E16-30 (Stock-Appreciation Rights) Derrick Company establishes a stock-appreciation rights program that entitles its new president Dan Scott to receive cash for the difference between the market price of the stock and a pre-established price of $30 (also market price) on December 31, 2008, on 40,000 SARs. The date of grant is December 31, 2008, and the required employment (service) period is 4 years. President Scott exercises all of the SARs in 2014. The fair value of the SARs is estimated to be $6 per SAR on December 31, 2009; $9 on December 31, 2010; $15 on December 31, 2011; $8 on December 31, 2012; and $18 on December 31, 2013.
(a) Prepare a 5-year (2009–2013) schedule of compensation expense pertaining to the 40,000 SARs granted to President Scott.
(b) Prepare the journal entry for compensation expense in 2009, 2012, and 2013 relative to the 40,000 SARs.
Click here for the solution: Derrick Company establishes a stock-appreciation rights program that entitles its new president Dan Scott
Showing posts with label new. Show all posts
Showing posts with label new. Show all posts
Wednesday, April 13, 2016
Tuesday, April 12, 2016
The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology
Market vs Book Value: The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology. He then formed a corporation and invested $200,000 in setting up a production plant. He believes that he could sell his patent for $50 million.
a. What are the book value and market value of the firm?
b. If there are 2 million shares of stock in the new corporation, what would be the price per share and the book value per share?
Click here for the solution: The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology
a. What are the book value and market value of the firm?
b. If there are 2 million shares of stock in the new corporation, what would be the price per share and the book value per share?
Click here for the solution: The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology
Thursday, November 26, 2015
On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel
Problem 4-2A Applying The Accounting Cycle
On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel. The following transactions occurred during the company’s first month:
April 1 Stafford invested $20,000 cash and computer equipment worth $40,000 in the business.
2 Rented furnished office space by paying $1,700 cash for the first month’s (April) rent.
3 Purchased $1,100 of office supplies for cash.
10 Paid $3,600 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
14 Paid $1,800 cash for two weeks’ salaries earned by employees.
24 Collected $7,900 cash on commissions from airlines on tickets obtained for customers.
28 Paid another $1,800 cash for two weeks’ salaries earned by employees.
29 Paid $250 cash for minor repairs to the company’s computer.
30 Paid $650 cash for this month’s telephone bill.
30 Stafford withdrew $1,500 cash for personal use.
The company’s chart of accounts follows:
Required
1. Use the balance column format to set up each ledger account listed in its chart of accounts.
2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The company records prepaid and unearned items in balance sheet accounts.
3. Prepare an unadjusted trial balance as of April 30.
4. Use the following information to journalize and post adjusting entries for the month:
a. Two-thirds of one month’s insurance coverage has expired.
b. At the end of the month, $700 of office supplies are still available.
c. This month’s depreciation on the computer equipment is $600.
d. Employees earned $320 of unpaid and unrecorded salaries as of month-end.
e. The company earned $1,650 of commissions that are not yet billed at month-end.
5. Prepare the income statement and the statement of owner’s equity for the month of April and the balance sheet at April 30, 2005.
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger.
7. Prepare a post-closing trial balance.
Check (3) Unadj. trial balance totals, $67,900
(4a) Dr. Insurance Expense, $200
(5) Net income, $1,830; Capital (4/30/2005), $60,330; Total assets, $60,650
(7) P-C trial balance totals, $61,250
Click here for the solution: On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel
On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel. The following transactions occurred during the company’s first month:
April 1 Stafford invested $20,000 cash and computer equipment worth $40,000 in the business.
2 Rented furnished office space by paying $1,700 cash for the first month’s (April) rent.
3 Purchased $1,100 of office supplies for cash.
10 Paid $3,600 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
14 Paid $1,800 cash for two weeks’ salaries earned by employees.
24 Collected $7,900 cash on commissions from airlines on tickets obtained for customers.
28 Paid another $1,800 cash for two weeks’ salaries earned by employees.
29 Paid $250 cash for minor repairs to the company’s computer.
30 Paid $650 cash for this month’s telephone bill.
30 Stafford withdrew $1,500 cash for personal use.
The company’s chart of accounts follows:
Required
1. Use the balance column format to set up each ledger account listed in its chart of accounts.
2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The company records prepaid and unearned items in balance sheet accounts.
