Refer to the YUM! Brands financial statements in Appendix A at the end of this book. Suppose…

Refer to the YUM! Brands financial statements in Appendix A at the end of this book. Suppose YUM’s year-end bank statement, dated December 30, 2006, has just arrived at company headquarters. Further assume the bank statement shows YUM’s cash balance at $324 million and that YUM’s Cash and Cash Equivalents account has a balance of $321 million on the books.

1. You must determine how much to report for cash and cash equivalents on the December 30, 2006, balance sheet. Suppose you uncover these reconciling items (all amounts are assumed and in millions):

a. Interest earned on bank balance, $1.

b. Outstanding checks, $8.

c. Bank collections of various items, $2.

d. Deposits in transit, $3.

e. Book error—YUM overstated cash by $5.

Prepare a bank reconciliation to show how YUM arrived at the correct amount of cash and cash equivalents to report on its December 30, 2006, balance sheet. Prove that your answer is the actual amount YUM reported. Journal entries are not required. (p. 226)

2. Study YUM Brands’ Management Responsibility for Financial Statements and indicate how that report links to specific items of internal control discussed in this chapter. (Challenge)

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