Monti Company is a very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper.

As a result, L. Stark handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.

The balance per the bank statement on October 31, 2012, was $13,600. Outstanding checks were: No. 62 for $126.75, No. 183 for $190, No. 284 for $253.25, No. 862 for $190.71, No. 863 for $226.80, and No. 864 for $165.28. Included with the statement was a credit memorandum of $440 indicating the collection of a note receivable for Monti Company by the bank on October 25. This memorandum has not been recorded by Monti Company.

The company's ledger showed one Cash account with a balance of $15,797.21. The balance included undeposited cash on hand. Because of the lack of internal controls, Stark took for personal use all of the undeposited receipts in excess of $2,240. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Instructions(a) Prepare a correct bank reconciliation.(b) Indicate the three ways that Stark attempted to conceal the theft and the dollar amount pertaining to each method.(c) What principles of internal control were violated in this case?

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Cash balance per books, October 31 Add: Outstanding checks $15,797.21 $190.71 No. 862 No. 863 226.80 No. 864 165.28 482.79 16,280.00 Less: Undeposited receipts 2,240.00 Unadjusted balance per bank, October 31 Less: Bank credit memorandum 14,040.00 440.00 Cash balance per bank statement, October 31 $13,600.00