In prior periods, Globo Gym Services used the direct write off method toaccount for bad debts. Globo Gym Services historically had a stable clientbase and management did not continue to service clients who did not payinvoices due. Complete the following:(a) Describe the direct write off method of accounting for bad debts.(b) Explain with reference to one qualitative characteristic why the directwrite off method was deemed appropriate prior to the COVID-19pandemic and why it is unlikely to be appropriate since the pandemic.Clearly label each part of your answer related to parts a and b above.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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When creditors who relied on an entity’s audited financial statements suffer monetary lossesafter a customer (the auditors’ client) goes bankrupt, what must the plaintiff creditors in alawsuit for damages show in a court that follows the doctrine in Credit Alliance?a. The auditors knew and specifically acknowledged identification of the creditors.b. The auditors could reasonably foresee them as beneficiaries of the audit because entitiessuch as this client use financial statements to obtain credit from vendors.c. The plaintiffs were foreseen users of the audited financial statements because they werevendors of long standing.d. All of the above
Under sales on credit, the supplier-customer relationship may be terminated under the law in the following situation except: Select one:a. Death of the customer b. Liquidation or bankruptcy of the customerc. Mental incapacity of the customer or personal guarantor d. Legal suits/litigation commenced against the customer
Individuals who believe they relied on misstated financial statements to make a decision andhave suffered losses as a result will issue an action known as aa. Breach of contract.b. Tort.c. Securities litigation.d. Constructive fraud.
All of the following are prevention methods for overstated expense reimbursements, EXCEPT: O a. Run expense reimbursements per employee looking for individuals whose travel and entertainment expenses appear to be out of line. O b. Do not reimburse any expenses supported by a photocopied receipt without first verifying that the expense is legitimate. O c. Spot-check expense reports with vendors. O d. Only reimburse air travel expenses from itineraries supplied by travel agencies
Cyber Systems’ management has been actively pursuing clients who fail to pay invoices when they fall due. Based on the experience of Cyber Systems in the 2021 financial year which ends on June 30, the longer an account receivable is outstanding, the more likely the client never pays the amount due. The longer the account is due, the more likely the client closes their travel agency and can never pay amounts due to Cyber Systems. Answer the following: (a) Identify the method and approach that is appropriate to account for bad debts in this case. (b) With reference to three relevant accounting principles, assumptions and/or qualitative characteristics, justify why the method and approach you have identified in part (a) is appropriate. Clearly label each part of your answer related to parts a and b above. In particular for part b, structure your answer as follows for each of the three relevant accounting principles, assumptions and/or qualitative characteristics:Identify accounting…
eceivables arise due to a deferred sale, and companies are often unable to collect all their debts, which means that part of those debts may become non-existent or there is doubt about the possibility of collection. 1- What is the difference between bad debts and doubtful debts? 2- Draft an example (supported by numbers) to explain the method of doubtful debts in dealing with bad debts, provided that the explanation includes accounting restrictions and the impact on the financial statements? 3- Explain why the use of the direct method (bad debt method) conflicts with generally accepted accounting principles? 4- One of the methods for estimating doubtful debts is the deferred sales method, the receivables balance method, and the receivables aging method. Required: Formulate an example (enhanced by numbers) to explain the method of aging receivables in estimating doubtful debts, taking into account the following: (1) the number of clients should be 10 clients, (2) the percentages…
49)For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve A- Employee overtime wages. B-Credit granted to customers. C-Cash disbursements. D-Write-offs of customer accounts.
If the auditor concludes that there is a high likelihood of material misstatement in accounts receivable due to changing economic conditions, the auditor concludes that inherent risk for accounts receivab is low. Select one: OTrue O False e
Identify one specific type of accounting fraud. What damage does the perpetration cause? What could be done to prevent it?
1. What are the accounting rules for determining whether to expense certain costs against revenue versus capitalizing and depreciating the costs? How do the different treatments affect earnings? Explain the reasons for capitalizing line costs in WorldCom. Why did Cooper believe the treatment did not conform to US GAAP? 2. Analyze Cooper and the internal auditors' professional judgment. How do their actions relate to Rest's four stages of moral development? 3- How can the fraud triangle be applied to explain WorldCom's fraud?

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