P8-24A Accounting for petty cash transactions

Suppose that on June 1, Rockin’ Gyrations, a disc jockey service, creates a petty cash fund with an imprest balance of $500. During June, Michael Martell, fund custodian, signs the following petty cash tickets:

Petty Cash

Ticket 

Number ITEM                      Amount 

1 Postage for package received $20

2 Ofice party                25

3 Two boxes of stationary 35

4 Printer cartridges        15

5 Business dinner        75

On June 30, prior to replenishment, the fund contains these tickets plus cash of $325. The accounts affected by petty cash payments are Office Supplies,Entertainment Expense, and Postage Expense.

Requirements

1. On June 30, how much cash should this petty cash fund hold before it is replenished?

2. Journalize all required entries to (a) create the fund and (b) replenish it. Include explanations.

3. Make the entry on July 1 to increase the fund balance to $550. Include an

explanation.

P8-22A Correcting internal control weakness

Each of the following situations has an internal control weakness.

a. Upside-Down Applications develops custom programs to customer’s specifications. Recently, development of a new program stopped while the programmers redesigned Upside-Down’s accounting system. Upside-Down’s accountants could have performed this task.

b. Norma Rottler has been your trusted employee for 24 years. She performs all cash-handling and accounting duties. Ms. Rottler just purchased a new Lexus and a new home in an expensive suburb. As owner of the company, you wonder how she can afford these luxuries because you pay her only $30,000 a year and she has no source of outside income.

c. Izzie Hardwoods, a private company, falsified sales and inventory figures in order to get an important loan. The loan went through, but Izzie later went bankrupt and could not repay the bank.

d. The office supply company where Pet Grooming Goods purchases sales receipts recently notified Pet Grooming Goods that its documents were not pre-numbered. Howard Mustro, the owner, replied that he never uses receipt numbers.

e. Discount stores such as Cusco make most of their sales in cash, with the remainder in credit card sales. To reduce expenses, one store manager ceases purchasing fidelity bonds on the cashier.

f. Cornelius’ Corndogs keeps all cash receipts in an empty box for a week because he likes to go to the bank on Tuesdays when Joann is working.

Requirements

1. Identify the missing internal control characteristics in each situation.

2. Identify the possible problem caused by each control weakness.

3. Propose a solution to each internal control problem

P9-28A Accounting for uncollectible accounts using the allowance method

(aging-of-receivables), and reporting receivables on the balance sheet At September 30, 2014, the accounts of Mountain Terrace Medical Center (MTMC) include the following:

Accounts Receivable $145,000

Allowance for Bad Debts (credit balance) 3,500

During the last quarter of 2014, MTMC completed the following selected transactions:

Dec.                   28 Wrote off accounts receivable as uncollectible: Regan,

Co., $1,300; Owen Mac, $900; and Rain, Inc., $700

31 Recorded bad debts expense based on the aging

of accounts receivable, as follows:

Age of Accounts

Accounts Recievable 1-30 days 31-60days 61-90 days Over 90days 

$165,000 $97,000 $37,000 $14,000 $17,000

Estimated percent uncollectible 0.30% 3% 30% 35%

Requirements

1. Journalize the transactions.

2. Open the Allowance for Bad Debts T-account, and post entries affecting that account. Keep a running balance.

3. Show how Mountain Terrace Medical Center should report net accounts receivable on its December 31, 2014, balance sheet.

P9-31A Accounting for notes receivable and accruing interest

Kelly Realty loaned money and received the following notes during 2014.

Note Date Principal amount Interest] Rate Term 

1) 1-Aug $24,000 17% 1 year

2) Nov.30 18,000 6% 6 months 

3) 19-Dec 12,000 12% 30 days 

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entry to record the inception of each of the three notes and also journalize a single adjusting entry at December 31, 2014, the fiscal year-end, to

record accrued interest revenue on all three notes. Explanations are not required.

3. Journalize the collection of principal and interest at maturity of all three notes. Explanations are not required.