Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff

Comprehensive Master Budget
Accounting 2302

Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff. It was November of 20x0, and the group was discussing preparation of the firm’s master budget for 20x1. “I’ve decided to go ahead and purchase the industrial robot we’ve been talking about. We’ll make the acquisition on January 2 of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”

AND SO ON

Prepare Frame-It Company’s master budget for 20x1 by completing the following schedules and statements.

1. Sales budget:
2. Cash receipts budget:
3. Production budget:
4. Direct-material budget
5. Cash disbursements budget:
6. Summary cash budget:
7. Prepare a budgeted schedule of cost of goods manufactured and sold for the year 20x1. Note: Budgeted and actual MOH will be equal.
8. Prepare Frame-It’s budgeted income statement for 20x1. (Ignore income taxes.)
9. Prepare Frame-It’s budgeted statement of retained earnings for 20x1.
10. Prepare Frame-It’s budgeted balance sheet as of December 31, 20x1.

Click here for the solution: Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff

Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating

B2. (Choosing financial targets) Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified six comparable firms and calculated the credit statistics shown here.

a. Sanderson’s return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?

b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson’s current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?

FIRM A B C D E F
Senior debt rating Baa2/BBB Baa3/BBB− Baa2/BBB Baa1/A− Baa1/BBB− Baa2/BBB+
Return on assets 5.2% 5.0% 5.4% 5.7% 5.2% 5.3%
Long-term debt/cap 38% 41% 45% 40% 25% 43%
Total cap ($MM) 425 575 525 650 210 375
Funds from operations/LT debt 39% 43% 28% 46% 57% 43%
Fixed charge cov 2.57 2.83 2.75 2.38 3.59 2.15


Click here for the solution: Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating

16-40 (Critique an Audit Report Qualified for a Scope Limitation, LO 3) You are a senior auditor working for Rittenberg & Schwieger, CPAs

16-40 (Critique an Audit Report Qualified for a Scope Limitation, LO 3) You are a senior auditor working for Rittenberg & Schwieger, CPAs. Your staff assistant has drafted the following audit report. You believe the scope limitation is significant enough to qualify the opinion, but not to disclaim an opinion.

To Joseph Halberg, Controller
Billings Container Company, Inc.

We have audited the accompanying balance sheet of Billings Container Company and the related statements of income, retained earnings, and statement of changes in financial position as of December 31, 2007. These financial statements are the responsibility of the Company's management.

Except as discussed in the following paragraph, we conducted our audit in accordance with accounting principles generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain assurance about whether the financial statements are free of misstatement. An audit includes examining evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We were unable to obtain sufficient competent evidence of the fair market value of the Company's investment in a real estate venture due to the unique nature of the venture. The investment is accounted for using the equity method and is stated at $450,000 and $398,000 at December 31, 2007 and 2006, respectively.

In our opinion, except for the above-mentioned limitation on the scope of our audit, the financial statements referred to above present fairly the financial position of Billings Container Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the year then ended in conformity with auditing standards generally accepted in the United States of America.

/s/Bradley Schwieger, CPA

St. Cloud, MN
December 31, 2007

Required:

Identify the deficiencies in this draft, and state how each deficiency should be corrected. Organize your answer around the components of the audit report (introductory paragraph, scope paragraph, and so on).


Click here for the solution: 16-40 (Critique an Audit Report Qualified for a Scope Limitation, LO 3) You are a senior auditor working for Rittenberg & Schwieger, CPAs

Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits

Problem 13-31 Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits. You are the staff auditor on the engagement. Sam asks you to make a start on the audit program for the human resources and payroll tests.

Required: Create a chart with two columns. Column A (shown below) lists different types of tests the team can utilize for testing ICFR and financial statement audits. In Column B give one example for each type of test listed in Column (a).

