WEEK 4 PROBLEM SET - P8-22A; P8-25A; P9-28A; P9-31A

P8­22A Correcting internal control weakness
Each of the following situations has an internal control weakness.
a. Upside­Down Applications develops custom programs to customer’s specifications.
Recently, development of a new program stopped while the programmers
redesigned Upside­Down’s accounting system. Upside­Down’s accountants
could have performed this task.
b. Norma Rottler has been your trusted employee for 24 years. She performs all
cash­handling 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
pre­numbered. 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. omer’s specifications.
rammers
ccountants he performs all
a new Lexus
ny, you wonder
000 a year and ory figures in
ater went ases sales
s were not
uses receipt sh, with the
anager ceases r a week because he h situation. P8­25A Preparing a bank reconciliation and journal entries
The December cash records of Dunlap Insurance follow: Cash Payments Cash Receipts
Date
Dec. 4
9
14
17
31 Cash Debit
$ 4,170.00
$ 510.00
$ 530.00
$ 2,180.00
$ 1,850.00 Check No.
1416
1417
1418
1419
1420
1421
1422 Dunlap’s Cash account shows a balance of $16,740 at December 31. On
December 31, Dunlap Insurance received the following bank statement: Cash Credit
$ 860.00
$ 130.00
$ 650.00
$ 1,490.00
$ 1,440.00
$ 900.00
$ 630.00 Additional data for the bank reconciliation follows:
a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.
b. The NSF check was received from a customer.
c. The $1,400 bank collection was for a note receivable.
d. The correct amount of check 1419, for rent expense, is $1,940. Dunlap’s
controller mistakenly recorded the check for $1,490. Requirements
1. Prepare the bank reconciliation of Dunlap Insurance at December 31, 2015.
2. Journalize any required entries from the bank reconciliation. cember 31, 2015. P9­28A Accounting for uncollectible accounts using the allowance method
(aging­of­receivables), and reporting receivables on the balance sheet
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 31 Wrote off accounts receivable as uncollectible: Regan,
Co., $1,300; Owen Mac, $900; and Rain, Inc., $700
Recorded bad debts expense based on the aging
of accounts receivable, as follows: Age of Disco
Accounts Receivable
$165,000
Estimated percent uncollectible 1-30 days
$ 97,000.00
0.30% 31-60 days
$ 37,000.00
3% Requirements
1. Journalize the transactions.
2. Open the Allowance for Bad Debts T­account, 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. ance method
ce sheet Age of Discounts
61-90 days
$ 14,000.00
30% ries affecting that net accounts Over 90 days
$ 17,000.00
35% P9­31A Accounting for notes receivable and accruing interest
Kelly Realty loaned money and received the following notes during 2014. Note 1
2
3 Date
Aug. 1
Nov. 30
Dec. 19 Principal Amount
###
###
### Interest Rate
###
###
### 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 year­end, 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. Term
1 year
6 months
30 days notes and also
l year­end, to
are not required.
all three notes.