Question Details

PAPERCO CASE
You, young graduate in Accounting from Bishops University, have just been hired as the
controller of Paperco Office Supply Ltd. This company established in Sherbrooke sells business
and office supplies. In order to compete with big competitors like Staples, the owner Mr. Paper
decided, when he created the company two years ago, to offer credit to anyone who asks for.
He needs your help for the following problem: despite increasing sales figures in financial
statements, he recently experienced liquidity problems and several suppliers haven’t been paid
for a while.
Having spoken with Mr. Paper, you have the following information:
• The company employs 3 salesman paid at minimum wages. They also receive a
commission, calculated each Saturday, based on the total amount of sales done during
the preceding week.
• The company doesn’t have a credit/debit card terminal. Mr. Paper thinks that the cost
(3% of the sales) is too expensive for its small business. Clients have to pay cash or ask
for credit.
• When he has time (usually two or three times a year), Mr. Paper reviews the receivable
list and prepare an handwritten account statement that is sent as a reminder to
defaulting customers. The list of amounts due by customers is kept up to date by
Mr. Paper on an Excel Worksheet. No interest is charged.
• Mr. Paper doesn’t have any accounting software for the company saying he doesn’t
need one because all sales are recorded on cash registers.
• The opening balance of the Allowance for Doubtful account at the beginning of the year
was $500 and no transaction was recorded in this account during the year.
Instructions:
Your first task as a controller is to write a memo with two sections:
Part 1) Describe a restructuring plan of the receivable department. Be specific to this situation.
You have to justify each recommendation in order to convince Mr. Paper to change its
ways. Provide at least 4 different recommendations.
Part 2) Using the list of invoices provided in the Excel worksheet, calculate the estimation of the
allowance for doubtful accounts (AFDA) for December 31. Do calculations with two
different methods and recommend one of them to Mr. Paper. Justify your choice.
Provide detailed calculation and the adjusting journal entry that Mr. Paper has to do to
record the AFDA.

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