Chapter 8

P8-22A Correcting internal control weakness

Each of the following situations has an internal control weakness.

a. Upside-Down Applications develops custom programs to customer's specifications.

Recently, development of a new program stopped while the programmers

redesigned Upside-Down's accounting system. Upside-Down's accountants

could have performed this task.

b. Norma Rottler has been your trusted employee for 24 years. She performs all

cash-handling 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

pre-numbered. 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.

Chapter 9

P9-28A

Accounting for uncollectible accounts using the allowance method

(aging-of-receivables), and reporting receivables on the balance sheet

2. Allowance CR Bal. $11,551

at Dec. 31, 2014

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 Wrote off accounts receivable as uncollectible: Regan,

Co., $1,300; Owen Mac, $900; and Rain, Inc., $700

31 Recorded bad debts expense based on the aging

of accounts receivable, as follows:

Age of Accounts

Accounts Receivable 1-30 Days 31-60 Days 61-90 Days Over 90 Days

$165,000 $97,000 $37,000 $14,000 $17,000

Estimated percent uncollectible 0.3% 3% 30% 35%

n

___________________________________________________________________________________________________

Requirements

1.Journalize the transactions.

2. Open the Allowance for Bad Debts T-account, 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.

P9-31A Accounting for notes receivable and accruing interest

Kelly Realty loaned money and received the following notes during 2014.

_________________________________________________________________________

Note Date Principal Amount Interest Rate Term

(1) Aug.1 $ 24,000 17% 1 year

(2) Nov. 30 18,000 6% 6 months

(3) Dec. 19 12,000 12% 30 days

_________________________________________________________________________

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 year-end, 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.