ACC 557 Week 5 Problems Chapter 7 and 8 and Week
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ACC 557 Week 5
Discussion Question 1
DQ 1
"Internal
Controls" Please respond to the following:
From the e-Activity,
analyze the situation from the company you selected and the internal controls
that may have been compromised to allow the problem to occur and the resulting
financial impact to the business. Propose a plan to prevent this type of
situation in the future.
Match the situation
with the primary components of the fraud triangle factor (opportunity, financial
pressure, or rationalization) that best describes it and specifically create
strategies to address this component of the triangle to prevent recurrence for
the above-mentioned company.
DQ 2
"Receivables"
Please respond to the following:
Assess the external
and internal factors that influence credit policy and decision making within a company that extends credit to its
customer when providing a good or service on account. Indicate the factor of
most significance in today’s business environment. Provide support for your
rationale.
Assuming that a
certain percentage of customers will be deemed high risk, recommend a strategy
to minimize a company’s bad debt exposure. Indicate how the company would
implement the strategy. Provide support for your recommendation.
Chapter 7
Exercise 7-5
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Your answer is correct.
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Listed below are five procedures followed by
Parson Company.
1.
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Several individuals operate the cash register using the same
register drawer.
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2.
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A monthly bank reconciliation is prepared by someone who has no
other cash responsibilities.
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3.
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Fran Vorbeck writes checks and also records cash payment journal
entries.
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4.
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One individual orders inventory, while a different individual
authorizes payments.
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5.
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Unnumbered sales invoices from credit sales are forwarded to the
accounting department every four weeks for recording.
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Indicate whether each procedure is an example of good internal control or of weak internal control. If it is an example of good internal control, indicate which internal control principle is being followed. If it is an example of weak internal control, indicate which internal control principle is violated.
Exercise 7-7
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Your answer is correct.
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LaSalle Company established a petty cash fund on
May 1, cashing a check for $100. The company reimbursed the fund on June 1 and
July 1 with the following results.
June 1: Cash in fund $1.75.
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Receipts: delivery expense $31.25; postage expense $41; and
miscellaneous expense $25.
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July 1: Cash in fund $3.25.
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Receipts: delivery expense $21; entertainment expense $51; and
miscellaneous expense $24.75.
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On July 10, LaSalle increased the fund from $100 to $150.00.
Prepare journal entries for LaSalle Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Exercise 7-14
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Your answer is correct.
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Nayak Company has recorded
the following items in its financial records.
Cash in bank
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$41,000
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Cash in plant expansion fund
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100,000
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Cash on hand
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8,000
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Highly liquid investments
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34,000
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Petty cash
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500
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Receivables from customers
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89,000
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Stock investments
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61,000
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The cash in bank is subject to a compensating balance of $5,000. The highly liquid investments had maturities of 3 months or less when they were purchased. The stock investments will be sold in the next 6 to 12 months. The plant expansion project will begin in 3 years.
What amount should Nayak report as “Cash and cash equivalents” on its balance sheet?
Cash and cash equivalents
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$
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Problem 7-3A
On May 31, 2014, Terrell Company had a cash
balance per books of $6,781.50. The bank statement from Home Town State Bank on
that date showed a balance of $6,804.60. A comparison of the statement with the
cash account revealed the following facts.
1.
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The statement included a debit memo of $40 for the printing
of additional company checks.
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2.
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Cash sales of $836.15 on May 12 were deposited in the bank.
The cash receipts journal entry and the deposit slip were incorrectly made
for $886.15. The bank credited Terrell Company for the correct amount.
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3.
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Outstanding checks at May 31 totaled $276.25. Deposits in
transit were $1,916.15.
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4.
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On May 18, the company issued check No. 1181 for $685 to
Barry Dietz on account. The check, which cleared the bank in May, was
incorrectly journalized and posted by Terrell Company for $658.
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5.
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A $3,000 note receivable was collected by the bank for
Terrell Company on May 31 plus $80 interest. The bank charged a
collection fee of $20. No interest has been accrued on the note.
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6.
