Sam Casey, generally are satisfied that the accounts and Jerry's responses are supported by the underiying facts. Jerry has agreed to adjust his accounts and note disclosures for all corrections proposed by Dunes & Driftwood. No issues have come to light during the audit, other than those revealed in your questions and the responses, in addition to a question raised by Sam. While completing work on some auditing matters such as confirmation letters to customers and banks, he had reviewed a number of documents recorded in January $20$X$5$ for applicability to $20$X$4.$ A supplier's invoice was found that included the following information about inventory in transit at year end:

Invoice details:

Goods were fittings for the pump and valve instruments.

HydroQual's purchase order was dated December $23,20$X$4.$

Goods were shipped FOB shipping point on December $30,20$X$4.$

Goods were received by HydroQual on January $4,20$X$5,$ per a receiving report dated

January $4,20$X$5.$

Dollar amount including the air freight totaled $$28,670.$

HydroQual dated the entry to book this purchase at January $5,20$X$5.$

Sam also noted that HydroQual's market borrowing rate for financing vehicles and equipment at year$-$end had remained at $4\mathrm{.}25\%$ percent. Martha Mason called to say that a five$-$ year life is applicable to the new equipment for tax purposes, and that any bond discount, premium, or bond issue cost amortized during the current year is considered to be interest and therefore tax deductible.

Finally, Sam questioned whether any new financial statement notes were needed to address line of business or segment disclosures. Jerry had provided him copies of the following financial reports that he now routinely prepares for Rick and Kay to keep track of the two lines of business. The Company is using this information to make decisions about the company's operations.

 $20$X$4$

Maintenance Merchandising Corporate Total

Revenue from External Customers $ $2,940,000$ $ $1,445,000$ $ $239,500$ $ $4,624,500$

Interest Expense $9,12011,550-20,670$

Depreciation and Amortization $84,50436,583-121,087$

Segment Pre$-$Tax Profit $1,252,288(70,590)12,4961,194,194$

Segment Assets $1,106,4931,276,179748,3683,131,040$

REQUIRED:

Attached are your questions and Jerry's responses. Based on this information and the data developed by Sam, prepare your suggested year end $20$X$4$ correcting and adjusting journal.

YOUR $20$X$4$ QUESTIONS AND CLIENT RESPONSES

$1$ Do you anticipate any significant collection problems? Your allowance for doubtful accounts to open accounts is a low ratio compared to prior years$-$we noted that it is just over $11\%$ this year, compared to much higher levels in the past. Do you think this is a reasonable ratio?

$$Early in the year we wrote off only $$26,500$ of receivables, which is quite a bit lower than the amount we allowed for last year. Rick, Kay, and I agree that we may lose up to $$35,000$ from the open accounts as of December $31,20$X$4.$ That's reflected in the bad debt expense entry. The allowance for bad debts was just a "squeeze.

$"$By the way, we are finding that our customers who are buying only the inventory items are quicker to pay and less likely to default so we think this ratio should be somewhat lower going forward.