Better Food Company recently acquired an olive oil processing company that has an annual capacity of 2,000,000 liters and that processed and sold 1,400,000 liters last year at a market price of $4 per liter. The purpose of the acquisition was to furnish oil for the Cooking Division. The Cooking Division needs 800,000 liters of oil per year. It has been purchasing oil from suppliers at the market price. Production costs at capacity of the olive oil company, now a division, are as follows:
Direct materials per liter $1.00
Direct processing labor 0.50
Variable processing overhead 0.24
Fixed processing overhead 0.40
Total $2.14
Management is trying to decide what transfer price to use for sales from the newly acquired company to the Cooking Division. The manager of the Olive Oil Division argues that $4, the market price, is appropriate. The manager of the Cooking Division argues that the cost of $2.14 should be used, or perhaps a lower price, since fixed overhead cost should be recomputed with the larger volume. Any output of the Olive Oil Division not sold to the Cooking Division can be sold to outsiders for $4 per liter.
Question 1: Compute the operating income for the Olive Oil Division using a transfer price of $4 (5 points).
Question 2: Compute the operating income for the Olive Oil Division using a transfer price of $2.14 (5 points).
Question 3: What transfer price(s) do you recommend? Compute the operating income for the Olive Oil Division using your recommendation (5 points).
Click here for the solution: Better Food Company recently acquired an olive oil processing company that has an annual capacity
Showing posts with label company. Show all posts
Showing posts with label company. Show all posts
Wednesday, April 13, 2016
Tuesday, April 12, 2016
Advance Accounting Exam: 1. When the parent company sells a portion of its investment in a subsidiary
Advance Accounting Exam
1. When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year’s income sold to noncontrolling stockholders includes a (Points : 10)
2. The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets (Points : 10)
3. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased: (Points : 10)
4. Which statement with respect to gains and losses on troubled debt restructuring is correct? (Points : 10)
5. A composition agreement is an agreement between the debtor and its creditors whereby the creditors agree to: (Points : 10)
6. Assets transferred by the debtor to a creditor to settle a debt are transferred at: (Points : 10)
7. In a troubled debt restructuring involving a modification of terms, the debtor’s gain on restructuring: (Points : 10)
8. The major difference between IFRS and US GAAP in accounting for inventories is that (Points : 10)
9. Accounting under IFRS and US GAAP is similar for all of the following topics except (Points : 10)
10. One difference between IFRS and GAAP in valuing inventories is that (Points : 10)
11. Accounting terminology that differs between IFRS and US GAAP include all of the following except (Points : 10)
12. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points : 10)
13. The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract: (Points : 10)
14. A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to: (Points : 10)
15. An indirect exchange rate quotation is one in which the exchange rate is quoted: (Points : 10)
16. If the functional currency is determined to be the U.S. dollar and its financial statements are prepared in the local currency, SFAS 52, requires which of the following procedures to be followed? (Points : 10)
17. When the functional currency is identified as the U.S. dollar, land purchased by a foreign subsidiary after the controlling interest was acquired by the parent company should be translated using the: (Points : 10)
18. The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called: (Points : 10)
19. In considering interim financial reporting, how did the Accounting Principles Board conclude that each reporting should be viewed? (Points : 10)
20. Current authoritative pronouncements require the disclosure of segment information when certain criteria are met. Which of the following reflects the type of firm and type of financial statement for which this disclosure is required? (Points : 10)
21. If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the entire year, when should they be expensed? (Points : 10)
22. During the second quarter of 2011, Dodge Company sold a piece of equipment at a gain of $90,000. What portion of the gain should Dodge report in its income statement for the second quarter of 2011? (Points : 10)
23. Pete, Joe, and Ron are partners with capital balances of $135,000, $90,000, and $60,000, respectively. The partners share profits and losses equally. For an investment of $120,000 cash, Jerry is to be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, the amount of Jerry’s investment can best be justified by which of the following? (Points : 10)
24. Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During the first year of operation, the partnership incurs a $20,000 loss. The partners should share the losses (Points : 10)
25. In a partnership, interest on capital investment is accounted for as a(n) (Points : 10)
26. The profit and loss sharing ratio should be (Points : 10)
27. During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of $150,000, accumulated depreciation of $70,000, and a current fair value of $110,000. The partners share net income and loss equally. The net debit to Karr's account (including any gain or loss on disposal of the machine) is (Points : 10)
