A. Internal Control Concepts

The Liberty Theater John Harvey graduated with a degree in acting, and starred in many stage productions. Later in life, he purchased the Liberty Theater, and produced plays, as well as showing current films. He had two employeesBetty the bookkeeper, and Tom, the ticket taker. Because there were so few employees, John asked Betty to also serve as the theater cashierselling admission tickets as well as popcorn and other refreshments. One day John was dismayed to find that there were 100 people attending a movie, but that only 92 tickets had been sold. Betty explained to him that maybe some of the customers purchased tickets that they would be using later in the week. John wasnt completely convinced that this was the case.

1.Can you think of some internal control principles that are being violated in this story?

2.What are some actions that John could take to improve the internal control at the theater?

B. Periodic Inventory System

Dons Convenience Store started in 2011 with beginning inventory of $22,000. During 2011, Don purchased $140,000 of inventory. His sales for 2011 were $250,000. At the end of 2011, Don counted his ending inventory and it amounted to $24,000. Operating expenses for the year were $32,000. Construct an income statement from this information, assuming that Don uses the periodic inventory system.

C. Bank Reconciliation--The following data pertain to Data Flow, Inc. as of 12/31/96.

1. At December 31, cash per the bank statement was $15,981; cash per the companys books was $17,445.

2. The bank indicated two charges against our account: a service charge for December of $24.00 and a $600.00 check from Jane Jones marked NSF.

3. Deposits in transit amounted to $4353.

4. The following checks were outstanding as of December 31: No. 620 for $978; No. 630 for $2052, and No. 641 for $483.

In the space below, prepare a bank reconciliation.