Q1. Hood Furniture has identified a small group of office furniture dealer whose operations have deteriorated to the point that their ability to repay the company is doubtful. The company has decided to make additional shipments to these dealers on a COD basis. It is expected that a large allowances for doubtful debts may be necessary to reduce these accounts to estimated reliasable values.
Q2. The tool inventory consists of a conglomeration of miscellaneous items, most of which are small quantities with very minor unique prices. This inventory totals $42,395, which is an insignificant portion of the total inventories.
Q3. The purchased parts stockroom is segregated from the production areas by a wire fence. While visiting a plant, you notice that the gate was left open all day and access to the stockroom (which contains many valuable and easily concealed items) was available to any employee. The stockroom's perpetual inventory records were formerly checked by an employee who made periodic test counts. This employee has retired and not been replaced. As a result, such counting has ceased. You expanded your tests in view of the situations and are satisfied that the perpertual records reasonably reflect the quantities on hand.
a) Identify the control environment factors that affect the company's internal control.
b) List the strength and weaknesses in Hood Furniture internal control.
c) What suggestions do you have for improving the weaknesses identified in b) above.