Matt, the accounting manager at Santorini Treasures Co., had a busy day. He completed the recording for several transactions, but made some errors. Please identify the errors. There are 4 distinct errors (one in each scenario, so each scenario has an error). For the 4 errors you identify, briefly indicate both the error and how Matt should have done the accounting (for it to be correct). First Scenario: He recorded the purchase of the following investments into the following accounts: Security Account Certificate of deposit maturing in 4 Cash Equivalents months 350 shares of common stock, intended Current Investment in Security to be sold in 9 months 200 shares of preferred stock, Noncurrent Investment in Security intended to be sold in 3 years Second Scenario: He realized that a customer was not going to pay their bills because the customer went bankrupt. Santorini Treasures uses the aging method for bad debts. To address this, he reduced Accounts Receivable (for the amount of the uncollectible accounts) and increased Bad Debt Expense (for the same amount). Third Scenario: He learned that the repairs department incurred costs related to warranties. Specifically, costs were incurred for employee wages (note the wages were not paid yet) and parts inventory, both of which were used to complete repairs for products under warranty that customers sent back because they needed fixing. He recorded an increase in Wages Payable and reduction to Parts Inventory, as well as recorded the related increase to Warranty Expense. Fourth Scenario: He received payment from a customer for a previous sale on credit (assume the sale was recorded at the time). The customer was offered a 1 percent discount, and they paid in time to receive the discount. He recorded cash going up by the discounted amount, and reduced Accounts Receivable by that same amount. Matt, the accounting manager at Santorini Treasures Co., had a busy day. He completed the recording for several transactions, but made some errors. Please identify the errors. There are 4 distinct errors (one in each scenario, so each scenario has an error). For the 4 errors you identify, briefly indicate both the error and how Matt should have done the accounting (for it to be correct). First Scenario: He recorded the purchase of the following investments into the following accounts: Security Account Certificate of deposit maturing in 4 Cash Equivalents months 350 shares of common stock, intended Current Investment in Security to be sold in 9 months 200 shares of preferred stock, Noncurrent Investment in Security intended to be sold in 3 years Second Scenario: He realized that a customer was not going to pay their bills because the customer went bankrupt. Santorini Treasures uses the aging method for bad debts. To address this, he reduced Accounts Receivable (for the amount of the uncollectible accounts) and increased Bad Debt Expense (for the same amount). Third Scenario: He learned that the repairs department incurred costs related to warranties. Specifically, costs were incurred for employee wages (note the wages were not paid yet) and parts inventory, both of which were used to complete repairs for products under warranty that customers sent back because they needed fixing. He recorded an increase in Wages Payable and reduction to Parts Inventory, as well as recorded the related increase to Warranty Expense. Fourth Scenario: He received payment from a customer for a previous sale on credit (assume the sale was recorded at the time). The customer was offered a 1 percent discount, and they paid in time to receive the discount. He recorded cash going up by the discounted amount, and reduced Accounts Receivable by that same amount
