Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 9: 1FC (page 488)

Dylan worked for a propane gas distributor as an accounting clerk in a small Midwestern

town. Last winter, his brother Mike lost his job at the machine plant. By January,

temperatures were sub-zero, and Mike had run out of money. Dylan saw that Mike’s

account was overdue, and he knew Mike needed another delivery to heat his home. He

decided to credit Mike’s account and debit the balance to the parts inventory because he

knew the parts manager, the owner’s son, was incompetent and would never notice the

extra entry. Months went by, and Dylan repeated the process until an auditor ran across

the charges by chance. When the owner fired Dylan, he said, “If you had only come to

me and told me about Mike’s situation, we could have worked something out.”

Requirements

1. What can a business like this do to prevent team member fraud of this kind?

2. What effect would Dylan’s actions have on the balance sheet? The income statement?

3. How much discretion does a business have about accommodating

hardship situations?

Short Answer

Expert verified

(1) Implement effective internal controls.

(2) This case would not affect the company’s balance sheet, but will affect income statement.

(3) Different discretion for different type of companies.

Step by step solution

01

Definition of internal controls

Internal controls are the controls that manage companies’ internal controls.

02

To prevent fraud

To remove this type of fraud, the company’s internal controls must be strong. The policies of the company are also strict. The strict internal control helps the company in preventing fraud.

03

Effect on the balance sheet and income statement

This case will not affect the company's balance sheet, but it affects the company's income statement, as net income will be overstated due to the lesser amount of the bad debts.

04

Accommodating hardship situation

In these types of situations, every company has different opinions. Generally, the small business has to know their loyal customers and deal with the excellent manner. Still, the large companies do not know about their customers, as they are not personally connected with them.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:

a. Purchase price.

b. Ordinary recurring repairs to keep the machinery in good working order.

c. Lubrication before machinery is placed in service.

d. Periodic lubrication after machinery is placed in service.

e. Major overhaul to extend useful life by three years.

f. Sales tax paid on the purchase price.

g. Transportation and insurance while machinery is in transit from seller to buyer.

h. Installation.

i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure

Recording partial-year depreciation and sale of an asset On January 2, 2016, Pet Spa purchased fixtures for \(37,800 cash, expecting the fixtures to remain in service for six years. Pet Spa has depreciated the fixtures on a straight-line basis, with \)9,000 residual value. On May 31, 2018, Pet Spa sold the fixtures for $24,200 cash. Record both depreciation expense for 2018 and sale of the fixtures on May 31, 2018

Changing an asset’s useful life and residual value Salem Hardware Consultants purchased a building for \(540,000 and depreciated it on a straight-line basis over a 40-year period. The estimated residual value is \)100,000.

After using the building for 15 years, Salem realized that wear and tear on the building would wear it out before 40 years and that the estimated residual value should be $88,000.

Starting with the 16th year, Salem began depreciating the building over a revised total life of 35 years using the new residual value. Journalize depreciation expense on the building for years 15 and 16.

Donahue Oil Incorporated has an account titled Oil and Gas Properties. Donahue paid \(6,400,000 for oil reserves holding an estimated 400,000 barrels of oil. Assume the company paid \)510,000 for additional geological tests of the property and $470,000 to prepare for drilling. During the first year, Donahue removed and sold 75,000 barrels of oil. Record all of Donahue’s transactions, including depletion for the first year.

Journalizing partial-year depreciation and asset disposals and exchanges.

During 2018, Mora Corporation completed the following transactions:

Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of \)127,000 and accumulated depreciation of \(72,000) for new equipment. Mora also paid \)70,000 in cash. Fair value of new equipment is \(133,000. Assume the exchange had commercial substance.

Apr. 1 Sold equipment that cost \)18,000 (accumulated depreciation of \(8,000 through December 31 of the preceding year). Mora received \)6,100 cash from the sale of the equipment. Depreciation is computed on a straightline basis. The equipment has a five-year useful life and a residual value of \(0. Dec. 31 Recorded depreciation as follows:

Office equipment is depreciated using the double-declining-balance method over four years with a \)9,000 residual value.

Record the transactions in the journal of Mora Corporation.
See all solutions

Recommended explanations on Business Studies Textbooks

Strategic Direction

Read Explanation

Corporate Finance

Read Explanation

Intermediate Accounting

Read Explanation

Influences On Business

Read Explanation

Introduction to Business

Read Explanation

Financial Performance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free