Chapter 8 P8-22A Correcting internal control weakness Each of the following situations has an internal control weakness.
Question:
Chapter 8
P8-22A Correcting internal control weakness
Each of the following situations has an internal control weakness.
a. Upside-Down Applications develops custom programs to customer's specifications.
Recently, development of a new program stopped while the programmers
redesigned Upside-Down's accounting system. Upside-Down's accountants
could have performed this task.
b. Norma Rottler has been your trusted employee for 24 years. She performs all
cash-handling and accounting duties. Ms. Rottler just purchased a new Lexus
and a new home in an expensive suburb. As owner of the company, you wonder
how she can afford these luxuries because you pay her only $30,000 a year and
she has no source of outside income.
c. Izzie Hardwoods, a private company, falsified sales and inventory figures in
order to get an important loan. The loan went through, but Izzie later went
bankrupt and could not repay the bank.
d. The office supply company where Pet Grooming Goods purchases sales
receipts recently notified Pet Grooming Goods that its documents were not
pre-numbered. Howard Mustro, the owner, replied that he never uses receipt
numbers.
e. Discount stores such as Cusco make most of their sales in cash, with the
remainder in credit card sales. To reduce expenses, one store manager ceases
purchasing fidelity bonds on the cashier.
f. Cornelius' Corndogs keeps all cash receipts in an empty box for a week because he
likes to go to the bank on Tuesdays when Joann is working.
Requirements
1. Identify the missing internal control characteristics in each situation.
2. Identify the possible problem caused by each control weakness.
3. Propose a solution to each internal control problem.
Chapter 9
P9-28A
Accounting for uncollectible accounts using the allowance method
(aging-of-receivables), and reporting receivables on the balance sheet
2. Allowance CR Bal. $11,551
at Dec. 31, 2014
At September 30, 2014, the accounts of Mountain Terrace Medical Center
(MTMC) include the following:
_____________________________________________________________________
Accounts Receivable $ 145,000
Allowance for Bad Debts (credit balance) 3,500
During the last quarter of 2014, MTMC completed the following selected transactions:
_____________________________________________________________________
Dec. 28 Wrote off accounts receivable as uncollectible: Regan,
Co., $1,300; Owen Mac, $900; and Rain, Inc., $700
31 Recorded bad debts expense based on the aging
of accounts receivable, as follows:
Age of Accounts
Accounts Receivable 1-30 Days 31-60 Days 61-90 Days Over 90 Days
$165,000 $97,000 $37,000 $14,000 $17,000
Estimated percent uncollectible 0.3% 3% 30% 35%
n
___________________________________________________________________________________________________
Requirements
1.Journalize the transactions.
2. Open the Allowance for Bad Debts T-account, and post entries affecting that
account. Keep a running balance.
3. Show how Mountain Terrace Medical Center should report net accounts
receivable on its December 31, 2014, balance sheet.
P9-31A Accounting for notes receivable and accruing interest
Kelly Realty loaned money and received the following notes during 2014.
_________________________________________________________________________
Note Date Principal Amount Interest Rate Term
(1) Aug.1 $ 24,000 17% 1 year
(2) Nov. 30 18,000 6% 6 months
(3) Dec. 19 12,000 12% 30 days
_________________________________________________________________________
Requirements
1. Determine the maturity date and maturity value of each note.
2. Journalize the entry to record the inception of each of the three notes and also
journalize a single adjusting entry at December 31, 2014, the fiscal year-end, to
record accrued interest revenue on all three notes. Explanations are not required.
3. Journalize the collection of principal and interest at maturity of all three notes.
Explanations are not required.
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