Financial Accounting, Student Value Edition (5th Edition)
5th Edition
ISBN: 9780134728520
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 6, Problem 2EIA
To determine
Discuss the ethical concerns in the given situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.
Date
Customer
Amount
March 31
E. L. Masters Company
$7,800
June 30
Stephen Crane Associates
6,700
September 30
Amy Lowell"s Dress Shop
7,000
December 31
R. Frost, Inc.
9,830
Dickinson follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.
All of Dickinson’s sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at year-end is $77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance).
Instructions
a. Do you agree or disagree with…
As the accountant for Clean Air Controls, you attend a meeting with the sales managers to discuss credit policies. At the meeting, you report that bad debts expense for the year is estimated to be $85,000 and account receivables at year end is $1,500,000 less a $57,000 allowance for doubtful accounts. Arthur Levitt, a sales manager, asks why bad debts expense and the allowance are not the same amount.
Required
1. Write a professional email explaining this concept to Arthur. The company estimates bad debts expense as 3% of sales.
The chief accountant for Bramble Corporation provides you with the following list of accounts receivable written off in the current
year.
Date
March 31
June 30
September 30
December 31
Customer
E. L. Masters Company
Stephen Crane Associates
Amy Lowell's Dress Shop
R. Frost, Inc.
Amount
$7,500
6,600
6.900
Net income would be $
9,100
Bramble follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this
procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for
recognizing bad debts.
All of Bramble's sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at
year-end is $81,100 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible
(assume a zero balance in the allowance).
(b) By what amount would income before taxes differ if bad debt expense was…
Chapter 6 Solutions
Financial Accounting, Student Value Edition (5th Edition)
Ch. 6 - Prob. 1DQCh. 6 - Prob. 2DQCh. 6 - Prob. 3DQCh. 6 - Prob. 4DQCh. 6 - Prob. 5DQCh. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - Prob. 9DQCh. 6 - Prob. 10DQ
Ch. 6 - Prob. 1SCCh. 6 - Prob. 2SCCh. 6 - Prob. 3SCCh. 6 - Prob. 4SCCh. 6 - Separation of duties refers to separating all of...Ch. 6 - Which of the following is not a control activity?...Ch. 6 - Prob. 7SCCh. 6 - Prob. 8SCCh. 6 - Internal auditors focus on _________ ; external...Ch. 6 - Prob. 10SCCh. 6 - Prob. 11SCCh. 6 - Prob. 12SCCh. 6 - Prob. 1SECh. 6 - Fraud triangle (Learning Objective 3) 5-10 min....Ch. 6 - Prob. 3SECh. 6 - Internal controls (Learning Objective 2) 5-10 min....Ch. 6 - Prob. 5SECh. 6 - Prob. 6SECh. 6 - Prob. 7SECh. 6 - Prob. 8SECh. 6 - Prob. 9SECh. 6 - Prob. 10SECh. 6 - Prob. 11SECh. 6 - Accounting terminology (Learning Objectives 1 4)...Ch. 6 - Prob. 13SECh. 6 - Prob. 14SECh. 6 - Prob. 1CFSAPCh. 6 - Prob. 1EIACh. 6 - Prob. 2EIACh. 6 - Prob. 3EIACh. 6 - Prob. 4EIACh. 6 - Prob. 5EIACh. 6 - Prob. 6EIACh. 6 - Case 7. Kelly Straton, a trusted employee of...Ch. 6 - Prob. 8EIACh. 6 - Prob. 1FACh. 6 - Industry Analysis Purpose: To help you understand...Ch. 6 - Prob. 1SBACh. 6 - Prob. 1WC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Buddy Dupree is the accounting manager for On-Time Geeks, a tech support company for individuals and small businesses. As part of his job, Buddy is responsible for preparing the company's trial balance. His supervisor placed a “hard deadline” of Friday at 5 pm for the completion of the trial balance. Unfortunately, Buddy was unable to get the trial balance to balance by the due date. The credit side of the trial balance exceeded the debit side by $3,000. To make the deadline, Buddy decided to add a $3,000 debit to the vehicles account balance. He selected the vehicles account because it will not be significantly affected by the additional $3,000. Is Buddy behaving ethically? Why? Who is affected by Buddy's decision? How should Buddy have handled this situation?arrow_forwardBuddy Dupree is the accounting manager for On-Time Geeks, a tech support company for individuals and small businesses. As part of his job, Buddy is responsible for preparing the company’s trial balance. His supervisor placed a “hard deadline” of Friday at 5p.m. for the completion of the trial balance. Unfortunately, Buddy was unable to get the trial balance to balance by the due date. The credit side of the trial balance exceeded the debit side by $3,000. To make the deadline, Buddy decided to add $3,000 debit to the vehicles account balance. He selected the vehicles account because it will not be significantly affected by the additional $3,000. Questions: Is Buddy behaving ethically? Why or why not? Who is affected by Buddy’s decision? How should Buddy have handled this situation?arrow_forwardBuddy Dupree is the accounting manager for On-Time Geeks, a tech support company for individuals and small businesses. As part of his job, Buddy is responsible for preparing the company’s trial balance. His supervisor placed a “hard deadline” of Friday at 5 pm for the completion of the trial balance. Unfortunately, Buddy was unable to get the trial balanceto balance by the due date. The credit side of the trial balance exceeded the debit side by $3,000. To make the deadline, Buddy decided to add a $3,000 debit to the vehicles account balance. He selected the vehicles account because it will not be significantly affected by the additional $3,000.1. Is Buddy behaving ethically? Why or why not?2. Who is affected by Buddy’s decision?3. How should Buddy have handled this situation?arrow_forward
