Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During the financial year 2011, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities:
€¢ Shady Oaks Centre, a private treatment centre
€¢ Gardens Nursing Home Ltd., a private nursing home
€¢ Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects. Year end for all HCHG entities is June 30.
During the 2011 financial year, Shady Oaks released its own line of treatment supplies, such as orthotics, massage oils, and exercise discs and balls, which are sold by direct marketing by a sales team employed by the centre. The sales team receives a base salary and a bonus component, which is based on the dollar value of sales it generates. You recognize that the team's main motivation is to maximize its bonuses. You select a sample of payments received by the centre post year end and trace the payments back to the general ledger and customer account balance.
Testing results of Gardens Nursing Home's accounts payable
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