Answer to Question #63067 in Accounting for Brent

Question

a. William Preston had a balance of $1,500 in his checking account at First National Bank on a day when the bank received the following five checks for processing against his account.

Check Number Amount Check Number Amount

3150 35.00 3165 550.00

3162 400.00 3166 1,510.00

3169 180.00

Assuming a $30 fee assessed by the bank for each bounced check, how much fee revenue would the bank generate if it processed checks (1) from largest to smallest, (2) from smallest to largest, and (3) in order of check number?
b. Do you think that processing checks from largest to smallest is an ethical business practice?
c. In addition to ethical issues, what other issues must a bank consider in deciding whether to process checks from largest to smallest?
d. If you were managing a bank, what policy would you adopt on bounced checks?

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Answer 1

(a)
1. $150 - the largest amount for the check exceeds the account balance, that is all bounced check (5 х $30)
2. $30 - one remains untreated check for $1510 (1500-35- 180-400- 550 = 335)
3. $60 - has two rough check $1510 and $180 (1500-35- 400-550 = 515)

(b) I am confident that the processing of checks from highest to lowest, is unethical in carrying out banking.

(c) In addition to ethical behavior when dealing with customers, banks should set time rules processing checks. Since maintenance checks are not treated for a long time contributes to accumulation of a large number of checks.

(d) If I were a bank manager, I would have adopted internal rules governing the review process, namely checks will be processed in chronological order according to the sequence number.