3. Prepare an unadjusted trial balance as of April 30.
4. Use the following information to journalize and post adjusting entries for the month:
a. Two-thirds of one month’s insurance coverage has expired.
b. At the end of the month, $700 of office supplies are still available.
c. This month’s depreciation on the computer equipment is $600.
d. Employees earned $320 of unpaid and unrecorded salaries as of month-end.
e. The company earned $1,650 of commissions that are not yet billed at month-end.
5. Prepare the income statement and the statement of owner’s equity for the month of April and the balance sheet at April 30, 2005.
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger.
7. Prepare a post-closing trial balance.
Check (3) Unadj. trial balance totals, $67,900
(4a) Dr. Insurance Expense, $200
(5) Net income, $1,830; Capital (4/30/2005), $60,330; Total assets, $60,650
(7) P-C trial balance totals, $61,250
Click here for the solution: On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel
Wednesday, October 14, 2015
Kozy Enterprises is considering manufacturing a new product
ACC 560 Week 4 Assignment
E5-2 Kozy Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.
Output in Units Rent Expense Direct Materials
1,000 $5,000 $4,000
2,000 5,000 6,000
3,000 5,000 7,800
4,000 7,000 8,000
5,000 7,000 10,000
6,000 7,000 12,000
7,000 7,000 14,000
8,000 7,000 16,000
9,000 7,000 18,000
10,000 10,000 23,000
11,000 10,000 28,000
12,000 10,000 36,000
Instructions
(a) Diagram the behavior of each cost for output ranging from 1,000 to 12,000 units.
(b) Determine the relevant range of activity for this product.
(c) Calculate the variable cost per unit within the relevant range.
(d) Indicate the fixed cost within the relevant range.
Click here for the solution: Kozy Enterprises is considering manufacturing a new product
E5-2 Kozy Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.
Output in Units Rent Expense Direct Materials
1,000 $5,000 $4,000
2,000 5,000 6,000
3,000 5,000 7,800
4,000 7,000 8,000
5,000 7,000 10,000
6,000 7,000 12,000
7,000 7,000 14,000
8,000 7,000 16,000
9,000 7,000 18,000
10,000 10,000 23,000
11,000 10,000 28,000
12,000 10,000 36,000
Instructions
(a) Diagram the behavior of each cost for output ranging from 1,000 to 12,000 units.
(b) Determine the relevant range of activity for this product.
(c) Calculate the variable cost per unit within the relevant range.
(d) Indicate the fixed cost within the relevant range.
Click here for the solution: Kozy Enterprises is considering manufacturing a new product
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2010 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
Accrued liability and expense
Warranty expense (2% x $2,500,000) 50,000
Estimated warranty liability 50,000
Actual expenditures (summary entry)
Estimated warranty liability 23,000
Cash, wages payable, parts and supplies, etc. 23,000
In late 2011, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.
Required:
1. Assuming sales of the sprinklers in 2011 were $3,600,000 and warranty expenditures in 2011 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.
Click here for the solution: Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects
Accrued liability and expense
Warranty expense (2% x $2,500,000) 50,000
Estimated warranty liability 50,000
Actual expenditures (summary entry)
Estimated warranty liability 23,000
Cash, wages payable, parts and supplies, etc. 23,000
In late 2011, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.
Required:
1. Assuming sales of the sprinklers in 2011 were $3,600,000 and warranty expenditures in 2011 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.
Click here for the solution: Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects
Sunday, September 27, 2015
Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
P16-29B Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company's five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
On January 1, 2008, a new Board of Directors was elected for Bradley Hospital
Problem 19-2 Various Funds—Hospital
On January 1, 2008, a new Board of Directors was elected for Bradley Hospital. The new board switched to a different accountant. After reviewing the hospital’s books, the accountant decided that the accounts should be adjusted. Effective January 1, 2008, the board decided that
1. Separate funds should be established for the General Fund, the Bradley Endowment Fund, and the Plant Replacement and Expansion Fund (the old balances will be reversed to eliminate them).