Column A Column B
Tests of controls for human resources transactions
Tests of controls for payroll cash disbursements
Dual purpose tests for human resources transactions
Dual purpose tests for payroll disbursements
Substantive analytical procedures for payroll-related expenses
Substantive analytical procedures for payroll-related liabilities
Tests of details of balances for payroll-related expenses
Tests of details of balances for payroll-related liabilities


Click here for the solution: Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits

Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 2004

Analytical Procedures
5.58. Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 2004. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including:
1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend.
2. Based on her knowledge of industry trends, she believes that the gross profit for 20X4 should be about 2 percent less than the percentage for 20X3.
3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3.
4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent.
5. Based on her knowledge of economic conditions, she is aware that the effective interest rate On the company’s line of credit for20X4wasapproximately12percent. The average outstanding balance of the line of credit is $2,300,000. This line of credit is the company’s only interest-bearing debt.
6. Based on her discussions with management and her knowledge of the industry, she believes that the amount of other expenses should
. Review the income statement for Uden Supply Company and answer the following:
• Describe the purpose of analytical procedures performed in the planning stage of the audit.
• Uden Supply has projected its 2004 gross profit at 31% of sales despite expectation for some shrinkage in margins. On the basis of Uden's operating performance in years 2001 - 2003 project your best guess for 2004. Project 2004 based on the incremental changes for each line item over the last three years.
• Uden’s unaudited financial statements for the current year show a 31 percent gross profit rate. Assuming that this represents a misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net income before taxes for 20X4.
• Indicate whether you belive that the difference calculated in part (c) is material. Explain your answer.


Click here for the solution: Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 2004

You are a senior auditor working for Rittenberg & Schwieger, CPAs

16-40: You are a senior auditor working for Rittenberg & Schwieger, CPAs. Your staff assistant has drafted the following audit report of a publicly-traded US company. You believe the scope limitation is significant enough to qualify the opinion, but not to disclaim an opinion.

To Joseph Halberg, Controller Billings Container Company, Inc. We have audited the accompanying balance sheet of Billings Container Company and the related statements of income, retained earnings, and statement of changes in financial position as of December 31, 2010. These financial statements are the responsibility of the Company’s management. Except as discussed in the following paragraph, we conducted our audit in accordance with accounting principles generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain assurance about whether the financial statements are free of misstatement. An audit includes examining evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We were unable to obtain sufficient competent evidence of the fair market value of the Company’s investment in a real estate venture due to the unique nature of the venture. The investment is accounted for using the equity method and is stated at $450,000 and $398,000 at December 31, 2010 and 2009, respectively. In our opinion, except for the above-mentioned limitation on the scope of our audit, the financial statements referred to above present fairly the financial position of Billings Container Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the year then ended in conformity with auditing standards generally accepted in the United States of America.

/s/Bradley Schwieger, CPA
St. Cloud, MN
December 31, 2010

Required
Identify the deficiencies in this draft and state how each deficiency should be corrected. Organize your answer around the components of the audit report (introductory paragraph, scope paragraph, and so on).

Click here for the solution: You are a senior auditor working for Rittenberg & Schwieger, CPAs

Sam Strother and Shawna Tibbs are senior vice presidents of the Mutual of Seattle

Sam Strother and Shawna Tibbs are senior vice presidents of the Mutual of Seattle. They are co-directors of the company’s pension fund management division, with Strother having responsibility for fixed income securities (primarily bonds) and Tibbs being responsible for equity investments. A major new client, the Northwestern Municipal League, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them.

To illustrate the common stock valuation process, Strother and Tibbs have asked you to analyze the Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporarily heavy workloads. You are to answer the following questions.

a. Describe briefly the legal rights and privileges of common stockholders.

AND SO ON

p. Temp Force recently issued preferred stock. It pays an annual dividend of $5, and the issue price was $50 per share. What is the expected return to an investor on this preferred stock?

Click here for the solution: Sam Strother and Shawna Tibbs are senior vice presidents of the Mutual of Seattle