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The company was short of working capital and would occasionally issue notes payable in settlement of past-due open accounts to suppliers. The situations warranting the issuance of notes were decided upon by Hopkins, and the notes were drawn by him for signature by Barton. Hopkins was aware of the weakness in internal control and finally devised a scheme for defrauding the company through understating the amount of notes payable outstanding. He prepared a note in the amount of $24,000 payable to a supplier to whom several invoices were past due. After securing Bartons signature on the note and mailing it to the creditor, Hopkins entered the note in the Notes Payable account of the general ledger as $4,000, with an offsetting debit of $4,000 to Accounts Payable. Subsequently, when funds became available to the company, he paid the $20,000 of accounts payable that remained on the books.

Several months later when the note matured, a check for $24,000 plus interest was issued and properly recorded, including a debit of $24,000 to the Notes Payable account. Hopkins then altered the original credit in the account by changing the figure from $4,000 to $24,000. He also changed the original debit to Accounts Payable from $4,000 to $24,000. This alteration caused the Notes Payable account to have a balance in agreement with the total of other notes outstanding. To complete the fraud, Hopkins called the supplier to whom the check had been sent and explained that the check should have been for only $4,000 plus interest.

Can you please show the T-accounts (or journal entries) for the below movements (from the above fraud scheme)? (I need to understand how we get to point 6)

1. prepared a note in the amount of $24,000 payable to a supplier

2. entered the note in the Notes Payable account of the general ledger as $4,000, with an offsetting debit of $4,000 to Accounts Payable

3. when funds became available to the company, he paid the $20,000 of accounts payable that remained on the books

4. when the note matured, a check for $24,000 plus interest was issued and properly recorded, including a debit of $24,000 to the Notes Payable account

5. then altered the original credit in the account by changing the figure from $4,000 to $24,000. He also changed the original debit to Accounts Payable from $4,000 to $24,000

6. This alteration caused the Notes Payable account to have a balance in agreement with the total of other notes outstanding.

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