2. The accounts should be maintained in accordance with fund accounting principles. The balances in the general ledger at January 1, 2008, are presented here:
Cash $ 50,000
Investment in U.S. treasury bills 105,000
Investment in common stock 417,000
Interest receivable 4,000
Accounts receivable 40,000
Inventory 25,000
Land 407,000
Building 245,000
Equipment 283,000
Allowance for depreciation $ 376,000
Accounts payable 70,000
Bank loan 150,000
Endowment fund balance 119,500
Other fund balances 860,500
Total $1,576,000 $1,576,000
The following additional information is available:
1. Under the terms of the will of J. Ethington, founder of the hospital, “The principal of the bequest is to be fully invested in trust forevermore in mortgages secured by productive real estate in Central City and/or in U.S. Government securities . . . and the income therefrom is to be used to defray current expenses.”
2. The Endowment Fund consists of the following:
Cash received in 1898 by bequest from Ethington $ 81,500
Net gains realized from 1956 through 1989 from the sale of real estate acquired in mortgage foreclosures 23,500
Income received from 1990 through 2007 from 90-day U.S. treasury bill investments 14,500
Balance per general ledger on January 1, 2008 $119,500
3. The land account balance is composed of 1900 appraisal of land at $10,000 and building at $5,000, received by donation at that time. The building was demolished in 1934. $15,000 Appraisal increase based on insured value in land title policies issued in 1954. 380,000
Landscaping costs for trees planted. 12,000
Balance per general ledger on January 1, 2008 $407,000
4. The building balance is composed of
Cost of present hospital building completed in January 1961, when the
hospital commenced operations $ 300,000
Adjustment to record appraised value of building in 1971. (100,000)
Cost of elevator installed in hospital building in January 1987. 45,000
Balance per general ledger on January 1, 2008 $ 245,000
The estimated useful lives of the hospital building and the elevator when new were 50 years
and 20 years, respectively.
5. The hospital’s equipment was inventoried on January 1, 2008. The costs shown in the inventory
agreed with the equipment account balance in the general ledger. The allowance
for depreciation account at January 1, 2008, included $158,250 applicable to equipment,
and that amount was determined to be accurate. All depreciation is computed on a
straight-line basis.
6. A bank loan was obtained to finance the cost of new operating room equipment purchased
in 2004. Interest was paid to December 31, 2007.
7. Common stock with a market value of $417,000 was donated to Bradley Hospital with the stipulation that the proceeds from the sale of the stock must be used for facilities expansion. The hospital plans to undertake expansion of its facilities next year and to sell these securities at that time.
Required:
Using the workpaper form below, prepare the entries necessary to establish the correct balances as of January 1, 2008.
Plant
Endowment Replacement
Trial Balance Adjustments General Fund Fund Fund
Account
Description Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Click here for the solution: On January 1, 2008, a new Board of Directors was elected for Bradley Hospital
On January 1, 2008, a new Board of Directors was elected for Bradley Hospital. The new board switched to a different accountant. After reviewing the hospital’s books, the accountant decided that the accounts should be adjusted. Effective January 1, 2008, the board decided that
1. Separate funds should be established for the General Fund, the Bradley Endowment Fund, and the Plant Replacement and Expansion Fund (the old balances will be reversed to eliminate them).
2. The accounts should be maintained in accordance with fund accounting principles. The balances in the general ledger at January 1, 2008, are presented here:
Cash $ 50,000
Investment in U.S. treasury bills 105,000
Investment in common stock 417,000
Interest receivable 4,000
Accounts receivable 40,000
Inventory 25,000
Land 407,000
Building 245,000
Equipment 283,000
Allowance for depreciation $ 376,000
Accounts payable 70,000
Bank loan 150,000
Endowment fund balance 119,500
Other fund balances 860,500
Total $1,576,000 $1,576,000
The following additional information is available:
1. Under the terms of the will of J. Ethington, founder of the hospital, “The principal of the bequest is to be fully invested in trust forevermore in mortgages secured by productive real estate in Central City and/or in U.S. Government securities . . . and the income therefrom is to be used to defray current expenses.”