28. A schedule prepared each time cash is to be distributed is called a(n) (Points : 10)
29. Offsetting a partner's loan balance against his debit capital balance is referred to as the (Points : 10)
30. If a partner with a debit capital balance during liquidation is personally solvent, the (Points : 10)
Click here for the solution: Advance Accounting Exam
1. When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year’s income sold to noncontrolling stockholders includes a (Points : 10)
2. The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets (Points : 10)
3. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased: (Points : 10)
4. Which statement with respect to gains and losses on troubled debt restructuring is correct? (Points : 10)
5. A composition agreement is an agreement between the debtor and its creditors whereby the creditors agree to: (Points : 10)
6. Assets transferred by the debtor to a creditor to settle a debt are transferred at: (Points : 10)
7. In a troubled debt restructuring involving a modification of terms, the debtor’s gain on restructuring: (Points : 10)
8. The major difference between IFRS and US GAAP in accounting for inventories is that (Points : 10)
9. Accounting under IFRS and US GAAP is similar for all of the following topics except (Points : 10)
10. One difference between IFRS and GAAP in valuing inventories is that (Points : 10)
11. Accounting terminology that differs between IFRS and US GAAP include all of the following except (Points : 10)
12. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points : 10)
13. The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract: (Points : 10)
14. A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to: (Points : 10)
15. An indirect exchange rate quotation is one in which the exchange rate is quoted: (Points : 10)
16. If the functional currency is determined to be the U.S. dollar and its financial statements are prepared in the local currency, SFAS 52, requires which of the following procedures to be followed? (Points : 10)
17. When the functional currency is identified as the U.S. dollar, land purchased by a foreign subsidiary after the controlling interest was acquired by the parent company should be translated using the: (Points : 10)
18. The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called: (Points : 10)
19. In considering interim financial reporting, how did the Accounting Principles Board conclude that each reporting should be viewed? (Points : 10)
20. Current authoritative pronouncements require the disclosure of segment information when certain criteria are met. Which of the following reflects the type of firm and type of financial statement for which this disclosure is required? (Points : 10)
21. If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the entire year, when should they be expensed? (Points : 10)
22. During the second quarter of 2011, Dodge Company sold a piece of equipment at a gain of $90,000. What portion of the gain should Dodge report in its income statement for the second quarter of 2011? (Points : 10)
23. Pete, Joe, and Ron are partners with capital balances of $135,000, $90,000, and $60,000, respectively. The partners share profits and losses equally. For an investment of $120,000 cash, Jerry is to be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, the amount of Jerry’s investment can best be justified by which of the following? (Points : 10)
24. Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During the first year of operation, the partnership incurs a $20,000 loss. The partners should share the losses (Points : 10)
25. In a partnership, interest on capital investment is accounted for as a(n) (Points : 10)
26. The profit and loss sharing ratio should be (Points : 10)
27. During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of $150,000, accumulated depreciation of $70,000, and a current fair value of $110,000. The partners share net income and loss equally. The net debit to Karr's account (including any gain or loss on disposal of the machine) is (Points : 10)
28. A schedule prepared each time cash is to be distributed is called a(n) (Points : 10)
29. Offsetting a partner's loan balance against his debit capital balance is referred to as the (Points : 10)
30. If a partner with a debit capital balance during liquidation is personally solvent, the (Points : 10)
Click here for the solution: Advance Accounting Exam
Thursday, November 26, 2015
For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units 250
Days used per year 250
Lead time, in days 10
Ordering costs $100
Annual unit carrying costs $20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs (17 points)
Click here for the solution: For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
Annual demand in units 250
Days used per year 250
Lead time, in days 10
Ordering costs $100
Annual unit carrying costs $20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs (17 points)
Click here for the solution: For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
Wednesday, November 25, 2015
Sepracor, Inc., a U.S. drug company, reported the following information
International Reporting Case
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer.
Click here for the solution: Sepracor, Inc., a U.S. drug company, reported the following information
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer.
