Levine Company uses the perpetual inventory system and allows customers to use two credit cards in charging purchases. With the Suntrust Bank Card, Levine receives an immediate money transfer to its account when it processes sales receipts. Suntrust assesses a 4% service charge for credit card sales. The second credit card that Levine accepts is the Continental Card. Levine batches its credit sales data to Continental on a daily basis, and the money is transferred to its account about 4 to 7 business days later. Continental assesses a 2.5% charge on sales for using its card.
  

  
Prepare journal entries to record the above selected credit card transactions of Levine Company.

1.)Record sale of merchandise for $10,000 and accepted the customer's Suntrust Bank Card. Suntrust receipt's are immediately deposited in Levine's bank account.

2.)Record the cost of goods sold, $7,390.

3.)Record sale of merchandise for $8,300 and accepted the customer's Continental Card. Transferred $8,300 of credit card receipts to Continental, requesting payment.

4.)Record the cost of goods sold, $5,378.

5.)Received Continental's check for the April 12 billing, less the service charge.

ABC Satellite, a satellite television company, sells satellite television service contracts to customers, usually for a 24-month period. ABC satellite is a fast-growing, high-paced company created by aggressive salesmen and saleswomen. The company’s success has made its owners very wealthy; many of them live a lavish lifestyle and drive luxury cars to work. The retention division of this company is responsible for contacting customers nearing the end of their contract and convincing the customer to renew their contract. Retention agents are paid a commission for each account that agrees to a new contract. The commission rate is considered by many employees to be below the industry standard. Over the past year, the retention division has undergone significant supervisor and manager turnover. The current manager has not had sufficient time or understanding to properly implement controls. Additionally, the new manager has been so busy playing catch up that he has yet to hold a training or orientation meeting for his department. The current process for paying commissions to retention agents on renewed accounts is as follows:

• The phone system records the verbal contract extension commitment.
• The retention agent attaches the audio recording to the customer’s accounting the ABC customer contract system (CCS); this acts as legal proof of contract.
• The retention agent then updates the customer contract date information in CCS.
• Each retention agent has a spreadsheet he or she uses to keep track of the account renewals for the month.
• The retention agent records the customer #, date of the contract extension, and length of a contract extension in his or her spreadsheet.
• At the end of each month the retention supervisor receives each agent’s spreadsheet and multiplies the total retention renewals submitted by the agent by his or her commission rate in order to calculate the total monthly commission.
• The supervisors do not maintain the spreadsheets.
• In order to get the payments processed quickly, the supervisors have less than four hours for receive all agents’ spreadsheets (usually each supervisor is responsible for 20+ agents) and submit the summary file to payroll.
• The supervisor records the total commission earned by each agent on a summarized spreadsheet, which is sent directly to payroll for payment.

Discussion Questions

1. Part of avoiding fraud is to create a positive work environment. Describe a few conditions mentioned within the case that could contribute to a poor work environment.

2. What symptoms should an auditor look for to determine if fraud is occurring within the retention department?

3. There are five primary control procedures or activities. List and explain one procedure you feel would be most effective in improving the control system of the retention department. Include in your explanation specific examples of controls that should be implemented.

To prepare think about this week's reading assignments and the identified discussion questions. Integrate these concepts and post your individual substantive response. Your original response should be approximately 400 words and uses specific examples from the case and readings. Your original posting is due on WEDNESDAY.

Next respond to a minimum of TWO of your colleagues’ postings in approximately 200 words each. Peer-to-peer responses are on SUNDAY. When responding to your colleagues in the course address their posing in one or more of the following ways:

• Ask a probing question.
• Share an insight from having read your colleagues’ posting.
• Offer and support an opinion.
• Validate an idea with your own experience.
• Make a suggestion.
• Expand on your colleague’s posting.