2. The Endowment Fund consists of the following:
Cash received in 1898 by bequest from Ethington $ 81,500
Net gains realized from 1956 through 1989 from the sale of real estate acquired in mortgage foreclosures 23,500
Income received from 1990 through 2007 from 90-day U.S. treasury bill investments 14,500
Balance per general ledger on January 1, 2008 $119,500
3. The land account balance is composed of 1900 appraisal of land at $10,000 and building at $5,000, received by donation at that time. The building was demolished in 1934. $15,000 Appraisal increase based on insured value in land title policies issued in 1954. 380,000
Landscaping costs for trees planted. 12,000
Balance per general ledger on January 1, 2008 $407,000
4. The building balance is composed of
Cost of present hospital building completed in January 1961, when the
hospital commenced operations $ 300,000
Adjustment to record appraised value of building in 1971. (100,000)
Cost of elevator installed in hospital building in January 1987. 45,000
Balance per general ledger on January 1, 2008 $ 245,000
The estimated useful lives of the hospital building and the elevator when new were 50 years
and 20 years, respectively.
5. The hospital’s equipment was inventoried on January 1, 2008. The costs shown in the inventory
agreed with the equipment account balance in the general ledger. The allowance
for depreciation account at January 1, 2008, included $158,250 applicable to equipment,
and that amount was determined to be accurate. All depreciation is computed on a
straight-line basis.
6. A bank loan was obtained to finance the cost of new operating room equipment purchased
in 2004. Interest was paid to December 31, 2007.
7. Common stock with a market value of $417,000 was donated to Bradley Hospital with the stipulation that the proceeds from the sale of the stock must be used for facilities expansion. The hospital plans to undertake expansion of its facilities next year and to sell these securities at that time.
Required:
Using the workpaper form below, prepare the entries necessary to establish the correct balances as of January 1, 2008.
Plant
Endowment Replacement
Trial Balance Adjustments General Fund Fund Fund
Account
Description Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Click here for the solution: On January 1, 2008, a new Board of Directors was elected for Bradley Hospital
Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool
EX 10-4 Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 9,000 units at $42 each. The new manufacturing equipment will cost $156,000 and is expected to have a 10-year life and $12,000 residual value. Selling expenses related to the new product are expected to be 5% of sales revenues. The cost to manufacture the product includes the following on a per-unit basis:
Direct labor $7.00
Direct materials 23.40
Fixed factory overhead-depreciation 1.60
Variable factory overhead 3.60
Total $35.60
Determine the net cash flows for the first year of the project, Years 2-9 and for the last year of the project.
Click here for the solution: Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool
Direct labor $7.00
Direct materials 23.40
Fixed factory overhead-depreciation 1.60
Variable factory overhead 3.60
Total $35.60
Determine the net cash flows for the first year of the project, Years 2-9 and for the last year of the project.
Click here for the solution: Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool
Friday, September 25, 2015
Dobbs Corporation is considering purchasing a new delivery truck
E12-1 Dobbs Corporation is considering purchasing a new delivery truck.
The truck has many advantages over the company's current truck (not the
least of which is that it runs). The new truck would cost $56,000. Because of the increased capacity, reduced maintenance costs, and
increased fuel economy, the new truck is expected to generate cost
savings of $8,000. At the end of 8 years the company will sell the truck
for an estimated $28,000. Traditionally the company has used a rule of
thumb that a proposal should not be accepted unless it has a payback
period that is less than 50% of the asset's estimated useful life. Hal Michaels, a new manager, has suggested that the company should not rely
solely on the payback approach, but should also employ the net present
value method when evaluating new projects. The company's cost of capital
is 8%.
Instructions
(a) Compute the cash payback period and net present value of the proposed investment.
(b) Does the project meet the company’s cash payback criteria? Does it meet the net present
value criteria for acceptance? Should the project be accepted? Discuss your results.
Click here for the solution: Dobbs Corporation is considering purchasing a new delivery truck
Instructions
(a) Compute the cash payback period and net present value of the proposed investment.
(b) Does the project meet the company’s cash payback criteria? Does it meet the net present
value criteria for acceptance? Should the project be accepted? Discuss your results.
Click here for the solution: Dobbs Corporation is considering purchasing a new delivery truck
TLC Corp. is considering purchasing one of two new diagnostic machines
E12-3 TLC Corp. is considering purchasing one of two new diagnostic
machines. Either machine would make it possible for the company to bid
on jobs that it currently isn't equipped to do. Estimates regarding each
machine are provided below.
