Bronys Bikes

Module VIII: Dallas Dollar Bank Reconciliation

Bronys Bikes maintains two general demand deposit bank accounts and an imprest payroll account. One of the general bank accounts and the payroll account are with Dallas Dollar Bank. The second demand deposit account is with Bank Two, the Chicago bank from which Bronys Bikes obtained the $45 million loan referred to in Module I. As part of the cash audit, Derick has asked you to reperform the reconciliation of all three of the bank accounts for December 20X9, and to do an analysis of inter-bank transfers between Dollar Bank and Bank Two.

Recall that Bronys Bikes has reconciled all bank accounts for each of the 12 months. You will begin, therefore, with the companys documentation of its December 20X9 reconciliations.

Requirements

1. Using the Excel file labeled 20X9 Bank.xlxs. Briefly examine the following documentation in this file:

WP 1.A - Cash on hand and in banks;

WP 1.B - Bank reconciliationDallas Dollar Bank; and

WP 1.C - Inter-bank transfer schedule.

Scroll to WP 1.B, Bank ReconciliationDallas Dollar Bank. Does the Dollar Bank account reconcile for December? What are the possible causes for nonreconciliation?

2. In tracing cash disbursements from the December check register to the bank statement, you learn that check 44264, in the amount of $642,752, was recorded incorrectly as $651,752. Incorporate this misstatement into the appropriate section of the bank reconciliation. Does the account reconcile after you have made this correction? Assuming check 44264 was in payment of accounts payable (refer to Exhibit BB.16), draft the necessary audit adjustment at the bottom of your document.

3. Scroll to WP 1.B and record the audit adjustment and in the audit adjustments column of the lead schedule, WP1.A.

4. The deposit in transit, as well as all but the last two checks outstanding at December 31, cleared with the bank cutoff statement. What specific audit objectives does obtaining a cutoff statement directly from the bank support? If the cutoff bank statement covered the period 1/1/Y0 through 1/21/Y0 and the deposit in transit was credited by the bank on 1/12/Y0, would you be concerned? If so, why? What additional procedures would you apply to allay your concerns? Note on document WP 1.B that Dollar Bank credited the deposit in transit on 1/3/Y0.

Module IX: Analysis of Interbank Transfers

Requirements

1. Using the Excel file labeled 20X9 Bank.xls Scroll to WP 1.C, Inter-bank Transfer Schedule. Cheryl Lucas, a member of the Vaughan & Co. audit team, prepared this document. As part of your audit training, Derick asks that you examine and review the document and determine the need for possible audit adjustments and reclassifications.

a. What is the purpose of analyzing inter-bank transfers for a short period before and after the balance sheet date?

b. Identify possible audit adjustments and reclassifications by examining WP 1.C. Assume that Bank Two check 127332 was dated December 31, 20X9, deposited on that date, and also credited by Dollar Bank on December 31, 20X9.

c. As noted previously, Lawton had borrowed $3 million from Bronys Bikes in April 20X8, and had planned to repay the loan before December 31, 20X9. Did he really repay the loan in December? Do you think the check drawn on Bank Two was reflected as an outstanding check in the 12/31/X9 Bank Two reconciliation? Do you think the check was recorded as a December disbursement? If not, why not? (Hint: Remember that the loan agreement with Bank Two requires a $10 million compensating balance at all times.)

2. Draft Audit Reclassification B at the bottom of WP 1.C.

3. Scroll to WP 1.A. Record Reclassification B from requirement (2) in the reclassification column of the lead schedule. Does the reclassification place Bronys Bikes in default on the loan agreement? If so, what further audit procedures might you elect to apply at this time?