Click here for the solution: Sepracor, Inc., a U.S. drug company, reported the following information
Wednesday, November 11, 2015
Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012
Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012
Tuesday, November 10, 2015
Selected balances from a company's financial statements are shown below
Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below
In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees
E 19-9 Employee share purchase plan
In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share.
Required:
Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan.
Click here for the solution: In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees
In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share.
Required:
Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan.
Click here for the solution: In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees
Monday, October 26, 2015
Enos Inc. is a construction company specializing in custom patios
P2-3A Enos Inc. is a construction company specializing in custom patios. The patios are constructed of concrete, brick, fiberglass, and lumber, depending upon customer preference. On June 1, 2008, the general ledger for Enos Inc. contains the following data.
Raw Materials Inventory $4,200
Work in Process Inventory $5,540
Manufacturing Overhead Applied (during the month) $32,640
Manufacturing Overhead Incurred (during the month) $31,650
Subsidiary data for Work in Process Inventory on June 1 are as follows.
Job Cost Sheets
Customer Job
Cost Element Fowler (No.101) Haines (No.102) Krantz (No.103)
Direct materials $ 600 $ 800 $ 900
Direct labor 320 540 580
Manufacturing overhead 400 675 725
$1,320 $2,015 $2,205
During June, raw materials purchased on account were $3,900, and all wages were paid. Additional overhead costs consisted of depreciation on equipment $700 and miscellaneous costs of $400 incurred on account.
A summary of materials requisition slips and time tickets for June shows the following.
Customer Job Materials
Requisition Slips Time Tickets
Fowler (No.101) $ 800 $ 450
Elgin (No.104) 2,000 800
Haines (No.102) 500 360
Krantz (No.103) 1,300 1,600
Fowler (No.101) 300 390
4,900 3,600
Indirect materials 1,500 1,200
$6,400 $4,800
Overhead was charged to jobs at the same rate of $1.25 per dollar of direct labor cost. The patios for customers Fowler (No.101), Haines (No.102), and Krantz (No.103) were completed during June and sold for a total of $18,900. Each customer paid in full.
Required:
a) Journalize the June transactions: (i) for purchase of raw materials, factory labor costs incurred, and manufacturing overhead costs incurred; (ii) assignment of direct materials, labor, and overhead to production; and (iii) completion of jobs and sale of goods.
b) Post the entries to Work in Process Inventory.
c) Reconcile the balance in Work in Process Inventory with the costs of unfinished jobs.
d) Prepare a cost of goods manufactured schedule for June.
Click here for the solution: Enos Inc. is a construction company specializing in custom patios
Raw Materials Inventory $4,200
Work in Process Inventory $5,540
Manufacturing Overhead Applied (during the month) $32,640
Manufacturing Overhead Incurred (during the month) $31,650
Subsidiary data for Work in Process Inventory on June 1 are as follows.
Job Cost Sheets
Customer Job
Cost Element Fowler (No.101) Haines (No.102) Krantz (No.103)
Direct materials $ 600 $ 800 $ 900
Direct labor 320 540 580
Manufacturing overhead 400 675 725
$1,320 $2,015 $2,205
During June, raw materials purchased on account were $3,900, and all wages were paid. Additional overhead costs consisted of depreciation on equipment $700 and miscellaneous costs of $400 incurred on account.
A summary of materials requisition slips and time tickets for June shows the following.
Customer Job Materials
Requisition Slips Time Tickets
Fowler (No.101) $ 800 $ 450
Elgin (No.104) 2,000 800
Haines (No.102) 500 360
Krantz (No.103) 1,300 1,600
Fowler (No.101) 300 390
4,900 3,600
Indirect materials 1,500 1,200
$6,400 $4,800
Overhead was charged to jobs at the same rate of $1.25 per dollar of direct labor cost. The patios for customers Fowler (No.101), Haines (No.102), and Krantz (No.103) were completed during June and sold for a total of $18,900. Each customer paid in full.
Required:
a) Journalize the June transactions: (i) for purchase of raw materials, factory labor costs incurred, and manufacturing overhead costs incurred; (ii) assignment of direct materials, labor, and overhead to production; and (iii) completion of jobs and sale of goods.
b) Post the entries to Work in Process Inventory.
c) Reconcile the balance in Work in Process Inventory with the costs of unfinished jobs.
d) Prepare a cost of goods manufactured schedule for June.