Machine A Machine B
Original cost $78,000 $190,000
Estimated life 8 years 8 years
Salvage value 0 0
Estimated annual cash inflows $20,000 $40,000
Estimated annual cash outflows $5,000 $9,000
Instructions
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased?
Click here for the solution: TLC Corp. is considering purchasing one of two new diagnostic machines
Machine A Machine B
Original cost $78,000 $190,000
Estimated life 8 years 8 years
Salvage value 0 0
Estimated annual cash inflows $20,000 $40,000
Estimated annual cash outflows $5,000 $9,000
Instructions
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased?
Click here for the solution: TLC Corp. is considering purchasing one of two new diagnostic machines
Sunday, September 20, 2015
The Carbondale Hospital is considering the purchase of a new ambulance
Problem 4.5 The Carbondale Hospital is considering the purchase of a
new ambulance. The decision will rest partly on the anticipated mileage
to be driven next year. The miles driven during the past 5 years are as
follows:
Year Mileage
1 3,000
2 4,000
3 3,400
4 3,800
5 3,700
a) Forecast the mileage for next year using a 2-year moving average.
b) Find the MAD based on the 2-year moving average forecast in part (a). (Hint: You will have only 3 years of matched data.)
c) Use a weighted 2-year moving average with weights of .4 and .6 to forecast next year’s mileage. (The weight of .6 is for the most recent year.) What MAD results from using this approach to forecasting? (Hint: You will have only 3 years of matched data.)
d) Compute the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000 miles, and a= .5.
Click here for the solution: The Carbondale Hospital is considering the purchase of a new ambulance
Year Mileage
1 3,000
2 4,000
3 3,400
4 3,800
5 3,700
a) Forecast the mileage for next year using a 2-year moving average.
b) Find the MAD based on the 2-year moving average forecast in part (a). (Hint: You will have only 3 years of matched data.)
c) Use a weighted 2-year moving average with weights of .4 and .6 to forecast next year’s mileage. (The weight of .6 is for the most recent year.) What MAD results from using this approach to forecasting? (Hint: You will have only 3 years of matched data.)
d) Compute the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000 miles, and a= .5.
Click here for the solution: The Carbondale Hospital is considering the purchase of a new ambulance
Sunday, September 13, 2015
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
12-46 Overview and Objectives of Audit Procedure
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts. The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts. The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
Fraser Company will need a new warehouse in five years
Fraser Company will need a new warehouse in five years. The warehouse will cost $500,000 to build.
Required:
What lump-sum amount should the company invest now to have the $500,000 available at the end of the five-year period? Assume that the company can invest money at:
1. Ten percent.
2. Fourteen percent.
Click here for the solution: Fraser Company will need a new warehouse in five years
Required:
What lump-sum amount should the company invest now to have the $500,000 available at the end of the five-year period? Assume that the company can invest money at:
1. Ten percent.
2. Fourteen percent.
Click here for the solution: Fraser Company will need a new warehouse in five years
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
12-46 (Overview and Objectives of Audit Procedures) The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts.The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts.The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
Friday, September 11, 2015
Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo
Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10 years. Axillar's discount rate is 16%.
Required:
(a) What is the net present value of this investment opportunity?
(b) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?
Click here for the solution: Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo
Required:
(a) What is the net present value of this investment opportunity?
(b) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?
Click here for the solution: Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo
Sunday, September 6, 2015
A government opts to set aside $10 million of general fund resources to finance a new city hall
1. A government opts to set aside $10 million of general fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources.
2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?
6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and
7. In its fund statements a government should recognize revenue from special assessments
8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
9. Under existing federal statutes, arbitrage as it applies to state and local governments
10. Bond refunding are most likely to result in an economic gain when
Click here for the solution: A government opts to set aside $10 million of general fund resources to finance a new city hall
2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?
6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and
7. In its fund statements a government should recognize revenue from special assessments
8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
9. Under existing federal statutes, arbitrage as it applies to state and local governments
10. Bond refunding are most likely to result in an economic gain when
Click here for the solution: A government opts to set aside $10 million of general fund resources to finance a new city hall
On October 10, 2010, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment
On October 10, 2010, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment. Under the terms of the agreement, the equipment may be purchased now or Mason may wait until January 10, 2011, to make the purchase. The cost of the equipment is $400,000. It will be financed by a note bearing interest at the market rate. Straight-line depreciation over a 10-year life will be used for book purposes. A double-declining balance over seven years will be used for tax purposes. (One-half year of depreciation will be taken in the year of purchase regardless of the date of purchase.)
Required:
a. Discuss the financial statement impacts of postponing the purchase of the equipment. Would the market price of the firm’s common stock be affected by any or all of these impacts? Do not assume in your discussion that the postponement will affect revenues or any operating costs other than depreciation.
b. Discuss any cash flow impacts related to postponing the purchase of the equipment.
c. Efficient markets assume that stockholder wealth is affected by the amount and timing of cash flows. Which alternative is more favorable to them: purchasing before year-end or waiting until January? Explain your answer.
Click here for the solution: On October 10, 2010, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment
Required:
a. Discuss the financial statement impacts of postponing the purchase of the equipment. Would the market price of the firm’s common stock be affected by any or all of these impacts? Do not assume in your discussion that the postponement will affect revenues or any operating costs other than depreciation.
b. Discuss any cash flow impacts related to postponing the purchase of the equipment.
c. Efficient markets assume that stockholder wealth is affected by the amount and timing of cash flows. Which alternative is more favorable to them: purchasing before year-end or waiting until January? Explain your answer.
Click here for the solution: On October 10, 2010, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment
Utah Utensil has developed a new kitchen utensil
Utah Utensil has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product:
Year Expected Volume Expected Price per Unit
1 48,000 units $19
2 48,000 units 20
3 90,000 units 16
4 40,000 units 12
If the firm desires to net $3.50 per unit in profit over the life of the product, and selling and administrative expenses are expected to average $50,000 per year, what is the target cost to produce the new utensil?
Click here for the solution: Utah Utensil has developed a new kitchen utensil
Year Expected Volume Expected Price per Unit
1 48,000 units $19
2 48,000 units 20
3 90,000 units 16
4 40,000 units 12
If the firm desires to net $3.50 per unit in profit over the life of the product, and selling and administrative expenses are expected to average $50,000 per year, what is the target cost to produce the new utensil?
Click here for the solution: Utah Utensil has developed a new kitchen utensil
In 2011, Bantham County incurred $80 million in costs to construct a new highway
P7-8 If governments do not preserve their infrastructure assets, they must depreciate them.
In 2011, Bantham County incurred $80 million in costs to construct a new highway. Engineers, estimate that the useful life of the highway is 20 years.
AND SO ON
Click here for the solution: In 2011, Bantham County incurred $80 million in costs to construct a new highway
In 2011, Bantham County incurred $80 million in costs to construct a new highway. Engineers, estimate that the useful life of the highway is 20 years.
AND SO ON
Click here for the solution: In 2011, Bantham County incurred $80 million in costs to construct a new highway
Saturday, August 22, 2015
Gene is a new staff-level auditor on the audit of CalPower, a publicly traded energy and utility company
Problem 16-22 Gene is a new staff-level auditor on the audit of CalPower, a publicly traded energy and utility company. On his first day, his senior informs him that the engagement team is scheduled to have lunch with the internal auditor to discuss ways to improve this year’s audit. While Gene has heard a lot about internal auditing in school and has some friends who recently began working as internal auditors, he is unfamiliar with exactly what internal auditors do and how internal and external auditors can work together to improve the audit process. Gene decides to take a look at last, year’s internal audit report prepared by CalPower’s internal auditors. He notices that the report includes a sentence that reads, “CalPower’s Internal Audit group maintains a high level of independence from management.” Because Gene is intimately familiar with the extensive independence requirements of his own firm, he cannot figure out how CalPower’s internal audit group can possibly assert their own independence.
What is meant by independence from management for internal auditors?
Click here for the solution: Gene is a new staff-level auditor on the audit of CalPower, a publicly traded energy and utility company
What is meant by independence from management for internal auditors?
Click here for the solution: Gene is a new staff-level auditor on the audit of CalPower, a publicly traded energy and utility company
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