E8-13 – Identifying and correcting an internal control weakness
Lane & Goble Bookstore has a liberal return policy. A customer can return any product for a full refund within 30 days of purchase. When a customer returns merchandise, Lane & Goble policy specifies:
• Store clerk issues a prenumbered return slip and refunds cash from the cash register. Keep a copy of the return slip for review by the manager.
• Store clerk places the returned goods back on the shelf as soon as possible. Lane & Goble uses a perpetual inventory system.
1. How can a dishonest store clerk steal from Lane & Goble? What part of company policy enables the store clerk to steal without getting caught?
2. How can Lane & Goble improve its internal controls to prevent this theft?
Click here for the solution: Lane & Goble Bookstore has a liberal return policy
Showing posts with label return. Show all posts
Showing posts with label return. Show all posts
Monday, April 18, 2016
Wednesday, October 14, 2015
Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation
ACC 560 Week 3 Assignment
P4-5A Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit Tax
Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000
Typing and secretarial Number of reports/forms 76,200 2,500 600 1,900
Computing Number of minutes 204,000 60,000 25,000 35,000
Facility rental Number of employees 142,500 40 22 18
Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000
Instructions:
a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Hy and Lowe.
b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
c. Classify each of the activities as a value-added activity or a non-value added activity.
d. Comment on the comparative overhead cost for the two services under both traditional costing and ABC.
Click here for the solution: Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation
P4-5A Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit Tax
Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000
Typing and secretarial Number of reports/forms 76,200 2,500 600 1,900
Computing Number of minutes 204,000 60,000 25,000 35,000
Facility rental Number of employees 142,500 40 22 18
Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000
Instructions:
a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Hy and Lowe.
b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
c. Classify each of the activities as a value-added activity or a non-value added activity.
d. Comment on the comparative overhead cost for the two services under both traditional costing and ABC.
Click here for the solution: Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation
Sunday, September 13, 2015
Define the term return on investment
4. Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return.
Click here for the solution: Define the term return on investment
Click here for the solution: Define the term return on investment
Monday, August 31, 2015
In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000
In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000. During the year they incurred the following expenses:
Hospitalization insurance premiums $1,050
Premiums on an insurance policy that pays 300
$100 per day for each day Margaret is hospitalized
Medical care lodging (two people, one night) 65
Hospital bills 2.200
Doctor bills 850
Dentist bills 175
Prescription drugs and medicines 340
Psychiatric-care 300
In addition, during the year they drove 109 miles for medical transportation, and their insurance company reimbursed them $900 for the above expenses. Calculate the Murphy's medical expense deduction.
Click here for the solution: In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000
Hospitalization insurance premiums $1,050
Premiums on an insurance policy that pays 300
$100 per day for each day Margaret is hospitalized
Medical care lodging (two people, one night) 65
Hospital bills 2.200
Doctor bills 850
Dentist bills 175
Prescription drugs and medicines 340
Psychiatric-care 300
In addition, during the year they drove 109 miles for medical transportation, and their insurance company reimbursed them $900 for the above expenses. Calculate the Murphy's medical expense deduction.
Click here for the solution: In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000
Phil and Linda are 25 year-old newlyweds and file a joint tax return
Phil and Linda are 25 year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not.
a. Assuming Phil's wages were $27,000 and Linda's wages were $18,500 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
b. Assuming Phil's wages were $49,000 and Linda's wages were $63,000 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
Click here for the solution: Phil and Linda are 25 year-old newlyweds and file a joint tax return
a. Assuming Phil's wages were $27,000 and Linda's wages were $18,500 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
b. Assuming Phil's wages were $49,000 and Linda's wages were $63,000 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
Click here for the solution: Phil and Linda are 25 year-old newlyweds and file a joint tax return
Linda and Richard are married and file a joint return for 2010
Linda and Richard are married and file a joint return for 2010. During the year, Linda, who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline; Richard used the same amount. Linda and Richard also used $750 worth of employee discount coupons for hotel rooms at the hotel chain that is also owned by the airline. Richard is employed at State University as an accounting clerk. Under a tuition reduction plan, Richard saved $1,000 in tuition fees during 2010. He is studying for a master's degree in business. Richard also had $30 worth of personal typing done by his secretary at the University.