- Lance Berkman is the controller of Saturn, a dance club whose year-end is December 31. Berkman prepares checks for suppliers in December, makes the proper Journal entries, and posts them to the appropriate accounts in that month. However, he holds on to the checks and mails them to the suppliers in January. Requirements What financial ratio(s) is (are) most affected by the action to hold onto the checks until January? What is Berkman’s purpose in undertaking this activity?arrow_forwardBarnes Books allows for possible bad debts. On May 7, Barnes writes off a customer account of $9,400. On September 9, the customer unexpectedly pays the $9,400 balance. Record the cash collection on September 9. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)arrow_forwardApril showers sells goods on credit to most of its customers. In order to control its debtor collection system, the company maintaiņs a sales ledger control account. In preparing the accounts for the year to 31 October 2019 the accountant discovers that the total of all the personal accounts in the sales ledger amounts to sh12, 802, whereas the balance on the sales ledger control account is sh12,550. Upon investigating the matter, the following errors were discovered: 1. Sales for the week ending 27 March 2019 amounting to sh850 had been omitted from the control accoun t. 2. A debtor's account balance of sh300 had not been included in the list of balances. &. Cash received of sh 750 had been entered in a personal account as sh570. 4. Discounts allowed totaling sh100 had not been entered in the control account. 5. A personal account balance had been undercast by sh200. a. A contra item of sh400 with the purchase ledger had not been entered in the control account. 1. A bad debt of sh500…arrow_forward
- [The following information applies to the questions displayed below.] Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter. a. During January, the company provided services for $40,000 on credit. b. On January 31, the company estimated bad debts using 1 percent of credit sales. c. On February 4, the company collected $20,000 of accounts receivable. d. On February 15, the company wrote off a $100 account receivable. e. During February, the company provided services for $30,000 on credit. f. On February 28, the company estimated bad debts using 1 percent of credit sales. g. On March 1, the company loaned $2,400 to an employee, who signed a 6%…arrow_forward4. Assume that you will be up for a promotion next month and you'd like to impress your boss with your data analytic skills. The company you work for normally books the current month's bad debit for the same amount as the prior month's actual accounts receivable write-offs. Using general accounting knowledge, explain why this process is not the best method. 5. Briefly describe Benford's Law. Draw a graph that exemplifies data which conforms to Benford's Law (i.e., what it should look like). And, briefly describe how auditors could utilize Benford's Law while conducting testwork.arrow_forwardWeyman Z. Wannamaker is the chief financial officer of Cogburn Company. He prides himself on being able to manage the company’s cash resources to minimize the interest expense. Consequently, on the second business day of each month, Weyman pays down or draws cash on Cogburn’s revolving line of credit at First National Bank in accordance with his cash requirements forecast.You are the auditor. You find the information on this line of credit in the following table. You inquired at First National Bank and learned that Cogburn Company’s loan agreement specifies payment on the first day of each month for the interest due on the previous month’s outstanding balance at the rate of “prime plus 1.5 per cent.” The bank gave you a report that showed the prime rate of interest was 8.5 per cent for the first six months of the year and 8.0 per cent for the last six months. Check the following image for payable balances Required:a. Prepare an audit estimate of the amount of interest expense you…arrow_forward
- Waffle Shack is a registered vendor, with a number of transactions in July that it has not yet encountered. It needs assistance in recording these transactions in its financial records. In order to assist the business, prepare the general journal entries (with narrations) for the following three transactions (voucher and folio numbers are not required): Transaction 1 As a result of one of the finance staff members being on leave and no one fulfilling the role, the business did not settle one of their outstanding supplier accounts within the settlement period. As a result, the supplier charged them interest for one month on their outstanding balance of R146 000 on 31 July, with the supplier's annual interest charge being 20%. Date Details Debit Credit Transaction 2 The owner of the business took a waffle iron from the business for use in her home on 15 July. The business initially purchased the waffle iron for R7 500. Its market value is now R5 250. Date Details Debit Credit Transaction…arrow_forwardChris Nelson, the new assistant controller for Grand Company, is preparing for the firm’s year-end closing procedures. On December 30, 2019,a memorandum from the controller directed Nelson to make a journal entry debiting Cash and crediting Long-Term Advances to Officers for $1,000,000 . Not finding the $1,000,000 in the cash deposit prepared for the bank that day, Nelson went to the controller for a further explanation. In response, the controller took from her desk drawer a check for $1,000,000 payable to Grand Company from Jason Grand, chief executive officer of the firm. Attached to the check was a note from Jason Grand saying that if this check were not needed to return it to him next week. “This check is paying off a$1,000,000 advance the firm made to Jason Grand six years ago,”stated the controller.“ Mr.Grand has done this every year since the advance; each time we have returned the check to him in January of the following year. We plan to do so again this time. In fact, when…arrow_forwardJoshua Rangel, the bookkeeper of Logan Co., was scheduled to leave on the 3-week vacation at 5:00 on Friday. He couldn’t get the company’s trial balance to balance. At 4:30, he decided to put in fictitious figures on his computer to make it balance. Joshua told himself he would fix it when he got back from his vacation. Was Joshua right or wrong to do this? Why?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
The accounting cycle; Author: Alanis Business academy;https://www.youtube.com/watch?v=XTspj8CtzPk;License: Standard YouTube License, CC-BY