Engleside Seafood Company ships fresh seafood to customers in a nearby city. The logistics manager has identified three shipping alternatives. The first is to call a common carrier, the second is to lease its own fleet of refrigerated trucks and the third option is a contractual arrangement with a local carrier. The outcome of the decision will be affected by the demand level as indicated in the payoff table below.

ABC Company employs a periodic inventory system and sells its inventory to
customers for $32 per unit. ABC Company reported the following inventory
information for the month of May:

May 1    Beginning inventory 4,200 units @ $12 cost per unit
May 6    Purchased 2,000 units @ $9 cost per unit
May 8    Sold 3,000 units
May 13   Purchased 2,500 units @ $15 cost per unit
May 18   Sold 1,900 units
May 21   Purchased 4,000 units @ $8 cost per unit
May 28   Sold 2,200 units
May 30   Purchased 2,300 units @ $17 cost per unit

ABC Company reported operating expenses of $26,100 for May and they had a
tax rate of 34%.

A) Calculate the dollar amount of ending inventory shown on ABC Company's
May 31 balance sheet using the FIFO method.

B) Calculate the amount of gross profit shown on ABC Company's income statement
for May using the weighted average method.

C) Calculate the amount of net income shown on ABC Company's income statement
for May using the LIFO method.

A company is thinking about changing its credit policy to attract customers away from competitors. The present policy calls for a 1.37/10, net 30 cash discount. The new policy would call for a 3.48/10, net 50 cash discount. Currently, 21% of its customers are taking the discount, and it is anticipated that this number would go up to 60% with the new discount policy. It is further anticipated that annual sales would increase from a level of $427k to $686k as a result of the change in the cash discount policy. The average inventory carried by the firm is based on an EOQ. Assume sales increase from 16k to 21.3k units. The ordering cost for each order is $200 and the carrying cost per unit is $1.82 – these values will not change with the discount. Each unit in inventory has an average cost of $11. Cost of goods sold equates to 69% of net sales, general and administrative expenses are 16% of net sales, and interest payments of 14% will only be necessary for the increase in the accounts receivable and inventory balances*(see information below). Taxes will be 36% of before-tax income. Note: The term “k” is used to represent thousands (× $1,000).

Required: Calculate the percentage in earnings after taxes (EAT) between the current policy (before the discount) and the new policy (after the discount).

John’s Custom Computer Shop (JCCS) assembles computers for both individual and corporate customers. The company is organized into two divisions: Personal and Business. Once a computer is built, it is shipped to the customer. Billing for all customers is handled by the corporate Accounts Receivable Department. Accounts Receivable performs two major activities: billing and dispute resolution. Billing refers to preparing and sending the bills as well as processing the payments. Dispute resolution occurs when a customer refuses to pay, usually due to an error in billing.

The costs of the Accounts Receivable Department are allocated to the two divisions based on the number of bills prepared. Kyle, the manager of the Business division, has complained that the allocated costs from Accounts Receivable are beginning to make the business division look unprofitable and has asked you to recommend some changes to the allocation system. If he agrees with your recommendation, he will pass them on to the chief financial officer.

Data on costs and activities in the Accounts Receivable Department follow.

The Accounts Receivable Department incurred the following costs during the year.

Required:

a. Under the current allocation system, what is the cost that will be allocated from Accounts Receivable to Personal? To Business?

b. Suppose the company implements an activity-based cost system for Accounts Receivable with two activities, billing and dispute resolution. What is the cost that will be allocated from Accounts Receivable to Personal? To Business? Use the number of bills prepared as the cost driver for billing costs and the number of disputes for dispute resolution costs.

Under the current allocation system, what is the cost that will be allocated from Accounts Receivable to Personal? To Business? (Do not round intermediate calculations.)

Suppose the company implements an activity-based cost system for Accounts Receivable with two activities, billing and dispute resolution. What is the cost that will be allocated from Accounts Receivable to Personal? To Business? Use the number of bills prepared as the cost driver for billing costs and the number of disputes for dispute resolution costs.

