P21 - 6 You are the auditor of Maglite Services Inc ., a privately owned full-service cleaning company following ASPE that is undergoing its first audit for the period ending September 30, 2017 . The bank has requested that Maglite have its statements audited this year to satisfy a condition of its debt covenant . It is AUDIT AND currently October 21 , 2017 , and the company's books have been closed . As part of ASSURANCE the audit , you have found the following situations :" 1 . Despite having high receivables , Maglite has no allowance for doubtful accounts , and cash collections have slowed dramatically . Unfortunately . Maglite is owed $5,000 by Brad's Fast Foods at the end of fiscal 2017 . Brad's has received substantial media attention during the past year due to Department of Health investigations that ultimately resulted in the closure of the company's operations ; the owner has apparently moved to the Bahamas . No adjustment* has been made for this balance . Maglite's management estimates that an allowance for doubtful accounts of $47, 000 is required . During the 2017 fiscal year, the company wrote off $38, 000 in receivables , and it estimates that its September 30, 2016 allowance for doubtful accounts should have been $30,000 . 2 . Maglite's only capital asset on its books is an advanced cleaning system that has a cost of $35, 000 and a carrying amount of $ 20. 825. Maglite has been depreciating this asset using the capital cost allowance used for tax purposes for the two years prior to its year ended September 30 , 2017 , at the rate of 30%/} . Useful life at the time of purchase was estimated to be 10 years . Maglite would like to change to a straight - line approach to provide more relevant information to its statement users . Management anticipates that the asset will continue to be of use for four years after the September 30 , 2017 year end and will have no residual value . Because the company's accountant was uncertain about how to deal with the change in policy , depreciation expense has not been Itcarded for the fiscal veal .*3. Maglite purchased a computer at the beginning of the fiscal year and immediately expensed its $3, 000 cost . Upon questioning , one of the owners* said he thought the computer would likely not need to be replaced for at least two more Years . 4. You notice that there are no supplies on the statement of financial position . Company management explains that it expenses all supplies when purchased . The company had $ 1, Son of cleaning supplies on hand at the end of September* 2017 , which is about $500 higher than the balance that was on hand at the end of the previous year . 5 . This year , Maglite started to keep a small amount of excess cash in trading* investments that are bought and sold on the local stock exchange . At the end of September 2017, the fair value of this portfolio was $15,000 and the carrying* value of the investments was $ 12, 000' ( which represented the cost of the investments ) . Instructions* ( a ) Assuming that the company's books are closed , prepare any journal entries* that are required for each of the transactions . Ignore income tax considerations . ( 6 ) For each of the items , discuss the type of change that is involv_ _ __" how it is accounted for on the current and comparative financial statements . ( C ) If Maglite elected to follow IFRS , discuss how this might change your* answers to part (a) .
