You are the auditor of Maglite Services Inc., a privately owned full-service cleaning company following ASPE that


You are the auditor of Maglite Services Inc., a privately owned full-service cleaning company following ASPE that is undergoing its first audit for the period ending September 30, 2014. 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, 2014, and the company's books have been closed. As part of the audit, you have found the following situations:
1. Despite having high receivables, Maglite has no allowance for doubtful accounts, and cash collections have slowed dramatically. Unfortunately, Maglite is owed $5,000 by Brad's Fast Foods at the end of fiscal 2014. Brad's has received substantial media attention during the past year due to 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. Company management estimates that an allowance for doubtful accounts of $47,000 is required. During the 2014 fiscal year, the company wrote off $38,000 in receivables, and it estimates that its September 30, 2013 allowance for doubtful accounts should have been $30,000.
2. Maglite's only capital asset on its books is an advanced cleaning system that has a cost of $35,000 and a carrying amount of $20,825. 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, 2014, at the rate of 30%. Useful life at the time of purchase was estimated to be 10 years. Maglite would like to change to a straight-line approach to provide more relevant information to its statement users. Management anticipates that the asset will continue to be of use for four years after the September 30, 2014 year end and will have no residual value. Since the company's accountant was uncertain about how to deal with the change in policy, depreciation expense has not been recorded for the fiscal year.
3. Maglite purchased a computer at the beginning of the fiscal year and immediately expensed its $3,000 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 purchased. The company had $1,500 of cleaning supplies on hand at the end of September 2014, which is about $500 higher than the balance that was on hand at the end of the previous year.
5. Maglite started this year to keep a small amount of excess cash in trading investments which are bought and sold on the local stock exchange. At the end of September 2014, the fair value of this portfolio was $15,000 and the carrying value of the investments was $12,000 (which represented the cost of the investments).
(a) Assuming that the company's books are closed, prepare any journal entries that are required for each of the transactions.
Ignore income tax considerations.
(b) For each of the items, discuss the type of change that is involved and how it is accounted for on the current and comparative financial statements.
(c) If Maglite elected to follow IFRS, discuss how this might change your answers to (a).
(d) Repeat part (a) assuming that the books are open.
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Related Book For  answer-question

Intermediate Accounting

ISBN: 978-1118300855

10th Canadian Edition Volume 2

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy

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