d j fletcher a trusted employee of bluestem products found himself in personal finan 1323155

D. J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial dif- ficulties and decided to “borrow” $3,000 from the company and to conceal his theft.

As a first step, Fletcher removed $3,000 in currency from the cash register. This amount repre- sented 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, Michael Adams, in full payment of his account. Fletcher made no journal entry to record the $3,000 collection from Adams, but deposited the check in Bluestem Products’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, Fletcher made a journal entry debiting Sales Returns and Allowances and crediting Accounts Receivable— Michael Adams. Fletcher posted this entry to the two general ledger accounts affected and to Adams’s account in the subsidiary ledger for accounts receivable.

a.       Did these actions by Fletcher cause the general ledger to be out of balance or the subsidiary ledger to disagree with the control account? Explain.

b.       Assume that Bluestem Products 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 Bluestem Products. Indicate three specific changes needed to strengthen internal control over cash receipts.

shown below is the information needed to prepare a bank reconciliation for warren el 1323156

Shown below is the information needed to prepare a bank reconciliation for Warren Electric at December 31:

1.    At December 31, cash per the bank statement was $15,200; cash per the company’s records was $17,500.

2.    Two debit memoranda accompanied the bank statement: service charges for December of $25, and a $775 check drawn by Jane Jones marked “NSF.”

3.    Cash receipts of $10,000 on December 31 were not deposited until January 4.

4.    The following checks had been issued in December but were not included among the paid checks returned by the bank: no. 620 for $1,000, no. 630 for $3,000, and no. 641 for $4,500.

a.       Prepare a bank reconciliation at December 31.

b.       Prepare the necessary journal entry or entries to update the accounting records.











Investment Institution



Investment Type


Minimum Investment


Interest Rate

Penalty for Early Withdrawal?


Financial Risk

Nexity Bank

Money market account

$    1,000



Very low

Bank of America

Money market account




Very low

Discover Bank

90-day CD




Very low

Commerce Bank

90-day CD




Very low






c.        Assume that the company normally is not required to pay a bank service charge if it maintains a minimum average daily balance of $1,000 throughout the month. If the company’s average daily balance for December had been $8,000, why did it have to pay a $25 service charge?

tyson furniture has 100 000 in excess cash that it wants to invest in one or more ca 1323157

Tyson Furniture has $100,000 in excess cash that it wants to invest in one or more cash equiva- lents. The treasurer has researched two money market accounts and two certificates of deposit (CDs) offered by four major banks. This is the information she gathered:



Net credit sales for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Accounts receivable at year-end  . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Uncollectible accounts receivable:




Actually written off during the year . . . . . . . . . . . . . . . . . . . . . . . . .




Estimated portion of year-end receivables expected to prove uncollectible (per aging schedule). . . . . . . . . . . . . . . . . . . . . . . .







Reporting Uncollectible












The two 90-day certificates of deposit are FDIC insured for up to $100,000. The money market accounts are not FDIC insured.

Suggest how Tyson Furniture might allocate its $100,000 cash among these four opportunities.

Discuss the trade-offs that management must consider.

many companies hold a significant portion of their financial assets in the form of m 1323158

Many companies hold a significant portion of their financial assets in the form of marketable secu- rities. For example, Microsoft Corporation recently reported investments in marketable securities totaling $25.3 billion, an amount equal to 59 percent of its total financial assets. In contrast, only 26 percent of its financial assets were in the form of accounts receivable.

a.       Define marketable securities (also referred to as short-term investments). What characteristics of these securities justify classifying them as financial assets?

b.       What is the basic advantage of Microsoft Corporation keeping financial assets in the form of marketable securities instead of cash? Is there any disadvantage?

c.       Explain how Microsoft Corporation values these investments in its balance sheet.

d.       Discuss whether the valuation of marketable securities represents a departure from (1) the cost principle and (2) the objectivity principle.

e.       Explain how fair value accounting benefits the users of Microsoft Corporation’s financial statements.

the credit manager of montour fuel has gathered the following information about the 1323159

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





Prepare one journal entry summarizing the recognition of uncollectible accounts expense for the entire year under each of the following independent assumptions:

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

b.       Uncollectible 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.)

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? Defend your answer.