In: Accounting
Please complete both parts.
Part I
(1) Jill, a supervisor at a construction company, distributes payroll and has authority to hire and fire employees. How might the owner of the construction company determine whether Jill has fictitious employees on the payroll and is secretly cashing their payroll checks for herself?
(2) Please explain why it is desirable to have at least two officials approve pay rate changes.
Part II
Jet-Clean sold washing machines totaling $1 million. Each washing machine carries a three-year warranty. Jet-Clean estimates that warranty repairs on the washing machines will cost 1 percent of the sales price.
(1) Record the entry to accrue Jet-Clean’s warranty costs.
(2) Jet-Clean paid $750 for washing machine repairs under warranty. Please record this entry.
Part I
It is always desirable to have different persons to hire and
fire employees and to distribute the payroll.
In the given case, when Jill has both the powers, then the owner
may opt for any of the following techniques to keep a check on
Jill-
(a) Record the attendance of the employees by bio-metric devices
and install cameras at the workplace to ensure that those employees
hired are actually present and working.
(b) Appoint an internal auditor to give report on such internal
control deviations.
Part II
Sales = $ 1,000,000
Estimated Warranty expense for 3 years = 1000000*1% = $10,000
Estimated Warranty expense p.a = 10000/3 = $ 3,333
(a) Journal entry to accrue warranty expense
Warranty expense Dr $ 3,333
To Provision for estimated warranty $ 3,333
(To record accrual of warranty expense for year 1)
(b) Journal entry to accrue warranty expense
Provision for estimated warranty Dr $ 750
To Cash $ 750
(To record payment of actual warranty repairs)