ACCT1006_Tutorial 6, Week 7-1
Credittermsare2/7,n/30.At31March2012thereisa$1600credit balanceinAllowance forDoubtfulDebtsbeforeadjustment.Theentityusestheageingofaccountsreceivablebasisforestimatinguncollectableaccounts.GarciaPtyLtd’sestimatesofbaddebtsareasfollows:
Ageofaccounts
Question1 LO1,2
Internalcontrolisconcernedonlywithenhancingtheaccuracyoftheaccountingrecords.Doyouagree?Explain. Question8 LO6
SooEngcannotunderstandwhytherecoverableamountofaccountsreceivabledoesnotdecreasewhenanuncollectableaccountiswrittenoffundertheallowancemethod.ClarifythispointforSooEng. Question9 LO7
SellitLtd’soperationcycleis1year.Howwouldthefollowingreceivableszbeclassifiedonthestatementoffinancialposition?
(a) Tradedebtoraccountof$1million,ofwhich90%isduewithin1monthwiththebalanceduein18months.
(b) A90-daypromissorynote. BE7.1 LO1
SeveraloftheinternalcontrolproceduresofMarionLtdarelistedbelow.Identifytheprinciplesofinternalcontrolthatarebeingfollowedineachcase.
(a) Employeeswhohavephysicalcustodyofassetsdonothaveaccesstoaccountingrecords.
(b) Eachmonththeassetsonhandarecomparedwiththeaccountingrecordsbyaninternalauditor.
(c) Aprenumbereddeliverydocketispreparedforeachshipmentofgoodstocustomers. BE7.2 LO1
AaronTsoisthemerchandisingmanagerforFranklinOfficeSuppliesLtd.DuringthemonthofAprilwhentheFranklin’saccountspayablemanagerwasonholiday,Aaronwasresponsibleforreceivingthegoodsthatheorderedaswellasapprovingpaymentsforthepurchase.Evaluatetheinternalcontrolsinthissituation. E7.6 LO6
GarciaPtyLtdhasaccountsreceivableof$92500at31March2012.Ananalysisoftheaccountsshowstheseamounts:
| Estimatedpercentageuncollectable | |||||||||||||||||||||
Current | 2.0% | |||||||||||||||||||||
1-30dayspastdue | 5.0 | |||||||||||||||||||||
31-90dayspastdue | 30.0 | |||||||||||||||||||||
Over90days | 50.0 | |||||||||||||||||||||
Required
(a) Determinethetotalestimateduncollectables.
(b) Preparetheadjustingentryat31March2012torecordbaddebtsexpense.
(c) Discusstheimplicationsofthechangeintheageingschedulefrom2011and2012.
E7.8 LO8
Thefollowinginformationwastakenfromthe2012financialstatementsofHoneyFactoryLtd:
(inmillions) | 2012 | 2011 | 2010 |
Accountsreceivable | $146.6 | $104.3 | $126.0 |
Allowancefordoubtfuldebt | 6.3 | 5.7 | 8.2 |
Sales | 1113.0 | 899.3 | 756.9 |
Totalcurrentassets | 367.2 | 285.8 | 258.7 |
Required
Answereachofthefollowingquestions:
(a) Calculatethereceivablesturnoverandaveragecollectionperiodfor2012and2011fortheentity,assumingallsalesareoncredit.
(b) Calculatethecreditriskratiofortheentityfor2012and2011.
(c) Commentontheentity’screditandcollectionpolicies.
E7.3(optional) LO3
ShoeCityPtyLtd’sbankreconciliationclerkisunabletoreconcilethebankbalanceat31January.ThebalanceoftheCashatBankaccount,beforeanyentriesfortransactionsinitiated by thebank,was $4770.20inthecompany records. Theclerk’sattemptat thebankreconciliationstatementisasfollows:
Cashbalanceasperbankstatement | $4392.20 Cr |
Add:Dishonouredcheque | 516.00 |
Less:Bankcharges | 30.00 |
Less:Outstandingdeposits | 708.00 |
Add:Unpresentedcheques | 876.00 |
Cash balance as per companyrecords
$5046.20
Required
(a) Prepareacorrectbankreconciliation.
(b) Journalisetheentriesrequiredbythereconciliation.
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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