Click here for the solution: Enos Inc. is a construction company specializing in custom patios
Sunday, October 4, 2015
Wordsmith is a publishing company with a number of different book lines (ACC 560 Week 5)
ACC 560 Week 5 Assignment
P8-4A Wordsmith is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Pronto Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Wordsmith, as well as authors under contract with other companies. The printing operation bills out at $0.01 per page, and a typical book requires 500 pages of print. A manager from Business Books, one of the Wordsmith's book lines, has approached the manager of the printing operation offering to pay $0.007 per page for 1,200 copies of a 500-page book. The book line pays outside printers $0.009 per page. The printing operation's variable cost per page is $0.006.
Instructions:
Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations.
(a) Assume that the printing operation is booked solid for the next two years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division.
(b) Assume that the printing operation has available capacity.
(c) The top management of Franco believes that the printing operation should always do the printing for the company’s magazines. On a number of occasions it has forced the printing operation to cancel jobs with outside customers in order.
(d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.007 per page transfer price when it has no available capacity.
Click here for the solution: Wordsmith is a publishing company with a number of different book lines (ACC 560 Week 5)
P8-4A Wordsmith is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Pronto Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Wordsmith, as well as authors under contract with other companies. The printing operation bills out at $0.01 per page, and a typical book requires 500 pages of print. A manager from Business Books, one of the Wordsmith's book lines, has approached the manager of the printing operation offering to pay $0.007 per page for 1,200 copies of a 500-page book. The book line pays outside printers $0.009 per page. The printing operation's variable cost per page is $0.006.
Instructions:
Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations.
(a) Assume that the printing operation is booked solid for the next two years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division.
(b) Assume that the printing operation has available capacity.
(c) The top management of Franco believes that the printing operation should always do the printing for the company’s magazines. On a number of occasions it has forced the printing operation to cancel jobs with outside customers in order.
(d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.007 per page transfer price when it has no available capacity.
Click here for the solution: Wordsmith is a publishing company with a number of different book lines (ACC 560 Week 5)
Sunday, September 27, 2015
On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand
Problem 13-1 Translation—Local Currency Is the Functional Currency
On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.
VENTANA GRAINS
Comparative Balance Sheets
January 1 and December 31, 2008
Jan. 1 Dec. 31
Cash and Receivables 500,000 880,000
Inventories 600,000 500,000
Land 400,000 400,000
Buildings (net) 650,000 605,000
Equipment (net) 465,000 470,000
Totals 2,615,000 2,855,000
Jan. 1 Dec. 31
Short-Term Accounts and Notes 295,000 210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008) 600,000 680,000
Common Stock 800,000 800,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 720,000 965,000
Total 2,615,000 2,855,000
VENTANA GRAINS
Consolidated Income and Retained Earnings Statement
for the Year Ended December 31, 2008
Revenues 3,225,000
Cost of Goods Sold:
Beginning Inventory 600,000
Purchases 2,100,000
Goods Available for Sale 2,700,000
Less: Ending Inventory 500,000
Cost of Goods Sold 2,200,000
Gross Profit on Sales 1,025,000
Depreciation Expense 140,000
Other Expenses 540,000 680,000
Net Income 345,000
Jan. 1 Retained Earnings 720,000
Total 1,065,000
Less: Dividends Paid 100,000
Dec. 31 Retained Earnings 965,000
The account balances are computed in conformity with U.S. generally accepted accounting standards.
Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994 $.8011
September 1, 2004 .5813
January 1, 2008 .7924
July 1, 2008 .7412
December 31, 2008 .7298
Average for 2008 .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building 45,000
Equipment—Purchased before 1/1/2008 85,000
Equipment—Purchased July 1, 2008 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.
Required:
A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.
Click here for the solution: On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand
On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.
