5-53 For each of the following situations, evaluate the segregation of duties implemented by the company and indicate the following

5-53 (Segregation of Duties) For each of the following situations, evaluate the segregation of duties implemented by the company and indicate the following:
a. Any deficiency in the segregation of duties described. (Indicate none if no deficiency is present.)
b. The potential errors or irregularities that might occur because of the inadequate segregation of duties.
c. Compensation, or other, controls that might be added to mitigate potential misstatements.
d. A specific audit test that ought to be performed to determine whether a misstatement had occurred.

Situations:
1. The company’s payroll is computerized and is handled by one person in charge of payroll who enters all weekly time reports into the system. The payroll system is password so that only the payroll person can change pay rates or add/delete company personnel to the payroll file. Payroll checks are prepared weekly, and the payroll person batches the checks by supervisor or department head for subsequent distribution to employees.
2. XYZ is a relatively small organization but has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for handling cash receipts also reconciles the monthly bank account.
3. Nick’s is a small family-owned restaurant in a northern resort area whose employees are trusted. When the restaurant is very busy, any of the wait staff has the ability to operate the cash register and collect the amounts due from the customer. All orders are tabulated on “tickets.” Although there is a place to indicate the waiter or waitress on each ticket, most d not bothers to do so, nor does management reconcile the ticket numbers and amounts with total cash receipts for the day.
4. A purchasing agent for JC Penney has the responsibility for ordering specific products, e.g., women’s clothes, and setting the prices for those products. The purchasing agent is eligible for a bonus based on the profitability of his or her line of business. The receipt, demonstration, and sale of the goods are handled by individuals who are separate from the purchasing agent.
5. Bass Pro Shops takes customer orders via a toll-free phone number. The order taker sits at a terminal and has complete access to the customer’s previous credit history and a list of inventory available for sale. The order clerk has the ability to input all the customer’s requests and generate a sales invoice and shipment with no additional supervisory review or approval.
6. The purchasing department of Big Dutch is organized around three purchasing agents. the first is responsible for ordering electrical gear and motors, the second orders fabrication material, and the third orders nuts and bolts and other smaller supplies that go into the assembly process. to improve the accountability to vendors, all receiving slips and vendor invoices are sent directly to the purchasing agent placing the order. This allows the purchasing agent to better monitor the performance of vendors. When approved by the purchasing agent for payment, the purchasing agent must forward (a) a copy of the purchase order, (b) a copy of the receiving slip, and (c) a copy of the vendor invoice to accounts payable for payment. Accounts payable will not pay an invoice unless all three items are present and match as to quantities, prices, and so forth. The receiving department reports to the purchasing department.
7. The employees of Americana TV and Appliance-a major electronics retailer-are paid based on their performance in generating profitable sales for the company. Each salesperson has the ability to modify a tagged sales price (within specified but very broad parameters). Once a sales price has been negotiated with the customer, an invoice is prepared. At the close of the day, the salesperson looks up the cost of the merchandise on a master price list. The salesperson then enters the cost of the merchandise on a master price list. The salesperson then enters the cost of the merchandise on the copy of the invoice and submits it to accounting for data entry and processing. The salesperson’s commission is determined by the gross margin realized on sales.


Click here for the solution: For each of the following situations, evaluate the segregation of duties implemented by the company and indicate the following

Cooper Electronics uses NPV profiles to visually evaluate competing projects

Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of 0%, 8%, and the IRR.

Terra Firma
$30,000 $25,000
Initial Investment
Year Operating cash inflows
1 $7000 $6,000
2 10,000 9,000
3 12,000 9,000
4 10,000 8,000

Click here for the solution: Cooper Electronics uses NPV profiles to visually evaluate competing projects

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value

P 5–6: Metal Press

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value. When the historical cost of the asset is updated, a price index is used to approximate replacement value. For example, a metal fabrication press, which bends and shapes metal, was bought seven years ago for $522,000. The company will add 19 percent to this cost, representing the change in the wholesale price index over the seven years. This new, higher cost figure is depreciated using the straight-line method over the same 12-year assumed life (no salvage value).

Required:
a. Calculate depreciation expense and book value of the metal press under both historical cost and price-level-adjusted historical cost.
b. In general, what is the effect on ROA of changing valuation bases from historical cost to current values?
c. The manager of the investment center with the metal press is considering replacing it because it is becoming obsolete. Will the manager’s incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level adjusted historical cost valuation?

Click here for the solution: Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value

Quentin Giordano owns a small retail ice cream parlor

Problem 16-17 Using the Payback Period and Unadjusted Rate of Return to Evaluate Alternative Investment Opportunities

Quentin Giordano owns a small retail ice cream parlor. He is considering expanding the business and has identifies two attractive alternatives. One involves purchasing a machine that would enable him to serve frozen yogurt to customers. The machine would cost $4,050 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $2,970 and $450, respectively.
Alternatively, he could purchase for $5,040 the equipment necessary to serve cappuccinos. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenue and cash operating expenses associated with selling cappuccinos are expected to be $4,140 and $1,215, respectively.
Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.

A. Determine the payback period and unadjusted rate of return (use average investment.) for each alternative.

B. Indicate which investment alternative you would recommend. Explain your choice.

Check:
a. Payback Period of the Yogurt Investment: 1.77 Years
Unadjusted Rate of Return of the Cappuccino Investment: 52.86%

Click here for the solution: Quentin Giordano owns a small retail ice cream parlor

ADK Delivery is a small company that transports business packages between San Francisco and Los Angeles

Problem 16-16 Using Present Value Techniques to Evaluate Alternative Investment Opportunities

ADK Delivery is a small company that transports business packages between San Francisco and Los Angeles. It operates a fleet of small vans that move packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. ADK delivery recently acquired approximately $3 million of cash capital from its owners, and its president, Frank Hobb, is trying to identify the most profitable way to invest these funds.

AND SO ON

Check:
a. NPV of the vans investment: $75,608.57
b. NPV index of the trucks investment: 1.126

Click here for the solution: ADK Delivery is a small company that transports business packages between San Francisco and Los Angeles

Sophia Sweeny, the president of Sweeny Enterprises, is considering two investment opportunities

Problem 16-18 Using Net Present Value and Internal Rate of Return to Evaluate Investment Opportunities

Sophia Sweeny, the president of Sweeny Enterprises, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $300,000 and for Project B are $120,000. The annual expected cash inflows are $94,641 for Project A and $39,507 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Sweeny Enterprise's cost of capital is 8 percent.

Required
A. Compute the net present value of each project. Which project should be adopted based on the net present value approach?
B. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?
C. Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?

Check:
a. NPV of A: $13,463.01
b. Rate of Return of B: 12%

Click here for the solution: Sophia Sweeny, the president of Sweeny Enterprises, is considering two investment opportunities