Answer:
Explanation:
The journal entry is shown below:
On July 1
Prepaid Insurance A/c Dr $10,480
To Cash A/c $10,480
(Being prepaid insurance is paid)
On December 31
Insurance expense A/c Dr $2,620
To Prepaid Insurance $2,620
(Being prepaid insurance is adjusted)
The computation is shown below:
= $10,480 ÷ 2 years × 6 months ÷ 12 months
= $2,620
Patent, copyright are two.
Answer: Options A and C are strengths while options B and D are weaknesses. See explanation below.
Explanation:
a. All employees must take at least five consecutive days off each year.
This is a strength in internal control. This would help to maintain stability in operational process and ensure leave days are effectively utilized. It also prevents staff from taking the leave days in piecemeal and sporadic manner thereby disrupting the operational process and causing team instability. It is also used to ensure leave days are promptly utilised and well accounted for.
b. The accounting department orders merchandise and approves invoices for payment.
This is a weakness in internal control. There should be a check and balance in this regard. In some organizations, proper scrutiny of the vendor and invoice is done by the Procurement Unit and the Expense Control Unit respectively. Even within the accounting department, there is approval hierarchy. Also, the unit within accounting department that is making the order should not be the one to approve the transaction.
c. Cash received over the counter is controlled by the sales clerk, who rings up the sale and places the cash in the register. The daily sales are recorded in the accounting records by the accounting department.
This is a strength in internal control as it ensures checks and balances. Fraud and error can be detected through this means. The accounting department should verify the transactions to the relevant supporting document before recording the transaction in the system.
d. The officer who signs checks need not examine the payment packet because he is confident the amounts are correct.
This is a weakness in internal control in the sense that checks signed by the officer is binding in the court of law. The officer cannot claim ignorance if anything goes wrong. There is therefore a need for proper scrutiny and relevant questions asked before checks are signed.
Answer:
c. Decrease liabilities and increase revenues.
Explanation:
Duluth Co. collected a $6,000 cash advance from a customer on November 1, 2016 for work to be performed over a six-month period beginning on that date.
If the year-end adjustment is properly recorded, the effect of the adjusting entry on Duluth's 2016 financial statements will be a decrease in liabilities and increase in revenues.
This will be the case because when Duluth Co. collected a $6,000 cash advance from a customer on November 1, it would have passed the following entries:
Dr Cash................$6000
Cr Prepaid Revenue...$6000
But note that 'prepaid revenue' is a liability which is why it has a credit balance.
By year end, the adjustment will be to take credit to revenue for 2 months that has elapsed for November and December, which is 2/6 x $6000.
Hence the entry will be:
Dr. Prepaid Revenue.....$2000
Cr. Revenue....................................$2000
which implies that the liability of prepaid revenue has reduced and revenue has increased