VENTANA GRAINS
Comparative Balance Sheets
January 1 and December 31, 2008
Jan. 1 Dec. 31
Cash and Receivables 500,000 880,000
Inventories 600,000 500,000
Land 400,000 400,000
Buildings (net) 650,000 605,000
Equipment (net) 465,000 470,000
Totals 2,615,000 2,855,000
Jan. 1 Dec. 31
Short-Term Accounts and Notes 295,000 210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008) 600,000 680,000
Common Stock 800,000 800,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 720,000 965,000
Total 2,615,000 2,855,000
VENTANA GRAINS
Consolidated Income and Retained Earnings Statement
for the Year Ended December 31, 2008
Revenues 3,225,000
Cost of Goods Sold:
Beginning Inventory 600,000
Purchases 2,100,000
Goods Available for Sale 2,700,000
Less: Ending Inventory 500,000
Cost of Goods Sold 2,200,000
Gross Profit on Sales 1,025,000
Depreciation Expense 140,000
Other Expenses 540,000 680,000
Net Income 345,000
Jan. 1 Retained Earnings 720,000
Total 1,065,000
Less: Dividends Paid 100,000
Dec. 31 Retained Earnings 965,000
The account balances are computed in conformity with U.S. generally accepted accounting standards.
Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994 $.8011
September 1, 2004 .5813
January 1, 2008 .7924
July 1, 2008 .7412
December 31, 2008 .7298
Average for 2008 .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building 45,000
Equipment—Purchased before 1/1/2008 85,000
Equipment—Purchased July 1, 2008 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.
Required:
A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.
Click here for the solution: On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand
In each of the following independent cases the company closes its books on December 31
Problem: P14-5 -- Reporting Liabilities (Comprehensive Bond Problem)
In each of the following independent cases the company closes its books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2010. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2013. The bonds yield 12%. Give entries through December 31, 2011.
2. Titania Co. sells $400,000 of 12% bonds on June 1, 2010. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 10%. On October 1, 2011. Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2012.
Instructions
(Round to the nearest dollar.)
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)
Click here for the solution: In each of the following independent cases the company closes its books on December 31
In each of the following independent cases the company closes its books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2010. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2013. The bonds yield 12%. Give entries through December 31, 2011.
2. Titania Co. sells $400,000 of 12% bonds on June 1, 2010. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 10%. On October 1, 2011. Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2012.
Instructions
(Round to the nearest dollar.)
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)
Click here for the solution: In each of the following independent cases the company closes its books on December 31
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance. Total retained earnings is $250,000 and total paid in capital is $500,000.
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Friday, September 25, 2015
Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business
ACC 560 Week 6 Assignment
E10-9 Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business. The owner, Paul Pronto, had divided the company into two segments: Home Plumbing Services and Business Plumbing Services. Each segment is run by its own supervisor, while basic selling and administrative services are shared by both segments.
Paul has asked you to help him create a performance reporting system that will allow him to measure each segment's performance in terms of its profitability. To that end, the following information has been collected on the Home Plumbing Services segment for the first quarter of 2008.
Budgeted Actual
Service revenue $25,000 $26,000
Allocated portion of:
Building depreciation 11,000 11,000
Advertising 5,000 4,200
Billing 3,500 3,000
Property taxes 1,200 1,000
Material and supplies 1,500 1,200
Supervisory salaries 9,000 9,400
Insurance 4,000 3,500
Wages 3,000 3,300
Gas and oil 2,700 3,400
Equipment depreciation 1,600 1,300
Instructions
a) Prepare a responsibility report for the first quarter of 2008 for the Home Plumbing Services segment.
b) Write a memo to Paul Pronto discussing the principles that should be used when preparing performance reports.
Click here for the solution: Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business
E10-9 Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business. The owner, Paul Pronto, had divided the company into two segments: Home Plumbing Services and Business Plumbing Services. Each segment is run by its own supervisor, while basic selling and administrative services are shared by both segments.
Paul has asked you to help him create a performance reporting system that will allow him to measure each segment's performance in terms of its profitability. To that end, the following information has been collected on the Home Plumbing Services segment for the first quarter of 2008.
Budgeted Actual
Service revenue $25,000 $26,000
Allocated portion of:
Building depreciation 11,000 11,000
Advertising 5,000 4,200
Billing 3,500 3,000
Property taxes 1,200 1,000
Material and supplies 1,500 1,200
Supervisory salaries 9,000 9,400
Insurance 4,000 3,500
Wages 3,000 3,300
Gas and oil 2,700 3,400
Equipment depreciation 1,600 1,300
Instructions
a) Prepare a responsibility report for the first quarter of 2008 for the Home Plumbing Services segment.
b) Write a memo to Paul Pronto discussing the principles that should be used when preparing performance reports.
