6.52 Interbank Transfers. You can use the computer-based Electronic Workpapers on the textbook

website to prepare the schedule of interbank transfers required in this problem.

EverReady Corporation is in the home building and repair business. Construction

business has been in a slump, and the company has experienced financial difficulty

over the past two years. Part of the problem lies in the companys desire to avoid laying

off its skilled crews of bricklayers and cabinetmakers. Meeting the payroll has been a

problem.

The auditors are engaged to audit the 2017 financial statements. Knowing of Ever-

Readys financial difficulty and its business policy, the auditors decided to prepare a schedule

of interbank transfers covering the 10 days before and after December 31, which is the

companys balance sheet date.

First, the auditors used the cash receipts and disbursements journals to prepare part of the

schedule shown in Exhibit 6.52.1. They obtained the information for everything except the

dates of deposit and payment in the bank statements (disbursing date per bank and receiving

date per bank). The auditors learned that EverReady always transferred money to the payroll

account at 1st National Bank from the general account at 1st National Bank. This transfer

enabled the bank to clear the payroll checks without delay. The only bank accounts in the

EverReady financial statements are the two at 1st National Bank.

Next, the auditors obtained the December 2017 and January 2018 bank statements for

the general and payroll accounts at 1st National Bank. They recorded the bank disbursement

and receipt dates in the schedule of interbank transfers. For each transfer, these dates

are identical because the accounts are in the same bank. An alert auditor noticed that the 1st

National Bank general account bank statement also contains deposits received from Citizen

National Bank and canceled check 1799 dated January 5 payable to Citizen National Bank.

This check cleared the 1st National Bank account on January 8 and was marked transfer of

funds. This led to the auditors decision to inquire about this of EverReadys chief financial

officer.

Asked about the Citizen National Bank transactions, EverReadys chief financial officer

readily admitted the existence of an off-books bank account. He explained that it was

used for financing transactions in keeping with normal practice in the construction industry.

He gave the auditors the December and January bank statements for the account at Citizen

National Bank. In it, the auditors found the following:

C-5 EVERREADY CORPORATION

Schedule of Interbank Transfers

December 31, 2017

Prepared

Date

Reviewed

Date __________________

Disbursing Account Receiving Account

Check Bank Amount

Date per

Books

Date per

Bank Bank

Date per

Books

Date per

Bank

1417 1st National 10,463 24-Dec 24-Dec m 1st National Payroll 24-Dec 24-Dec n

1601 1st National 11,593 31-Dec b 31-Dec m 1st National Payroll 31-Dec 31-Dec n

1982 1st National 9,971 08-Jan 08-Jan m 1st National Payroll 08-Jan 08-Jan n

EXHIBIT 6.52.1 Schedule of Interbank Transfers

Traced from cash disbursements journal.

bCheck properly listed as outstanding on bank reconciliation.

mVouched deposit cleared in bank statement.

Traced from cash receipts journal.

nVouched deposit cleared in bank statement.

Note: We scanned the cash disbursements and cash receipts journals for checks to and deposits from other bank accounts.

Citizen National Bank

Check Payable to Amount Dated Cleared Bank

4050 1st National $10,000 23-Dec 29-Dec

4051 Chase Bank 12,000 28-Dec 31-Dec

4052 1st National 12,000 30-Dec 05-Jan

4053 Chase Bank 14,000 4-Jan 07-Jan

4054 1st National 20,000 8-Jan 13-Jan

Deposits

Received from Amount Date

Chase Bank $11,000 22-Dec

Chase Bank 15,000 30-Dec

1st National 10,000 05-Jan

Chase Bank 12,000 07-Jan

Chase Bank

Payments

Check # Payable to Amount Dated Cleared Bank

2220 Citizen National Bank 11,000 22-Dec 28-Dec

2221 Citizen National Bank 15,000 30-Dec 05-Jan

2222 Citizen National Bank 12,000 7-Jan 12-Jan

When asked about the Chase Bank transactions, EverReadys chief financial officer

admitted the existence of another off-books bank account, which he said was the personal

account of the principal stockholder. He explained that the stockholder often used it to

finance EverReadys operations. He gave the auditors the December and January bank statements

for this account at Chase Bank; in it, the auditors found the following:

270 Part Two The Financial Statement Audit

An abbreviated calendar for the period is in Exhibit 6.52.2.

CAULCO INC.

Bank Reconciliation

February 28

Balance per bank $7,374.93

Deposit in transit 1,097.69

Outstanding Checks

Number Date Payee Amount

2239 Feb 26 Alpha Supply 500.00

2240 Feb 28 L.C. Stateman 254.37

Total outstanding (754.37)

General ledger balance Feb. 28 $7,718.25

Deposits

Received from Amount Dated

Citizen National Bank 12,000 28-Dec

Citizen National Bank 14,000 04-Jan

EXHIBIT 6.52.2

Required:

a. Complete the Schedule of Interbank Transfers (document C-5, Exhibit 6.54.1) by entering

the new information.

b. What is the actual cash balance for the three bank accounts combined, considering only

the amounts given in this case information as of December 31, 2017 (before any of the

December 31 payroll checks are cashed by employees)? As of January 8, 2018 (before

any of the January 8 payroll checks are cashed by employees)? (Hint: Prepare a schedule

of bank and actual balances.)