Module I- Dallas Dollar

Bank Reconciliation

Bikrite maintains two general demand deposit accounts and a payroll account. One of the general demand deposit accounts and the payroll account are with Dallas Dollar Bank. The second demand deposit account is with Bank Two, the Chicago bank from which Biltrite obtained the $45 million loan referred to pre¬viously. As part of the cash audit, Derick has asked you to reperfonn the reconciliation of all three of the bank accounts for December 2009, and to do an analysis of inter-bank transfers between Dollar Bank and Bank Two.

Recall that Biltrite has reconciled all bank accounts for each of the 12 months. You will begin, therefore, with the company's documentation of its December 2009 reconciliations.

Requirements
1. Using the spreadsheet program and downloaded data, retrieve the file labeled "Bank." Briefly examine the following documentation in this file:
 WP 1-Cash on hand and in banks;
 WP 1.8-Bank reconciliation-Dallas Dollar Bank; and
 WP LC-Inter-bank transfer schedule.
Scroll to WP 1.B, "Bank Reconciliation-Dallas 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 BR.16), draft the necessary audit adjustment at the bottom of your document.

3. Print the bank reconciliation document.

4. Scroll to WP 1 and record the audit adjustment in the "audit adjustments" column of the lead schedule.

5. 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 1/1/10 through 1/21/10 and the deposit in transit was credited 1/12/10, would you be concerned? If so, why? What additional procedures would you apply to allay your con¬cerns? Note on document WP 1.B that Dollar Bank credited the deposit in transit on 1/3/10.

Module II: Analysis of Interbank Transfers

Requirements

1. Using the spreadsheet program and downloaded data, retrieve the file labeled "Bank." Scroll to WP 1.C, "Inter-bank Transfer Schedule." Cheryl Lucas, a member of the Denise 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 I.C. Assume that Bank Two check 127332 was dated December 31, 2009, deposited on that date, and also credited by Dollar Bank on December 31, 2009.

c. As noted previously, Lawton had borrowed S3 million from Biltrite in April 2008, and had planned to repay the loan before December 31, 2009. 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 12/31/09 Bank Two reconciliation? Do you think the check was recorded as a December disbursement? If not, why not? (Hint: Remem¬ber that the loan agreement with Bank Two requires a S10 million compensating balance at all times.)

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

3. Print the inter-bank transfer document.

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

5. Print the lead schedule.

Module III: Analysis of Marketable Securities

Although the addition of the Waistliner Stationary Bike to the product line helped somewhat in increasing Biltrite's fall and winter revenue, business remains quite seasonal, producing large amounts in idle funds to be invested temporarily after the spring and summer bicycle sales seasons have ended. Mar¬lene McAfee, the Biltrite treasurer, usually invests in marketable securities in mid-August and holds them until mid-January. They are sold in late January and February to finance spring inventories of bicycles. McAfee's goals in acquir¬ing short-term investments are to maximize return while minimizing risk of loss from wide temporary price fluctuations. For this reason, the portfolio is limited to debt securities rated AA and above, and common stocks of "blue-chip" companies.

As of December 31, 2009, the portfolio consisted of the following holdings:

Requirements

1. Using the spreadsheet program and downloaded data, retrieve the file labeled "Security." Do you think McAfee's securities portfolio is consistent with her stated goals of "maximizing return while minimizing risk of loss from temporary price fluctuations"? Justify your answer.

2. What determines whether marketable securities are to be classified as current or noncurrent on the balance sheet?

3. What are the objectives in the audit of marketable securities? What are the most relevant assertions for the auditor to examine? Examine the audit legends at the bottom of document 2. Have the objectives been satisfied?

4. Enter the market data for each security held at December 31, 2009.

5. Add an audit legend (and explain it at the bottom of the worksheet) regard¬ing how market was determined.

6. Draft Audit Adjustment 8 at the bottom of WP 2 to recognize the under-statement of interest revenue. The discrepancy results from failure to recog-nize accrued interest at 12/31/09 (debit account 1205, "Accrued Interest Receivable").

7. Draft Audit Adjustment 9 to adjust the loss on decline of market value to reflect the corrected amount. The wide disparity in this instance arises because Biltrite, in adjusting to market at 12/31/09, compared market at 12/31/09 with the cost of the 12/31/08 portfolio, rather than comparing 12/31/09 market with 12/31/09 carrying values. For this adjustment, use account 9702, "Loss on Decline of Market Value of Securities," and account 1102, "Allowance for Decline of Market Value of Securities."

8. Print your document.