Auditing P 5-19
The CPA firm of Bigelow, Barton, and Brown was expanding rapidly. Consequently it hired several junior accountants, including a man named Small. The partners of the firm eventually became dissatisfied with Small's production and warned him they would be forced to discharge him unless his output increased significantly.
At that time, Small was engaged in audits of several clients. He decided that to avoid being fired, he would reduce or omit some to the standard auditing procedures listed in audit programs prepared by the partners. One of the CPA firm's clients, Newell Corporation, was in serious financial difficulty and had adjusted several of the accounts being audited by Small to appear financially sound. Small prepared fictitious audit documentation in his home at night to support purported completion of auditing procedures assigned to him, although he in fact did not examine the adjusting entries. The CPA firm rendered an unqualified opinion on Newell's financial statements, which were grossly misstated. Several creditors, relying on the audited financial statements, subsequently extended large sums of money to Newell Corporation.
Will the CPA firm be liable to the creditors who extended the money because of their reliance on the erroneous financial statements if Newell Corporation should fail to pay them? Explain.
Click here for the solution: The CPA firm of Bigelow, Barton, and Brown was expanding rapidly
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Showing posts with label was. Show all posts
Friday, September 11, 2015
Tuesday, September 8, 2015
On June 1 Eckersley Service Company was started with an investment of $26,200 cash
P1-3A On June 1 Eckersley Service Company was started with an investment of $26,200 cash. Here are the assets and liabilities of the company on June 30, and the revenues and expenses for the month of June, its first month of operations.
Cash $4,600 Notes payable $12,000
Accounts receivable 4,000 Accounts payable 500
Revenue 7,000 Supplies expense 1,000
Supplies 2,400 Gas & oil expense 600
Advertising expense 400 Utilities expense 300
Equipment 29,000 Wage expense 1,400
In June, the company issued no additional common stock, but paid dividends of $2,000.
Instructions
(a) Complete an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2010.
(b)
(c)
Click here for the solution: On June 1 Eckersley Service Company was started with an investment of $26,200 cash
Cash $4,600 Notes payable $12,000
Accounts receivable 4,000 Accounts payable 500
Revenue 7,000 Supplies expense 1,000
Supplies 2,400 Gas & oil expense 600
Advertising expense 400 Utilities expense 300
Equipment 29,000 Wage expense 1,400
In June, the company issued no additional common stock, but paid dividends of $2,000.
Instructions
(a) Complete an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2010.
(b)
(c)
Click here for the solution: On June 1 Eckersley Service Company was started with an investment of $26,200 cash
Monday, August 31, 2015
A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
A machine was purchased two years ago for $120,000 and can be sold for $50,000 today. The machine has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gains. Find the firm's tax liability (benefit), if any.
Click here for the solution: A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
Click here for the solution: A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
Sunday, August 23, 2015
Lincoln-Priest, Inc., was organized in 2011
P12-30A Issuing stock and preparing the stockholders' equity section of the balance sheet
Lincoln-Priest, Inc., was organized in 2011. At December 31, 2011, the Lincoln- Priest balance sheet reported the following stockholders' equity:
LINCOLN-PRIEST, INC.
Stockholders' Equity
December 31,2011
Paid-in Capital:
Preferred stock, 7%, $40 par, 110,000 shares authorized, none issued $0
Common stock, $1 par, 520,000 shares authorized, 61,000 shares issued and outstanding
………………………………………………………………………. $61,000
Paid-in capital in excess of par—common $41,000
Total paid-in capital $102,000
Retained earnings $29,000
Total stockholders' equity………………………………. $131,000
Requirements
1. During 2012, the company completed the following transactions. Journalize each transaction. Explanations are not required.
a. Issued for cash 1,300 shares of preferred stock at par value.
b. Issued for cash 2,400 shares of common stock at a price of $5 per share.
c. Net income for the year was $74,000, and the company declared no dividends. Make the closing entry for net income.
2. Prepare the stockholders' equity section of the Lincoln-Priest December 31, 2012.
Click here for the solution: Lincoln-Priest, Inc., was organized in 2011
Lincoln-Priest, Inc., was organized in 2011. At December 31, 2011, the Lincoln- Priest balance sheet reported the following stockholders' equity:
LINCOLN-PRIEST, INC.
