The Masters
Masters Golf Manufacturing Inc. (MGM) makes custom and generic golf clubs. MGM primarily sells the clubs to several large golf retailers in Canada. MGM owns two manufacturing plants and has its head of fice located just north of Calgary. While it employs a large number of manufacturing staff, MGM operates its administrative department with a lean staff. MGM experienced some administrative staff turnover this year with the accounts receivable clerk, accounts payable clerk, and controller all leaving to take positions at other companies. While MGM looked into hiring, the receptionist stepped in and posted cash receipts, set up new vendors when required, and processed payments. The owner of MGM, Maria Kielbowich, had a stronger presence at the office during this time and signed all of the cheques.
While you were hired as the new controller in December 2017, no one has yet been hired to replace the accounts payable or receivable clerks. It is now after year end (early January 2018) and you are in the process of ensuring that all entries with respect to receivables are in order (Exhibit I), and that the December 31 bank reconciliation is complete (Exhibit II). Maria has also come to you and has suggested that perhaps they don't need to hire anyone to replace the two clerks since the receptionist seems to be doing a good job. She has asked you to prepare a memo to her that first completes the bank reconciliation with journal entries and then assesses the accounts receivable.
Required
Prepare the memo for Maria. Provide your comments on her suggestion along with your recommendations and/or concerns.
EXHIBIT I - ACCOUNTS RECEIVABLE DETAILS
MGM uses the balance sheet approach based on aging, in accounting for its doubtful receivables. The bal ance in the allowance for doubtful accounts on December 31 was a debit of $43,000. In previous years, the allowance account was always in a year-ending credit position and you note that this seems excessively high. In analyzing the receivables, you note the following:
Receivables outstanding less than 60 days amounted to $144,000, 60-90 days amounted to $198,000, and greater than 90 days amounted to $89,000. Previous experience shows a doubtful percentage of 2%, 11%, and 60% respectively.
EXHIBIT II - BANK RECONCILIATION DETAILS
» The unadjusted balance per the bank on December 31 was $91,500.
» A cheque dated May 25, 2017, for $120 has not yet been cashed and is now stale dated.
» Monthly bank service charges amounted to $110.
» The unadjusted balance per the books on December 31, 2017, was $89,436.
» Cheques outstanding and not yet cashed amounted to $4,500. (This does not include the stale-dated cheque above.)
» One cheque was returned by the bank due to nonsufficient funds. The cheque was written for $265. » Deposits placed in the night deposit box but not recorded by the bank amounted to $2,200. » A cheque was recorded by MGM as $680 but was actually written and cashed in the amount of $661.