250, and the bank service fee of \(12. Lori notes that the cash deposit made on

October 31 of \)3,300 does not appear on the statement, and that three checks totaling $975 had not cleared the bank account

when the bank statement was prepared.

Requirements

1. Prepare the bank reconciliation for Wilderness Associates at October 31, 2018. Format appropriate cells with dollar signs and double

underlines. Use Excel formulas to calculate subtotals and totals.

2. Journalize the entries based on the bank reconciliation. For dollar amounts, use cell references on bank reconciliation
See all solutions

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