Exercise 4-3 (See Smart Book page 152 Stan Oden is opening a new business that will sell sporting goods. It will initially be a small operation, and he is concerned about the security of his assets, He will not be able to be at the business all of the time and will have to rely on his employees and internal control procedures to ensure that transactions are properly accounted for and assets are safeguarded. He will have a store manager and two other employees who will be sales personnel and stock personnel and who will also perform any other duties necessary. Stan will be in the business on a regular basis. He has come to you for advice. Write a memo to Stan outlining the procedures that he should implement to ensure that his store assets are protected and that the financial transactions are properly TYPE YOUR ANSWER HERE Exercise 4-5 (See Smart Book page 152) Sally Knox worked as the parts manager for East River Automobiles, a local automobile dealership. Sally was very dedicated and never missed a day of work. Since East River was a small operation, she was the only employee in the parts department. Her duties consisted of ordering parts for stock and as needed for repairs, receiving the parts and checking them in, distributing them as needed to the shop or to customers for purchase, and keeping track of and taking the year-end inventory of parts. East River decided to expand and neoded to secure additional financing. The local bank agreed to a loan Page 152contingent on an audit of the dealership. One requirement of the audit was to oversee the inventory count of both automobiles and parts on hand. Sally was clearly nervous, explaining that she had just inventoried all parts in the parts department. She supplied the auditors with a detailed list. The inventory showed parts on hand worth $225,000. The auditors decided they needed to verify a substantial part of the inventory. When the auditors began their counts, a pattern began to develop. Each type of part seemed to be one or two items short when the actual count was taken. This raised more concern. Although Sally assured the auditors the parts were just misplaced, the auditors coatinued the count. After completing the count of parts on hand, the auditors could document only $155,000 of actual parts. Suddenly, Sally quit her job and moved to another statc a. What do you suppose caused the discrepancy between the actual count and the count that Sally had supplied? TYPE YOUR ANSWER HERE b. What procedures could be put into place to prevent this type of problem? TYPE YOUR ANSWER HERE
