Reference no: EM131065873

Deadbeats and Slow Collections

Monahan Media's Accounts Receivable balance has been growing. Although Nick is pleased by the increase in sales, he has some concerns about cash flow.

The March 31 A/R balance ($2,800) from media services include the following accounts:

Client                                     Amount            Account Status

AR-MuskratRiders                    $150          Promises to pay next month

AR-WoodduckInc                     $750          Claims the check is in the mail

AR-DooWops& Hooligans        $100          Promises to pay next week

AR-Witchy Wardrobes             $450          Disconnected business phone number

AR-Dapper Diner                     $650          Has promised to pay since January

AR- Misty's Sodas                   $700           Promises to pay next week

Since Nick is unfamiliar with accounting for receivables. He's asked you to evaluate the A/R balance and make any necessary adjustments.

1 Should any of the receivables be written off? If so, which one(s) and why? If not, why not? If so, prepare the entry to write them off, using the Direct Write Off Method.

2 Industry norms suggest 4% of receivables become uncollectible. Prepare the adjusting entry needed to establish a reserve for worthless A/R, assuming the Percentage of Receivables method is used, after any worthless receivables have been written off.

3 Perform outside research to determine the kinds of questions Nick could be asking to determine whether or not to grant credit to new customers. Essentially- how should a business assess a customer's ability to pay? What other factors should be considered when accepting new business? Remember to cite your sources!

If MM needs cash more quickly than customers are paying, what else, besides hounding clients or cash only transactions, can Nick do to get cash for the business' receivables?

Bank Reconciliation

Nicksheepishly confides in you that he has never bothered to reconcile his bank account statement (business or personal). After you recover from this shocking revelation, you agree to take a look at the statement and his files.

The cash account for Monahan Media on 2/28/14 indicated a balance of $11,479.58. The bank statement indicated a balance of $16,644.29. The following reconciling items were reported:

a. Checks outstanding totaled $5,796.18.
b. A deposit of $4,348.22 was made too late to be included in the bank statement.
c. The bank had collected $4,220.75 on behalf of MM.
d. A check for $3,840 was processed by the bank properly but had been incorrectly recorded by MM as $3,480.
e. A check drawn for $1,560 had been mistakenly charged by the bank as $1,650.
f. Bank service charges for the month totaled $54.

You agree to provide a reconciliation consistent with the common format (see below). Since Nick wants to continue with this on his own in subsequent months (he's tired of your fees increasing as he asks more and more of you), he'd like you to include an explanation of how you reconciled the statement including what each item means. There's no need to explain or report any related adjusting entries since you'll review the reconciliation and prepare the adjustments yourself.
Balance per Bank Statement Balance per Books

Balance per Bank Statement                          Balance per Books

+ / - Adjustments                                            + / - Adjustments

_______________________                          _________________

Adjusted Balance                                =          Adjusted Balance

Monahan Media
Which units are sold? Which units remain?

Nick's merchandise sales take off in the month of May. Unfortunately, he didn't know how to record the activity. Nick allowed some customers a discount, but isn't sure whether or not it's a good idea to continue.

When you visit Nick's home office, you discover several disorganized boxes of merchandise. When you sit down to count the merchandise, you find:

325 key chains; 50 mugs; 248 bags;495water bottles

Nick is unsure about the profitability of this aspect of the business. You agree, a better idea of the results of his merchandising activities is needed. You agree to help with the following:

1. Record each of the sales transactions: date of sale and date cash is received. Follow the perpetual inventory method using the FIFO method for computing Cost of Goods Sold.

2. Record each of the sales transactions: date of sale and date cash is received. Follow the perpetual inventory method using the LIFO method for computing Cost of Goods Sold.

3. Determine the value of the ending merchandise inventory. Use the cost information you calculated when the purchase transactions were recorded. And, since you are trying to provide a complete picture of the results, report the Ending Inventory values for each product under the FIFO and LIFO methods.

4. Provide a summary of the findings, including a comparison of the differences between the FIFO and LIFO outcomes by product. If Nick's goal is minimize the company's tax liability, which method do you recommend?

5. How should missing inventory be handled? What might account for the shortage of units? Provide Nick some recommendations to avoid future inventory losses.

Monahan Media Purchases of Merchandise

Nick is unsure of the costs and accounting for purchases of merchandise. You agree, a clearer understanding of merchandising activities is needed. You decide to begin by recording the entries for the purchases of merchandise.

There should be two entries for each: the purchase on the purchase date and the payment on the payment date. For now, assume Nick is following the perpetual inventory method (meaning, all purchases are recorded to Inventory, not Purchases).

April 1
100 key chains, $1 each
100 mugs, $2 each
100 bags, $2.50 each
100 water bottles, $1.50 each
No credit terms.
Balance due in 30 days.
Invoice paid, April 30.

April 15 order
300 key chains, $0.50 each
300 mugs, $3 each
300 bags, $2 each
300 water bottles, $1 each
Credit terms are 2/10, n30.
Invoice is paid, April 24.

May 1 order
100 key chains, $1 each
200 mugs, $4 each
200 bags, $1.50 each
200 water bottles, $0.50 each
Credit terms are 3/10, n30.
Invoice is paid, May 15.

There are four part that need to be filled out. The topic is Short-term Assets & Internal Control.