Click here for the solution: Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business
Thursday, September 24, 2015
A company has a debt with a yield to maturity of 6.3%, a cost of equity of 14.5%, and a cost of preferred stock of 9.2%
A company has a debt with a yield to maturity of 6.3%, a cost of equity
of 14.5%, and a cost of preferred stock of 9.2%. The market values of
its debt, preferred stock and equity are $15.2 million, $2.9 million,
and $20.6 million, respectively, and its tax rate is 35%.
What is the firm’s weighted average cost of capital (WACC)?
Click here for the solution: A company has a debt with a yield to maturity of 6.3%, a cost of equity of 14.5%, and a cost of preferred stock of 9.2%
What is the firm’s weighted average cost of capital (WACC)?
Click here for the solution: A company has a debt with a yield to maturity of 6.3%, a cost of equity of 14.5%, and a cost of preferred stock of 9.2%
Wednesday, September 23, 2015
The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
Audit Evidence and Conclusions for Various Fixed Asset Questions
Audit Conclusions or Situations
1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.
2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.
3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.
4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.
5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.
6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.
7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.
Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.
Click here for the solution: The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
Audit Conclusions or Situations
1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.
2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.
3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.
4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.
5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.
6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.
7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.
Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.
Click here for the solution: The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
Sunday, September 20, 2015
Draw the activity-on-node (AON) project network associated with the following activities for Dave Carhart’s consulting company project
Problem 3.3 Draw the activity-on-node (AON) project network associated
with the following activities for Dave Carhart’s consulting company
project. How long should it take Dave and his team to complete this
project? What are the critical path activities?
Activity Immediate Predecessor Days
A - 3
B A 4
C A 6
D B 6
E B 4
F C 4
G D 6
H E,F 8
Click here for the solution: Draw the activity-on-node (AON) project network associated with the following activities for Dave Carhart’s consulting company project
Activity Immediate Predecessor Days
A - 3
B A 4
C A 6
D B 6
E B 4
F C 4
G D 6
H E,F 8
Click here for the solution: Draw the activity-on-node (AON) project network associated with the following activities for Dave Carhart’s consulting company project
Mark Cotteleer owns a company that manufactures sailboats
Problem 4.27 Mark Cotteleer owns a company that manufactures sailboats.
Actual demand for Mark’s sailboats during each season in 2004 through
2007 was as follows:
Year
Season 2004 2005 2006 2007
Winter 1,400 1,200 1,000 900
Spring 1,500 1,400 1,600 1,500
Summer 1,000 2,100 2,000 1,900
Fall 600 750 650 500
Mark has forecasted that annual demand for his sailboats in 2009 will equal 5,600 sailboats. Based on this data and the multiplicative seasonal model, what will the demand level be for Mark’s sailboats in the spring of 2009?
Click here for the solution: Mark Cotteleer owns a company that manufactures sailboats
Year
Season 2004 2005 2006 2007
Winter 1,400 1,200 1,000 900
Spring 1,500 1,400 1,600 1,500
Summer 1,000 2,100 2,000 1,900
Fall 600 750 650 500
Mark has forecasted that annual demand for his sailboats in 2009 will equal 5,600 sailboats. Based on this data and the multiplicative seasonal model, what will the demand level be for Mark’s sailboats in the spring of 2009?
Click here for the solution: Mark Cotteleer owns a company that manufactures sailboats
Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011 (ACC 291 Week 2 Assignment)
ACC 291 Week 2 Assignment
E9-7 Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011. The truck has a expected salvage value of 2,000 and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2011 and 12,000 in 2012.
Instructions
a) compute depreciation expense for 2010 and 2011 using (1) the straight line method (2) the units of activity method and (3) the double declining balance method.
b) Assume that Brainiac uses the straight line method
(1) prepare the journal entry to record 2010 depreciation.
(2) Show how the truck would be reported in the December 31, 2010 balance sheet.
Click here for the solution: Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011
E9-7 Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011. The truck has a expected salvage value of 2,000 and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2011 and 12,000 in 2012.
