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The cash data of Eddy Automotive for October 2018 follow:

CashAccount No. 101DateItemJrnl. Ref.DebitCreditBalanceOctober 1Balance7,95031CR69,33017,28031CP1110,1227,158\begin{array}{rccccr} \textbf{Cash} &&&&& \textbf{Account No. 101}\\ \textbf{Date} & \textbf{Item} & \textbf{Jrnl. Ref.} & \textbf{Debit} & \textbf{Credit} & \textbf{Balance}\\ \\ \text{October 1} & \text{Balance} &&&&7,950\\ 31 && \text{CR6} & 9,330 && 17,280\\ 31 && \text{CP11} &&10,122 & 7,158\\ \end{array}

Cash Receipts (CR) Cash Payments (CP)\begin{array}{l} \textbf{Cash Receipts (CR) \hspace{5pt}Cash Payments (CP)}\\ \end{array}

DateCash DebitCheck No.Cash CreditOctober 2$2,8283113$1,542859731141,729101,65231151,83016837311647223603117782299043118169302,1523119478Total$9,33031201,023312123431222,288Total$10,122\begin{array}{rrcr} \textbf{Date} & \textbf{Cash Debit} & \textbf{Check No.} & \textbf{Cash Credit}\\ \\ \text{October 2} & \$2,828 & 3113 & \$\hspace{5pt}1,542\\ 8 & 597 & 3114 & 1,729\\ 10 & 1,652 & 3115 & 1,830\\ 16 & 837 & 3116 & 47\\ 22 & 360 & 3117 & 782\\ 29 & 904 & 3118 & 169\\ 30 & \underline{2,152} & 3119 & 478\\ \text{Total} & \underline{\underline{\$9,330}} &3120 & 1,023\\ && 3121 & 234\\ && 3122 & \underline{2,288}\\ && \text{Total} & \underline{\underline{\$10,122}}\\ \end{array}

Eddy Automotive received the following bank statement on October 31, 2018:

Bank Statement for October 2018\begin{array}{c} \textbf{Bank Statement for October 2018}\\ \end{array}

Beginning balance$7,950Deposits and other additions:October 1$600EFTOctober 42,828October 9597October 121,652October 17837October 22360October 231,500BC8,374Checks and other deductions:October 7$1,542October 131,380October 14419USOctober 151,729October 1847October 21441EFTOctober 26782October 30169October 3010SC(6,519)Ending balance$9,805\begin{array}{lrlr} \text{Beginning balance} &&& \$7,950\\ \text{Deposits and other additions:}\\ \text{October 1} & \$\hspace{8pt}600 & \text{EFT}\\ \text{October 4} &2,828\\ \text{October 9} & 597\\ \text{October 12} & 1,652\\ \text{October 17} & 837\\ \text{October 22} & 360\\ \text{October 23} & \underline{1,500} & \underline{\text{BC}} & 8,374\\ \text{Checks and other deductions:}\\ \text{October 7} & \$1,542\\ \text{October 13} & 1,380\\ \text{October 14} & 419 & \text{US}\\ \text{October 15} & 1,729\\ \text{October 18} & 47\\ \text{October 21} & 441 & \text{EFT}\\ \text{October 26} & 782\\ \text{October 30} & 169\\ \text{October 30} & \underline{10} & \underline{\text{SC}} & \underline{(6,519)}\\ \text{Ending balance} &&& \underline{\underline{\$9,805}}\\ \end{array}

Explanation: BC—bank collection of note receivable from customer, EFT—electronic funds transfer, US—unauthorized signature, SC—service charge

Additional data for the bank reconciliation include the following:

a. The EFT deposit was a receipt of monthly rent. The EFT debit was a monthly insurance payment.

b. The unauthorized signature check was received from a customer and returned by the bank unpaid.

c. The correct amount of check number 3115, a payment on account, is $1,380. (Eddy Automotive’s accountant mistakenly recorded the check as$1,830.)

d. The bank collected a note receivable for Eddy Automotive.


  1. Prepare Eddy Automotive’s bank reconciliation at October 31, 2018.

  2. Prepare the journal entries required at October 31, 2018.

  3. Describe how a bank account and the bank reconciliation help the general manager control Eddy Automotive’s cash.

Beaumont Independent School District (BISD) is a public school district in Beaumont, Texas. It has three high schools, six middle schools, and 16 elementary schools, serving approximately 21,000 students. In February, 2015, Patricia Lambert, former BISD Assistant Superintendent, was indicted for theft connected with her position in the school district. Lambert allegedly defrauded the school district for more than $750,000. Lambert was sentenced for federal charges of theft in 2016 to 40 months in prison and ordered to pay back$500,000 in restitution.

The story of Lambert at BISD begins in 2002, when Lambert was hired by the district as a teacher. She would eventually be promoted several times, finally to assistant superintendent, a position in which she remained until her retirement in 2014. During the course of her employment, she is charged with embezzling more than $750,000 from BISD. Here are descriptions of the schemes in which she participated/orchestrated:

Booster Club funds: Lambert took control of the Booster Club from the parents who had been running it. She gained full access to the booster club’s funds, which were not subject to BISD oversight or audits. She began taking money from the booster club; she wrote checks for more than$24,381 payable to her children or herself from the booster club funds. Lambert also purchased clothing, clothing accessories, and electronics for her own personal use from the booster club funds.

Student activity fees: During Lambert’s tenure at the school district, she also directed that certain student activity fees be paid to the booster club where she had control of the funds. For students to obtain copies of their official transcripts, they had to pay a small fee, usually less than $5. Those transcript fees were directed to the booster club account by Lambert where she had access, without audit or supervision, to the funds.

Booster club reimbursement for travel: Lambert also wrote checks out of the booster club account to reimburse herself for school district travel, even though she had already been reimbursed by BISD for the travel.

Cash fund: Students in the district would have to pay a$10 fine when found with a cell phone in class or when they lost their student ID. These fines went into a cash fund. In addition, there was a snack area set up near the cafeteria where students could purchase candy and chips. The inventory of candy and chips was paid for by the booster club. A portion of all of these cash fees and sales were deposited into Lambert’s personal bank account.

As a side note, before she joined BISD in 2002 as a teacher, Lambert was convicted of extortion in Louisiana after running a kickback scheme with teachers for whom she secured pay raises and job promotions.


  1. For each of the four schemes allegedly run by Lambert, comment on what internal control principles would likely have been violated.

  2. For each of the four schemes listed, describe controls that could have been put into place to prevent the type of fraud that Lambert is charged with committing.


Janet Black, the owner of Janet’s Catering, has delegated the management of the business to Danielle Vale, a friend. Black drops by to meet customers and check up on cash receipts, but Vale buys the merchandise and handles cash payments. Business has been very good lately, and cash receipts have kept pace with the apparent level of sales. However, for a year or so, the amount of cash on hand has been too low. When asked about this, Vale explains that suppliers are charging more for goods than in the past. During the past year, Vale has taken two expensive vacations, and Black wonders how Vale can afford these trips on her $52,000 annual salary and commissions.

List at least three ways Vale could be defrauding Black of cash. In each instance, also identify how Black can determine whether Vale’s actions are ethical. Limit your answers to the store’s cash payments. The business pays all suppliers by check (no EFTs).


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In this exercise, we are asked to list three ways Vale could be defrauding and determine if Vale's actions are ethical.

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