What is the amount of fringe benefits that should be included in Linda and Richard’s gross income on their 2010 tax return?
Click here for the solution: Linda and Richard are married and file a joint return for 2010
What is the amount of fringe benefits that should be included in Linda and Richard’s gross income on their 2010 tax return?
Click here for the solution: Linda and Richard are married and file a joint return for 2010
Saturday, August 22, 2015
(Integrative-Risk, return, and CAPM) Wolff Enterprises must consider several investment projects
(Integrative-Risk, return, and CAPM) Wolff Enterprises must consider several investment projects, A through E, using the capital asset pricing model (CAPM) and its graphical representation, the security market line (SML). Relevant information is presented in the following table.
Item Rate of return Beta,b
Risk-free asset 9% 0.00
Market portfolio 14 1.00
Project A __ 1.50
Project B ___ 0.75
Project C ___ 2.00
Project D ___ 0.00
Project E ___ -0.50
a. Calculate (1) the required rate of return and (2) the risk premium for each project, given its level of nondiversifiable risk.
b. Use your findings in part a to draw the security, market line (required return relative to nondiversifiable risk).
c. Discuss the relative nondiversifiable risk of projects A through E
d. Assume that recent economic events have caused investors to become less risk- averse, causing the market return to decline by 2%, to 12%. Calculate the new required returns for assets A through E, and draw the new security market line on the same set of axes that you used in part b.
e. Compare your findings in part a and b with those in part d. What conclusion can you draw about the impact of a decline in investor risk aversion on the required returns of risky assets?
Click here for the solution: (Integrative-Risk, return, and CAPM) Wolff Enterprises must consider several investment projects
Item Rate of return Beta,b
Risk-free asset 9% 0.00
Market portfolio 14 1.00
Project A __ 1.50
Project B ___ 0.75
Project C ___ 2.00
Project D ___ 0.00
Project E ___ -0.50
a. Calculate (1) the required rate of return and (2) the risk premium for each project, given its level of nondiversifiable risk.
b. Use your findings in part a to draw the security, market line (required return relative to nondiversifiable risk).
c. Discuss the relative nondiversifiable risk of projects A through E
d. Assume that recent economic events have caused investors to become less risk- averse, causing the market return to decline by 2%, to 12%. Calculate the new required returns for assets A through E, and draw the new security market line on the same set of axes that you used in part b.
e. Compare your findings in part a and b with those in part d. What conclusion can you draw about the impact of a decline in investor risk aversion on the required returns of risky assets?
Click here for the solution: (Integrative-Risk, return, and CAPM) Wolff Enterprises must consider several investment projects
Tuesday, August 18, 2015
Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return
Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return. How would the realized rate of return compare with the expected return of a security with a beta of +2?
Click here for the solution: Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return
Click here for the solution: Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return
Thursday, August 13, 2015
Billabong Tech uses the internal rate of return (IRR) to select projects
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $15,000 and generates cash inflows of $8,000 per year for 4 years. Project Board Shorts requires an initial investment of $25,000 and produces cash inflows of $12,000 per year for 5 years.
Click here for the solution: Billabong Tech uses the internal rate of return (IRR) to select projects
Click here for the solution: Billabong Tech uses the internal rate of return (IRR) to select projects
Tuesday, July 14, 2015
An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year
E8–1 An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s prediction prove correct? Explain using the values for total annual return.
Click here for the solution: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year
Click here for the solution: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year
Suppose rFr=9%, rM=14% and bi=1.3.
Suppose rFr=9%, rM=14% and bi=1.3.
a). What is ri, the required rate of return on Stock i?
b). Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?
c). Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?
Click here for the solution: Suppose rFr=9%, rM=14% and bi=1.3.
a). What is ri, the required rate of return on Stock i?
b). Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?
c). Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?
Click here for the solution: Suppose rFr=9%, rM=14% and bi=1.3.
Tuesday, July 7, 2015
From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset
P12-1 From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
P12-2 Based upon your answers to problem 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?
Click here for the solution: From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset
P12-2 Based upon your answers to problem 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?
Click here for the solution: From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset
Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate
P12-3 Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?
Click here for the solution: Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate
Click here for the solution: Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate
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