Prospect Corporation

Prospect Corporation

Prospect Corporation, your new audit client, processes its sales and cash receipts in the following manner:
(1) Sales. Salesclerks prepare sales invoices in triplicate. The original and second copy are presented to the cashier, and the third copy is retained by the sales clerk in the sales book.
When the sale is for cash, the customer pays the sales clerk, who presents the money to the cashier with the invoice copies.
A credit sale is approved by the cashier from an approved credit list. After receiving the cash or approving the invoice, the cashier validates the original copy of the sales invoice and gives it to the customer. At the end of each day, the cashier recaps the sales and cash received, files the recap by date, and forwards the cash and the second copy of all sales invoices to the accounts receivable clerk.
The accounts receivable clerk balances the cash received with cash sales invoices and prepares a daily sales summary. Cash sales are posted by the accounts receivable clerk to the cash receipts journal, and the daily sales summary is led by date. Cash from cash sales is included in the daily bank deposit (preparation of the bank deposit is described with cash receipts in the following section). The accounts receivable clerk posts credit sales invoices
to the accounts receivable ledger and then sends all invoices to the inventory control clerk in the sales department.
The inventory clerk posts to the inventory control cards and files the sales invoices numerically.
(2) Cash receipts. The mail is opened each morning by a mail clerk in the sales department. The mail clerk prepares a remittance advice (showing customer and amount paid) for each check and forwards the checks and remittance advices to the sales department supervisor.
The supervisor reviews the remittance advices and forwards the checks and advices to the accounting department supervisor.
The accounting department supervisor, who also functions as credit manager in approving new credit and all credit limits, reviews all checks for payments on past due accounts and then gives the checks and remittance advices to the accounts receivable clerk, who arranges the advices in alphabetical order. The remittance advices are posted directly to the accounts receivable ledger cards. The checks are endorsed by stamp and totaled. The total is posted to the cash receipts journal. The remittance advices are led chronologically.
After receiving the cash from the previous day’s cash sales from the cashier, the accounts receivable clerk prepares the daily deposit slip in triplicate. The original and second copy of the deposit slip accompany the bank deposit, and the third copy is led by date.
The bank deposit is sent directly to National Bank.
Required: a. Prepare a systems flowchart of internal control over sales transactions as described in part (1)above.
b. Prepare a systems flowchart of internal control over cash receipts as described in part (2)above. Complete the following assignment. Submit your responses in MSWord as one document. Label each section clearly. If you choose to use an Excel spreadsheet for question 2, please copy and paste your spreadsheet into your Word document. For written answers, please make sure your responses are well written, conform to APA formatting, and have proper citations, if needed.

1. Draft a memo to a client comparing the advantages and disadvantages of using forward contracts and options to hedge foreign exchange risk.
2. On December 1, 2009, a U.S.-based company entered into a three-month forward contract to purchase 1 million Mexican pesos on March 1, 2010.
The following are the purchase rates for US dollar per peso

Date Spot Rate Forward Rate (March, 2010)

December 1, 2009 $0.088 $0.084

December 31, 2009 $0.080 $0.074

March 1, 2010 $0.076

The company’s borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803.

How will the U.S. company report the forward contract on its December 31, 2009, balance sheet

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