Solutions to Chapter 10 Assignments

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a. Which of the checks might indicate kiting?
Answer: The requirement is to determine the two checks that might indicate kiting,
a form of fraud that overstates cash by simultaneously including it in two or more
bank accounts. The checks that might indicate kiting are checks #202 and #404
because they both include cash in two accounts at year-end. The cash represented
by check #202 is included in both State Bank and County Bank cash as of
December 31. This is because its receipt is recorded prior to year-end, but its
disbursement is recorded after year-end. (For the cash receipts journal to remain in
balance prior to year-end, some account must have been credited on December 30
to offset the debit to cash.) Check #404 also represents a situation in which the
cash is included in two accounts as of year-end; the check may represent a situation
in which a shortage in the account is concealed through deposit of the check that is
not recorded on the books at year-end. Check #101 does not result in a
misstatement of cash since the books recorded both the debit and credit portions of
the entry before year-end, while both banks recorded them after year-end. Check
#303 represents a situation in which funds are disbursed on the Federal account as
of year-end, but not received into the American account (per bank or per books)
until after year-end; check #303 accordingly understates cash and the nature of the
debit for the entry on December 31 is unknown. Checks #101 and #303 are both
not the answers since neither checks overstates cash. Check #101 does not
overstate cash. Check #303 understates cash.
b. Which of the checks illustrates deposits/transfers in transit on December 31,
2013?
Answer: The requirement is to determine the checks which represent deposits in
transit at December 31, 2001. Deposits in transit are those that have been sent to
the bank prior to year-end, but have not been received by the bank as of year-end.
Checks #101 and #303 are the answers because both have been disbursed per
books as of year-end, but have not yet been received by the bank as of December
31. Checks #202 and #404 have been received by the bank as of year-end and
accordingly are not in transit. Check #202 has been received before year-end.
Checks #202 and #404 have been received before year-end. Check #404 has been
received before year-end.
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