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    Identify strengths and weaknesses of Mt. Hood's internal control

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    Identify strengths and weaknesses of Mt. Hood's internal control and give suggestions for each weaknesses.

    1. Mt. Hood has identified a small group of office furniture dealers 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 C.O.D basis. It is anticipated that a large provision for doubtful accounts may be necessary to reduce these accounts to estimated realizable value.
    2. The tool inventory consists of a conglomeration of miscellaneous items, most of which are small quantities with very minor unit prices. This inventory totals $ 42,395.89, which is an insignificant portion of the total inventories.
    3. The purchased parts stockroom is segregated from the production areas by a wire fence. While visiting the plant, you noted 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 these situations and are satisfied that the perpetual records reasonably reflect the quantities on hand.
    4. The board of directors just adopted a policy that will allow the company to invest excess funds in short-term securities. The CFO will have sole authority for purchase and sale of the investments. Securities purchased will be credited to a company account at a local brokerage house. The securities are held in the company's name. All correspondence related to the investments is sent directly to the CFO. She, in turn, forwards brokerage advices to her assistant for recording in the accounts.
    5. A complete physical inventory of the company's office furniture has recently been taken.

    List the strengths and weaknesses in Mt. Hood's internal control. Suggest for improving the weaknesses

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    Solution Preview


    1. The decision to ship to the office furniture dealers whose operations have deteriorated to the point that their ability to pay is doubtful to a C.O.D. basis is very prudent. This way the company's exposure from these companies will not be increased further.
    2. The perpetual inventory system of Mt. Hood is well maintained as evidence by its updated status.
    3. Periodic inventory of the company's assets ...

    Solution Summary

    The expert identifies the strengths and weaknesses of Mt. Hood's internal control. Suggestions for improving the weaknesses are given.