Problem 21-6 You are the auditor of Maglite Services Inc., 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 currently October 21, 2017, and the company's books have been closed. As part of the audit, you have found the following situations: privately owned full-service cleaning company following ASPE that is undergoing its first audit for the 1. Despite having high receivables, Maglite has no allowance for doubtful accounts, and cash collections have slowed dramatically. Unfortunately Maglite is owed $4,200 by Brad's Fast Foods at the end 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 $39,480 is f fiscal 2017. Brad's has received substantial media attention during the past year due to lyear doubtful accunts should have been $25.200Pany wrote off $31,920 in receivables, and it estimates that its September 30, 2016 allowance for Maglite's only capital asset on its books is an advanced cleaning system that has a cost of $29,400 and a carrying amount of $17,493. 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, 2. provide more relevant information to its statement users. Management antici pates that the asset will continue to be 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, depreciation expense has not been recorded for the fiscal year. Fuse for four vears after the 3 Maglite purchased a computer at the beginning of the fiscal year and immediately expensed its $2,400 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 that was on hand at the end of the previous vea pplies on hand at the end of September 2017, which is about $420 higher than the balance 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 Sep st of the invesuments). the fair value of this portfolio was $12,600 and the carrying value of the investments was $10,080 (which represent Assuming that the company's boc t titlelosed, prepare any journal entries that are require dent manually. If no entry is transactions. Ignore income tax for ea entered. int required, select "No Entry " for the account titles and enter 0 for the amounts.) Debit Credit Account Titles and Explanation 1. Retained Earnings 18,480 Allowance for Doubtful Accounts 14,280 Accounts Receivable 4,200 x Retained Earnings 2. 4,373.25 Accumulated Depreciation Machinery 4,373.25 x 3. Equipment 2,400 Retained Earnings 2,400 Retained Earnings 800 Accumulated Depreciation - Equipment 800 4. Supplies 1,260 Retained Earnings 1,260 5. Fair Value - NI Investments 2520 Unrealized Gain or Loss 2520 Assuming that the company's books are open, prepare any journal entries that are required for each of the transactions. Ignore income tax considerations. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit 1. Bad Debt Expense 18,480 Allowance for Doubtful ACCounts 18,480 Accounts Receiva ble 4,200 Allowance for Doubtful Accounts 4,200 2. Accumulated Depreciation - Equipment 4,373.25 Depreciation Expense 4,373.25 (To correct charges made in error to depreciation expense) Depreciation Expense 4,373.25 Accumulated Depreciation - Equipment 4,373.25 (To record depreciation expense) 3. ||Equipment 2,400 Retained Earnings 2,400 (To record equipment cost as expense) Depreciation Expense 800 800 Accumulated Depreciation-Equipment (To record depreciation expense) 4. Supplies 1,260 420 Supplies Expense 840 Retained Earnings 5. Fair Value - NI Investments 2520 2520 Unrealized Gain or Loss Problem 21-6 You are the auditor of Maglite Services Inc., 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 currently October 21, 2017, and the company's books have been closed. As part of the audit, you have found the following situations: privately owned full-service cleaning company following ASPE that is undergoing its first audit for the 1. Despite having high receivables, Maglite has no allowance for doubtful accounts, and cash collections have slowed dramatically. Unfortunately Maglite is owed $4,200 by Brad's Fast Foods at the end 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 $39,480 is f fiscal 2017. Brad's has received substantial media attention during the past year due to lyear doubtful accunts should have been $25.200Pany wrote off $31,920 in receivables, and it estimates that its September 30, 2016 allowance for Maglite's only capital asset on its books is an advanced cleaning system that has a cost of $29,400 and a carrying amount of $17,493. 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, 2. provide more relevant information to its statement users. Management antici pates that the asset will continue to be 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, depreciation expense has not been recorded for the fiscal year. Fuse for four vears after the 3 Maglite purchased a computer at the beginning of the fiscal year and immediately expensed its $2,400 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 that was on hand at the end of the previous vea pplies on hand at the end of September 2017, which is about $420 higher than the balance 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 Sep st of the invesuments). the fair value of this portfolio was $12,600 and the carrying value of the investments was $10,080 (which represent Assuming that the company's boc t titlelosed, prepare any journal entries that are require dent manually. If no entry is transactions. Ignore income tax for ea entered. int required, select "No Entry " for the account titles and enter 0 for the amounts.) Debit Credit Account Titles and Explanation 1. Retained Earnings 18,480 Allowance for Doubtful Accounts 14,280 Accounts Receivable 4,200 x Retained Earnings 2. 4,373.25 Accumulated Depreciation Machinery 4,373.25 x 3. Equipment 2,400 Retained Earnings 2,400 Retained Earnings 800 Accumulated Depreciation - Equipment 800 4. Supplies 1,260 Retained Earnings 1,260 5. Fair Value - NI Investments 2520 Unrealized Gain or Loss 2520 Assuming that the company's books are open, prepare any journal entries that are required for each of the transactions. Ignore income tax considerations. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit 1. Bad Debt Expense 18,480 Allowance for Doubtful ACCounts 18,480 Accounts Receiva ble 4,200 Allowance for Doubtful Accounts 4,200 2. Accumulated Depreciation - Equipment 4,373.25 Depreciation Expense 4,373.25 (To correct charges made in error to depreciation expense) Depreciation Expense 4,373.25 Accumulated Depreciation - Equipment 4,373.25 (To record depreciation expense) 3. ||Equipment 2,400 Retained Earnings 2,400 (To record equipment cost as expense) Depreciation Expense 800 800 Accumulated Depreciation-Equipment (To record depreciation expense) 4. Supplies 1,260 420 Supplies Expense 840 Retained Earnings 5. Fair Value - NI Investments 2520 2520 Unrealized Gain or Loss