ACCOUNTING

PSA7.6             LO6

 

ThisisanaccountsreceivableageingscheduleforPhuangLtd:

 

 

Customer

 

Total

Notyetdue Numberofdayspastdue
1-30 31-60 61-90 Over90
Lee $22000   $10000 $12000    
Lu 40000 $40000        
Sing 57000 16000 6000   $35000  
Wong 34000         $34000
Others 126000 96000 16000 14000    
  $279000 $152000 $32000 $26000 $35000 $34000
Estimatedpercentageuncollectable   4% 7% 13% 25% 50%
Totalestimatedbaddebts $37450 $6080 $2240 $3380 $8750 $17000

 

At31December2012theunadjustedbalanceinAllowanceforDoubtfulDebtsisacreditof

$12000.

Required

 

(a)    Journaliseandposttheadjustingentryforbaddebtsat31December2012.

 

(b)   Journaliseandposttotheallowanceaccountthese2013eventsandtransactions.(Userunning-balanceformat.)

 

 

 

1.   31March,a$500customerbalanceoriginatingin2012isdeterminedtobeuncollectable.

 

2.   31May,achequefor$500isreceivedfromthecustomerwhoseaccountwaswrittenoffasuncollectableon31March.

 

(c)    Journalisetheadjustingentryforbaddebtsat31December2013,assumingthattheunadjustedbalanceinAllowanceforDoubtfulDebtsisadebitof$800andtheageingscheduleindicatesthattotalestimatedbaddebtswillbe$30300.

 

PSB7.8             LO6

 

 

 

At30June2012,thetrialbalanceofGleasonLtdcontainedthefollowingamountsbeforeadjustment:

 

 

 

  Debits Credits
AccountsReceivable $350000  
AllowanceforDoubtfulDebts   $1500
Sales   875000

 

 

 

Required

 

(a)    BasedontheinformationgivenwhichmethodofaccountingforbaddebtisGleasonLtdusing-thedirectwrite-offmethodortheallowancemethod?Howcanyoutell?

 

 

 

(b)   Preparetheadjustingentryat30June2012torecordbaddebtexpenseassumingthattheageingscheduleindicatesthat$16750ofaccountsreceivablewillbeuncollectable.

 

 

 

(c)    Repeatpart(b)assumingthatinsteadofacreditbalancethereisa$1500debitbalanceintheAllowanceforDoubtfulDebts.

 

 

 

(d)   Duringthenextmonth,July2012,a$4500accountsreceivableiswrittenoffasuncollectable.Preparethejournalentrytorecordthewrite-off.

 

 

 

(e)    Repeatpart(d)assumingthatGleasonLtdusesthedirectwrite-offmethodinsteadoftheallowancemethodinaccountingforuncollectableaccountsreceivable.

 

 

 

(f)   WhattypeofaccountisAllowanceforDoubtfulDebts?Howdoesitaffecthowaccountsreceivableisreportedonthestatementoffinancialpositionattheendofthereportingperiod?

 

PSB7.1             LO1,2

 

 

 

RabbitEarsPetFoodLtdrecentlychangeditssystemofinternalcontrolovercashdisbursements.Thesystemincludesthefollowingfeatures.

 

 

 

Insteadofbeingunnumberedandmanuallyprepared,allchequesmustnowbeprenumbered.Beforeachequecanbeissued,eachinvoicemusthavetheapprovalofCindyMorris,thepurchasingmanager,andRayMills,thereceiving department supervisor. ChequesmustbesignedbyeitherFrankMalone,theaccountant,orMaryArno,theassistantaccountant.Beforesigningacheque,thesignerisexpectedtocomparetheamountsofthechequewiththeamountsontheinvoice.

 

 

 

Aftersigningacheque,thesignerstampstheinvoice‘paid’andinsertswithinthestamp,thedate,chequenumberandamountofthecheque.The‘paid’invoiceisthensenttotheaccountingdepartmentforrecording.

 

 

 

Blankchequesarestoredinasafeintheaccountant’soffice.Thecombinationtothesafeisknownbyonlytheaccountantand assistant accountant. Eachmonth the bankstatementisreconciledwiththebankbalanceperbooksbytheassistantmanagingdirector.

 

 

 

Required

 

(a)IdentifytheinternalcontrolprinciplesandtheirapplicationtocashdisbursementsofRabbitEarsPetFoodLtd.

 

BBS6.6             Ethicscase

 

 

 

TylerProductsLtdoperatesthreedivisions,eachwithitsownmanufacturingfactoriesandmarketing/salesforce.ThecorporateheadquartersandcentralaccountingofficeareinSydney,andthefactoriesareinMoorebank,SmithfieldandTempe,allwithin50kilometersofSydney.Corporatemanagementtreatseachdivisionasanindependentprofitcentreandencouragescompetitionamongthem.Theyeachhavesimilarbutdifferentproductlines.

 

Asacompetitiveincentive,bonusesareawardedeachyeartotheemployeesofthefastestgrowingandmostprofitabledivision.

 

 

 

DonHenkeisthemanagerofTyler’scentralisedcomputeraccountingoperationthatrecordsthesalestransactionsandmaintainstheaccountsreceivablesforallthreedivisions.DoncameupintheaccountingranksfromtheTempedivisionwherehiswife,severalrelatives,andmanyfriendsstillwork.

 

 

 

Assalesdocumentsareenteredintothecomputer,theoriginatingdivisionisidentifiedbycode.Mostsalesdocuments(95%)arecoded,butsome(5%)arenotcodedorarecodedincorrectly.Asthemanager,DonhasinstructedthedataentrystafftoassigntheTempecodetoalluncodedandincorrectlycodedsalesdocuments.Thisisdone,hesays,‘inordertoexpediteprocessingandtokeepthecomputerfilescurrentsincetheyareupdateddaily’.AllreceivablesandcashcollectionsforallthreedivisionsarehandledbyTylerasonesubsidiaryaccountsreceivableledger.

 

Required

 

(a)Whoarethestakeholdersinthissituation?

 

(b)   Whataretheethicalissuesinthiscase?

 

(c)    Howmightthesystembeimprovedtopreventthissituation?

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