Instructions
a) compute depreciation expense for 2010 and 2011 using (1) the straight line method (2) the units of activity method and (3) the double declining balance method.
b) Assume that Brainiac uses the straight line method
(1) prepare the journal entry to record 2010 depreciation.
(2) Show how the truck would be reported in the December 31, 2010 balance sheet.
Click here for the solution: Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011
Sunday, September 13, 2015
5-54 If a company’s control risk is assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls
5-54 (Testing internal Controls) If a company’s control risk is assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls.
Required
a. For each of the following control activities, indicate the audit procedure the auditor would use to determine its operating effectiveness.
b. Briefly describe how substantive tests of account balances should be modified if the auditor finds that the control procedure is not working as planned. In doing so, indicate (a) what could happen because of the control deficiency, and (b) how the auditor’s tests should be expanded to test for the potential misstatement.
Controls
1. Credit approval by the credit department is required before salespersons accept orders of more than $15,000 and for all customers who have a past-due balance higher than $22,000.
2. All merchandise receipts are recorded on pre numbered receiving slips. The controller’s department periodically accounts for the numerical sequence of the receiving slips.
3. Payments for goods received are made only by the accounts payable department on receipt of a vendor invoice, which is then matched for prices and quantities with approved purchase orders and receiving slips.
4. The accounts receivable bookkeeper is not allowed to issue credit memos or to approve the write-off of accounts.
5. Cash receipts are opened by a mail clerk, who prepares remittances to send to accounts receivable for recording. The clerk prepares a daily deposit slip, which is sent to the controller. Deposits are made daily by the controller.
6. Employees are added to the payroll master file by the payroll department only after receiving a written authorization from the personnel department.
7. The only individuals who have access to the payroll master file are the payroll department head and the payroll clerk responsible for maintaining the payroll file. Access to the file is controlled by computer passwords.
8. Edit tests built into the computerized payroll program prohibit the processing of weekly payroll hours in excess of 53 and the payment to an employee for more than three different job classifications during a one-week period.
9. Credit memos are issued to customers only on the receipt of merchandise or the approval of the sales department for adjustments.
10. A salesperson cannot approve a sales return or price adjustment that exceeds 6% of the cumulative sales for the year for any one customer. The divisional sales manager must approve any subsequent approvals of adjustments for such a customer.
Click here for the solution: If a company’s control risk is assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls
Required
a. For each of the following control activities, indicate the audit procedure the auditor would use to determine its operating effectiveness.
b. Briefly describe how substantive tests of account balances should be modified if the auditor finds that the control procedure is not working as planned. In doing so, indicate (a) what could happen because of the control deficiency, and (b) how the auditor’s tests should be expanded to test for the potential misstatement.
Controls
1. Credit approval by the credit department is required before salespersons accept orders of more than $15,000 and for all customers who have a past-due balance higher than $22,000.
2. All merchandise receipts are recorded on pre numbered receiving slips. The controller’s department periodically accounts for the numerical sequence of the receiving slips.
3. Payments for goods received are made only by the accounts payable department on receipt of a vendor invoice, which is then matched for prices and quantities with approved purchase orders and receiving slips.
4. The accounts receivable bookkeeper is not allowed to issue credit memos or to approve the write-off of accounts.
5. Cash receipts are opened by a mail clerk, who prepares remittances to send to accounts receivable for recording. The clerk prepares a daily deposit slip, which is sent to the controller. Deposits are made daily by the controller.
6. Employees are added to the payroll master file by the payroll department only after receiving a written authorization from the personnel department.
7. The only individuals who have access to the payroll master file are the payroll department head and the payroll clerk responsible for maintaining the payroll file. Access to the file is controlled by computer passwords.
8. Edit tests built into the computerized payroll program prohibit the processing of weekly payroll hours in excess of 53 and the payment to an employee for more than three different job classifications during a one-week period.
9. Credit memos are issued to customers only on the receipt of merchandise or the approval of the sales department for adjustments.
10. A salesperson cannot approve a sales return or price adjustment that exceeds 6% of the cumulative sales for the year for any one customer. The divisional sales manager must approve any subsequent approvals of adjustments for such a customer.
Click here for the solution: If a company’s control risk is assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls
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
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
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