Concept explainers
Strasburg Loan Company is in the consumer loan business. Strasburg borrows from banks and loans out the money at higher interest rates. Strasburg’s bank requires Strasburg to submit quarterly financial statements to keep its line of credit. Strasburg’s main asset is Notes Receivable. Therefore, Uncollectible-Account Expense and Allowance for Uncollectible Accounts are important accounts for the company.
Raquel Lanser, the company’s owner, prefers that net income reflect a steady increase in a smooth pattern, rather than an increase in some periods and a decrease in other periods. To report smoothly increasing net income, Lanser underestimates uncollectible-account expense in some periods. In other periods, Lanser overestimates the expense. She reasons that the income overstatements roughly offset the income understatements over time.
Requirements
- 1. What is the ethical issue in this situation?
- 2. Who are the stakeholders? What are the possible consequences to each?
- 3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, (c) ethical.
- 4. What would you do? How would you justify your decision?
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Financial Accounting (12th Edition) (What's New in Accounting)
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- The accountant of Sophia Manufacturing Company was tasked to perform monthly bank reconciliation. She downloaded the company’s April 30, 2019 bank statement that showed a balance of P32,400. She also printed the cash ledger from the company’s computerized accounting system. It contains the ending balance of P8,350. She also found the following reconciling items:a. The bank statement showed bank service fee of P800.b. The bank collected P1,500 from a note receivable for Sophia Manufacturing. Also, a collection fee of P250.00 was charged.c. Deposit in transit, P51,000.d. Checks outstanding on April 30, P79,100.e. The accountant found a check issued to Rhys Corp. for P4,500 that cleared the bank but was not in the cash ledger. Requirement:a. Prepare the bank reconciliation statement.b. Journalize the adjusting entries.arrow_forwardBanks are finding more ways to charge fees, such as a $33.00 overdraft fee. Sue McVickers has an account in Fayetteville, she has received her bank statement with this $33.00 charge. Also, she was charged a $10.80 service fee, however, the good news is she earned $13.35 interest. Her bank statement's balance was $459.45, but it did not show the $1,295.65 deposit she had made. Sue's checkbook balance shows $695.60. The following checks have not cleared: Number 250, $671.45; Number 253, $249.50; and Number 254, $169.00. Prepare Sue's bank reconciliation. Note: Input all amounts as positive values. Round your answers to 2 decimal places. Sue's checkbook balance Add: Subtotal Deduct Subtotal Reconciled balance BANK RECONCILIATION Bank balance Add: Subtotal Deduct Reconciled balancearrow_forwardWeyman Z. Wannamaker is the chief financial officer of Cogburn Company. He prides himself on being able to manage the company’s cash resources to minimize the interest expense. Consequently, on the second business day of each month, Weyman pays down or draws cash on Cogburn’s revolving line of credit at First National Bank in accordance with his cash requirements forecast.You are the auditor. You find the information on this line of credit in the following table. You inquired at First National Bank and learned that Cogburn Company’s loan agreement specifies payment on the first day of each month for the interest due on the previous month’s outstanding balance at the rate of “prime plus 1.5 per cent.” The bank gave you a report that showed the prime rate of interest was 8.5 per cent for the first six months of the year and 8.0 per cent for the last six months. Check the following image for payable balances Required:a. Prepare an audit estimate of the amount of interest expense you…arrow_forward
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT