Traber Electronics is a small privately owned retailer of electronic equipment and household appliances

Problem 2-37 Traber Electronics is a small privately owned retailer of electronic equipment and household appliances. Traber Electronics is required to provide audited financial statements as part of a due diligence investigation in consideration of a potential acquisition of Traber by a public company. In the interest of time, Traber appointed the audit firm of Makins & Howell, CPAs, without a formal proposal process. Makins & Howell immediately accepted the audit engagement in early October and agreed to the November 1 deadline for the auditor’s report.

Katie Kammins, CPA, was recently promoted to in-charge auditor for Makins & Howell and was assigned to the Traber audit along with Joel Misten, the firm’s university intern. Prior to her assignment to the Traber audit, all of Katie’s audit experience was in the health-care industry. Because most of Katie’s health-care clients had June 30 year ends, Katie was available in October to work on the Traber engagement.

Katie and Joel got right to work. Katie informed Joel that there was no time to test controls, so she instructed him as to the proper procedures for proving the mathematical accuracy of the accounting journals and ledgers and tying the totals to the financial statements. No footnotes or other supplemental disclosures accompanied the financial statements, and there were no prior-year financial statements to be used as a basis of comparison, which helped expedite the audit process.

While Joel was busy with the mathematical tie-ins, Katie analyzed the company’s sales and inventories because these were the most significant revenue and asset accounts. For sales, Katie reviewed the monthly sales reports and learned that several large contracts had been accounted for on the percentage of completion method. Although she wasn’t sure about the propriety of the profits recognized, Katie held a series of discussions with Traber’s controller, who assured Katie that the profits had been recorded in accordance with generally accepted accounting principles.

For inventories, Katie observed the items in the retail store, noting the reasonableness of their descriptions and saleable condition. She was not present when Traber Electronics conducted its annual physical count of the inventory. She did not examine the inventory at the company’s warehouse because it represented less than half of the value of the asset account.

One week before the deadline, Makins & Howell provided its standard audit report, which included an unqualified opinion on Traber’s financial statements.

Required:
Refer to each of the 10 GAAS and indicate how the actions of Makins & Howell or its employees resulted in violations of these standards.


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Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company

P23-7 Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Chapman as of May 31, 2010, are shown on the next page. The company is preparing its statement of cash flows.

AND SO ON

The following is additional information concerning Chapman's transactions during the year ended May 31, 2010.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock.
4. The other expenses are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.

Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2010, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2010.

Click here for the solution: Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company

The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90- day loan

Problem 9-21 The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90- day loan. The purpose of the loan is to assist the company in acquiring inventories. Because the company has had some difficulty in paying off its loans in the past, the loan officer has asked for a cash budget to help determine whether the loan should be made. The following data are available for the months April through June, during which the loan will be used:

a. April 1, the start of the loan period, the cash balance will be $24,000. Accounts receivable on April 1 will total $140,000, of which $120,000 will be collected during April and $16,000 will be collected during May. The remainder will be uncollectible.

b. Past experience shows that 30% of a month’s sales are collected in the month of sale, 60% in the month following sale, and 8% in the second month following sale. The other 2% represents bad debts that are never collected. Budgeted sales and expenses for the three-month period follow:

April May June
Sales (all on account) $300,000 $400,000 $250,000
Merchandise Purchases $210,000 $160,000 $130,000
Payroll $20,000 $20,000 $18,000
Lease Payments $22,000 $22,000 $22,000
Advertising $60,000 $60,000 $50,000
Equipment Purchases --- --- $65,000 (nothing in the first 2 months)
Depreciation $15,000 $15,000 $15,000


c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid during April, total $140,000

d. In preparing the cash budget, assume that the $30,000 loan will be made in April and repaid in June. Interest on the loan will total $1,200.

Requirement 1:
Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total. (Deficiencies should be preceded by a minus sign when appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the $ sign in your response.)

Requirement 2:
Prepare a cash budget, by month and in total, for the three-month period. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the $ sign in your response.)

Requirement 3:
If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned?

Click here for the solution: The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90- day loan

George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company

ACC 421 Week 5

Problem 23-7 (P23-7) (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.

AND SO ON

The following is additional information concerning Winston’s transactions during the year ended
May 31, 2008.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.

Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Winston Company for the year ended May 31, 2008.


Click here for the solution: George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company