Jan rents cars and small vans to individual and business customers. The company has twelve branches located in large towns spread across Jan’s home country.

Each of Jan’s branches has its own computer network which stores details of all vehicles located at the branch, advanced bookings and current rentals. The only paper records held at branches are the signed rental agreements. Everything else is held electronically. Each branch has several PCs that are linked to a branch server where all of the files are stored. The files on each branch server are backed up to the head office computer system after the close of business every evening.

Customers can book rentals in advance by telephoning their local branch or by logging onto the branch web page. Customers details are initially collected on the branch network but all details including verification of identity and driver’s licence are checked when the customer collects the car. Details of the vehicle, including any dents or scrapes on the bodywork or minor mechanical defects, are printed on the rental agreement form and the member of staff and the customer check the vehicle together before the customer signs the agreement.

The branch network keeps track of all vehicles that are supposed to be returned each day. If a vehicle is overdue without good reason then the police are informed that the vehicle has been stolen.

All returned vehicles are checked for damage that was not listed on the rental agreement. Customers have to pay for any damage that occurred while the vehicle was in their possession.

The manager in charge of Jan’s information systems (IS) at the company’s head office has been asked to investigate two potential problems that occurred at the South town branch. A member of the IS team visited the branch in order to carry out some routine maintenance and discovered the following:

• The Branch Manager had a notebook computer plugged into the branch network. The manager explained that the notebook computer was his own personal property. 3 He found it useful to copy branch files so that he could work on writing his monthly management reports at home.

• One of the PCs in the branch was not the standard model used throughout Jan’s. The branch manager explained that there were never sufficient PCs in the branch and so he had used part of the branch equipment budget to purchase an inexpensive PC from a local computer store. The inexpensive PC came equipped with the latest version of a standard operating system. The PCs communicate with the branch network using a specially written program. The branch staff loaded a copy of that program from a CD that had been left behind by a member of the head office IS team during an earlier visit.

Jan’s system uses an older version of the standard operating system and the branch network software installed on the PC was not the latest version, although the Branch Manager insisted that the PC worked perfectly. It has also been useful because the other PCs in the branch were not fitted with optical drives (i.e. they cannot read CDs or DVDs) and he has found it useful to be able to use this machine to install software to other machines over the branch network in order to enhance efficiency.

Required (Please note that the answer should be detailed)

(a) Advise the branch manager on the importance of adequate information systems (IS) for Jan’s.

Your answer to part (a) should NOT discuss the specific matters identified by the member of the IS team during the branch visit.

(b) Evaluate the control implications of each of the matters discovered by the member of the IS team.

Worst Buy Company has had a lot of complaints from customers of late, and its stock price is now only $3 per share. It is going to employ a one-for-six reverse stock split to increase the stock value. Assume Dean Smith owns 120 shares.

a. How many shares will he own after the reverse stock split? (Do not round intermediate calculations and round your answer to the nearest whole number.)

b. What is the anticipated price of the stock after the reverse stock split? (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Because investors often have a negative reaction to a reverse stock split, assume the stock only goes up to 80 percent of the value computed in part b. What will the stock’s price be? (Do not round intermediate calculations and round your answer to 2 decimal places.)

d. How has the total value of Dean Smith’s holdings changed from before the reverse stock split to after the reverse stock split (based on the stock value computed in part c)? To get the total value before and after the split, multiply the shares held times the stock price. (Input the amount as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places.)

Ivanhoe Inc. operates a retail computer store. To improve its delivery services to customers, the company purchased four new trucks on April 1, 2020. The terms of acquisition for each truck were as follows:

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

(a)

Prepare the appropriate journal entries for Ivanhoe Inc. for the above transactions, assuming that Ivanhoe prepares financial statements in accordance with IFRS. For Truck #2, calculate the purchase price using any of the three methods (tables, financial calculator, or Excel). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)