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Included with the cancelled checks was a check issued by Bridges
Company to Jon Newton for $600 that was incorrectly charged to Terrell
Company by the bank.
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7.
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On May 31, the bank statement showed an NSF charge of
$680 for a check issued by Sandy Grifton, a customer, to Terrell Company
on account.
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(a) Prepare the bank reconciliation at May 31, 2014. (Reconcile the bank balance first and then the book balance.)
(b) Prepare
the necessary adjusting entries for Terrell Company at May 31, 2014. (Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
Chapter 8
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Exercise 8-3
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The ledger of Elburn
Company at the end of the current year shows Accounts Receivable $110,000,
Sales Revenue $840,000, and Sales Returns and Allowances $28,000. (Credit
account titles are automatically indented when amount is entered. Do not indent
manually.)
(a)
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If Elburn uses the direct write-off method to account for
uncollectible accounts, journalize the adjusting entry at December 31,
assuming Elburn determines that T. Thum’s $1,400 balance is
uncollectible.
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(b)
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If Allowance for Doubtful Accounts has a credit balance of
$2,100 in the trial balance, journalize the adjusting entry at December
31, assuming bad debts are expected to be (1) 1% of net sales, and
(2) 10% of accounts receivable.
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(c)
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If Allowance for Doubtful Accounts has a debit balance of
$200 in the trial balance, journalize the adjusting entry at December
31, assuming bad debts are expected to be (1) 0.75% of net sales and
(2) 6% of accounts receivable.
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Exercise 8-5
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At December 31, 2013, Crawford Company had a balance of
$15,000 in Allowance for Doubtful Accounts. During 2014, Crawford wrote
off accounts totaling $14,100. One of those accounts ($1,800) was later
collected. At December 31, 2014, an aging schedule indicated that the balance
in Allowance for Doubtful Accounts should be $19,000.
Prepare journal entries to record the 2014 transactions of Crawford Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Prepare journal entries to record the 2014 transactions of Crawford Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Exercise 8-14
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Lashkova Company had accounts receivable of $100,000 on
January 1, 2014. The only transactions that affected accounts receivable during
2014 were net credit sales of $1,000,000, cash collections of $920,000, and
accounts written off of $30,000.
(a)
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Your answer is correct.
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Compute the ending balance
of accounts receivable.
Ending balance of accounts receivable
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$
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(b)
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Your answer is correct.
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Compute the accounts
receivable turnover ratio for 2014. (Round answer to 2 decimal
places, e.g. 2.50.)
Accounts receivable turnover ratio
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(c)
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Your answer is correct.
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Compute the average
collection period in days. (Round answer to 1 decimal
place, e.g. 25.5.)
Average collection period in days
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days
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Problem 8-7A
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On January 1, 2014, Derek
Company had Accounts Receivable $139,000, Notes Receivable $30,000, and
Allowance for Doubtful Accounts $13,200. The note receivable is from Kaye
Noonan Company. It is a 4-month, 12% note dated December 31, 2013. Derek
Company prepares financial statements annually. During the year, the following
selected transactions occurred.
Jan. 5
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Sold $24,000 of merchandise to Zwingle Company, terms n/15.
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20
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Accepted Zwingle Company’s $24,000, 3-month, 9% note for
balance due.
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Feb. 18
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Sold $8,000 of merchandise to Gerard Company and accepted
Gerard’s $8,000, 6-month, 8% note for the amount due.
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Apr. 20
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Collected Zwingle Company note in full.
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30
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Received payment in full from Kaye Noonan Company on the amount
due.
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May 25
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Accepted Isabella Inc.’s $4,000, 3-month, 7% note in
settlement of a past-due balance on account.
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Aug. 18
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Received payment in full from Gerard Company on note due.
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25
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The Isabella Inc.’s note was dishonored. Isabella Inc.’s is not
bankrupt; future payment is anticipated.
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Sept. 1
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Sold $12,000 of merchandise to Fernando Company and
accepted a $12,000, 6-month, 10% note for the amount due.
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Journalize the transactions. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to the nearest whole dollar, e.g. 5,275.)
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