Stockholders' Equity
December 31,2011
Paid-in Capital:
Preferred stock, 7%, $40 par, 110,000 shares authorized, none issued $0
Common stock, $1 par, 520,000 shares authorized, 61,000 shares issued and outstanding
………………………………………………………………………. $61,000
Paid-in capital in excess of par—common $41,000
Total paid-in capital $102,000
Retained earnings $29,000
Total stockholders' equity………………………………. $131,000
Requirements
1. During 2012, the company completed the following transactions. Journalize each transaction. Explanations are not required.
a. Issued for cash 1,300 shares of preferred stock at par value.
b. Issued for cash 2,400 shares of common stock at a price of $5 per share.
c. Net income for the year was $74,000, and the company declared no dividends. Make the closing entry for net income.
2. Prepare the stockholders' equity section of the Lincoln-Priest December 31, 2012.
Click here for the solution: Lincoln-Priest, Inc., was organized in 2011
Saturday, August 22, 2015
On April 1 Flint Hills Travel Agency Inc. was established
P3-1A On April 1 Flint Hills Travel Agency Inc. was established. These transactions were completed during the month
• 1. Stockholders invested $25,000 cash in the company in exchange for common stock.
• 2. Paid $900 cash for April office rent.
• 3. Purchased office equipment for $2,800 cash.
• 4. Purchased $200 of advertising in the Chicago Tribune, on account.
• 5. Paid $500 cash for office supplies.
• 6. Earned $10,000 for services provided: Cash of $1,000 is received from customers, and the balance of $9,000 is billed to customers on account.
• 7. Paid $400 cash dividends.
• 8. Paid Chicago Tribune amount due in transaction (4).
• 9. Paid employees’ salaries $1,200.
• 10. Received $9,000 in cash from customers billed previously in transaction (6).
Check: (a) Cash $29,000; Ret. Earnings $ 7,300
• (a) Prepare a tabular analysis of the transactions using these column headings: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, and Retained Earnings (with separate columns for Revenues, Expenses, and Dividends). Include margin explanations for any changes in Retained Earnings.
• (b) From an analysis of the Retained Earnings columns, compute the net income or net loss for April.
Click here for the solution: On April 1 Flint Hills Travel Agency Inc. was established
• 1. Stockholders invested $25,000 cash in the company in exchange for common stock.
• 2. Paid $900 cash for April office rent.
• 3. Purchased office equipment for $2,800 cash.
• 4. Purchased $200 of advertising in the Chicago Tribune, on account.
• 5. Paid $500 cash for office supplies.
• 6. Earned $10,000 for services provided: Cash of $1,000 is received from customers, and the balance of $9,000 is billed to customers on account.
• 7. Paid $400 cash dividends.
• 8. Paid Chicago Tribune amount due in transaction (4).
• 9. Paid employees’ salaries $1,200.
• 10. Received $9,000 in cash from customers billed previously in transaction (6).
Check: (a) Cash $29,000; Ret. Earnings $ 7,300
• (a) Prepare a tabular analysis of the transactions using these column headings: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, and Retained Earnings (with separate columns for Revenues, Expenses, and Dividends). Include margin explanations for any changes in Retained Earnings.
• (b) From an analysis of the Retained Earnings columns, compute the net income or net loss for April.
Click here for the solution: On April 1 Flint Hills Travel Agency Inc. was established
Tuesday, August 18, 2015
On June 1, Beardsley Service Co. was started with an initial investment in the company of $22,100 cash
P1-3A On June 1, Beardsley Service Co. was started with an initial investment in the company of $22,100 cash. Here are the assets and liabilities of the company at June 30, and the revenues and expenses for the month of June, its first month of operations:
Cash $ 4,600 Notes payable $12,000
Accounts receivable 4,000 Accounts payable 500
Service revenue 7,500 Supplies expense 1,000
Supplies 2,400 Maintenance and repairs expense 600
Advertising expense 400 Utilities expense 300
Equipment 26,000 Salaries and wages expense 1,400
In June, the company issued no additional stock, but paid dividends of $1,400.
Instructions
(a) Prepare an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2012.
(b) Briefly discuss whether the company’s first month of operations was a success.
(c) Discuss the company’s decision to distribute a dividend.
Click here for the solution: On June 1, Beardsley Service Co. was started with an initial investment in the company of $22,100 cash
Cash $ 4,600 Notes payable $12,000
Accounts receivable 4,000 Accounts payable 500
Service revenue 7,500 Supplies expense 1,000
Supplies 2,400 Maintenance and repairs expense 600
Advertising expense 400 Utilities expense 300
Equipment 26,000 Salaries and wages expense 1,400
In June, the company issued no additional stock, but paid dividends of $1,400.
Instructions
(a) Prepare an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2012.
(b) Briefly discuss whether the company’s first month of operations was a success.
(c) Discuss the company’s decision to distribute a dividend.
Click here for the solution: On June 1, Beardsley Service Co. was started with an initial investment in the company of $22,100 cash
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