2024 – On August 1 2011 Docknal Construction received a 9 percent six month note receivable from Quick Build one

On August 1, 2011, Docknal Construction received a 9 percent, six-month note receivable from Quick-Build, one of Docknal’s problem credit customers. Quick-Build had owed $36,000 on an outstanding account receivable. The note receivable was taken in settlement of this amount. Assume Docknal makes adjusting entries for accrued interest revenue once each year on December 31.

 REQUIRED:

 Journalize the following events on the books of Docknal Construction:

 1 Record the receipt of the note on August 1 in settlement of the account receivable.

2 Record accrued interest at December 31, 2011

3 Assume that Quick-Build pays the note plus accrued interest in full. Record the collection of the principal and interest on January 31, 2012

4 Assume that Quick-Build did not make the necessary principal and interest payment on January 31, 2012. Rather, assume that he defaulted on his obligation. Record the default on January 31, 2012

William Fleck, a trusted employee of Jones Manufacturing, found himself in a personal financial difficulties and decisded to ‘borrow’ $3,000 from the company and to conceal his theft

As a first step, Fleck removed $3,000 in currency from the cash register. This amount represented the bulk of the cash received in over-the-counter sales during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer. Don Adams, in full payment of his account. Fleck makde no journal entry to record the $3,000 collection from Adams, but deposited the check in Jones Manuracturing’s bank account in place of the $3,000 over-the-counter cash receipts he had stolen.

In order to keep Adams from protesting when his month-end statement reached him, Fleck made a journal entry debiting Sales Returns and Allowances and crediting Accounts Receivable – Don Adams. Fleck prosted this entry to two general ledger accounts affected and to Adam’s account in the subsidiary ledger for accounts receivable

REQUIRED:

A.  Did these action by Fleck cause the general ledger to be out of balance or the subsidiary ledger to disagree with the control account?  Explain.

B. Assume that Jones Manufacturing prepares financial statements at the end of the month without discovering the theft. Would any items in the balance sheet or the income statement be in error?  Explain.

C.  Several weaknesses in internal control apparently exist in Jones Manufacturing. Indicate three specific changes needed to strenghen internal control over cash receipts.

The credit manager of Monique Food has gathered the following information about the company’s accounts receivable and credit losses during the current year:

 Net credit sales for the year $ 8,000,000

 Accounts receivable at year-end $ 1,750,000

 Uncollectible accounts receivable:

  Actually written off during the year $  96,000

 Estimated portion of year-end receivables expected to prove uncollectible (per aging schedule) $  84,000 $  180,000

  

 

Prepare 1 journal entry summarizing the recognition of uncollectible accounts expense for the entire year under each of the following independent assumptions:  You will make 4 journal entries in total

a. Uncollectible accounts expense is estimated at an amount equal to 2.5% of the net credit sales

b. Uncollectibe accounts expense is recognized by adjusting the balance in the Allowance for

 Doubtful Accounts to the amount indicated in the year-end aging schedule. The balance in the

 allowance account at the beginning of the current year was $25,000 (Consider the effect of the write-offs during the year on the balance in the Allowance for Doubtful Accounts)

  NOTE:  Provide supporting calculation for ‘b’  

c. the company uses the direct write-off method of accounting for uncollectible accounts.

d. Which of the three methods gives investors and creditors the most accurate assessment of a

  company’s liquidity?  Explain.