Ethics Case 17-6 401(k) plan contributions
You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft. VXI began a defined contribution pension plan three years ago. The plan is a so-called 401(k) plan (named after the Tax Code section that specifies the conditions for the favorable tax treatment of these plans) that permits voluntary contributions by employees. Employees' contributions are matched with one dollar of employer contribution for every two dollars of employee contribution. Approximately $500,000 of contributions is deducted from employee paychecks each month for investment in one of three employer-sponsored mutual funds.
While performing some preliminary audit tests, you happen to notice that employee contributions to these plans usually do not show up on mutual fund statements for up to two months following the end of pay periods from which the deductions are drawn. On further investigation, you discover that when the plan was first begun, contributions were invested within one week of receipt of the funds. When you question the firm's investment manager about the apparent change in the timing of investments, you are told, “Last year Mr. Maxwell (the CFO) directed me to initially deposit the contributions in the corporate investment account. At the close of each quarter, we add the employer matching contribution and deposit the combined amount in specific employee mutual funds.”
Required:
1. What is Mr. Maxwell's apparent motivation for the change in the way contributions are handled?
2. Do you perceive an ethical dilemma?
Click here for the solution: You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft
Showing posts with label you. Show all posts
Showing posts with label you. Show all posts
Sunday, September 27, 2015
You are provided with the following information for Pavey Inc. for the month ended October 31, 2008
P6-5A You are provided with the following information for Pavey Inc. for the month ended October 31, 2008. Pavey uses a periodic method for inventory.
Date Description Units Unit Cost or Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods.
(b) Compare results for the three cost flow assumptions. What cost flow results in the lowest inventory value. What cost flow results in the lowest cost of goods sold. What cost flow results in the lowest gross profit. What cost flow results in the lowest gross profit rate.
Click here for the solution: You are provided with the following information for Pavey Inc. for the month ended October 31, 2008
Date Description Units Unit Cost or Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods.
(b) Compare results for the three cost flow assumptions. What cost flow results in the lowest inventory value. What cost flow results in the lowest cost of goods sold. What cost flow results in the lowest gross profit. What cost flow results in the lowest gross profit rate.
Click here for the solution: You are provided with the following information for Pavey Inc. for the month ended October 31, 2008
Sunday, September 13, 2015
As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year
3-44. (Application of Ethical Framework, LO 4) As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year. Due to poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent.
Required
a. Does GAAP require disclosure of this situation? Cite specific applicable standards.
b. Regardless of your answer to part (a), utilize the ethical framework developed in the chapter to determine whether the auditor should require either a recording or disclosure of the transaction. If you conclude that the transaction should be disclosed or recorded, indicate the nature of disclosure and our rationale for it.
Click here for the solution: As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year
Required
a. Does GAAP require disclosure of this situation? Cite specific applicable standards.
b. Regardless of your answer to part (a), utilize the ethical framework developed in the chapter to determine whether the auditor should require either a recording or disclosure of the transaction. If you conclude that the transaction should be disclosed or recorded, indicate the nature of disclosure and our rationale for it.
Click here for the solution: As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year
For the following independent situations, assume that you are the audit partner on the engagement
Auditing P 3-28
For the following independent situations, assume that you are the audit partner on the engagement:
1. During your audit of Debold.com, Inc. you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated.
2. Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes.
3. You complete the audit of Johnson Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Johnson.
4. Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes.
5. You are auditing Woodcolst Linen Services for the first time. Woodcolst has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year balance sheet is stated correctly in accordance with GAAP. The client did not authorize you to do test work for any of the previous years.
6. You were engaged to audit the Cutter Steel Company's financial statements after the close of the corporation's fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Cutter's financial statements are presented fairly, including inventory about which you were able to satisfy yourself by the use of alternative audit procedures.
For each situation, do the following:
a. Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable.
b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision.
c. Given your answers in parts a and b, sate the type of audit report that should be issued. If you have not decided on level of materiality in part b, state the appropriate report for each alternative materiality level.
Click here for the solution: For the following independent situations, assume that you are the audit partner on the engagement
For the following independent situations, assume that you are the audit partner on the engagement:
1. During your audit of Debold.com, Inc. you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated.
2. Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes.
3. You complete the audit of Johnson Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Johnson.
4. Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes.
5. You are auditing Woodcolst Linen Services for the first time. Woodcolst has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year balance sheet is stated correctly in accordance with GAAP. The client did not authorize you to do test work for any of the previous years.
6. You were engaged to audit the Cutter Steel Company's financial statements after the close of the corporation's fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Cutter's financial statements are presented fairly, including inventory about which you were able to satisfy yourself by the use of alternative audit procedures.
For each situation, do the following:
a. Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable.
b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision.
c. Given your answers in parts a and b, sate the type of audit report that should be issued. If you have not decided on level of materiality in part b, state the appropriate report for each alternative materiality level.
Click here for the solution: For the following independent situations, assume that you are the audit partner on the engagement
Wednesday, September 9, 2015
You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end
P2-3A You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end.
Accounts payable $834
Accounts receivable 810
Building, net of accumulated depreciation 1,537
Cash 1,270
Common stock 900
Cost of goods sold 990
Current portion of long-term debt 450
Depreciation expense 335
Dividends paid during the year 325
Equipment, net of accumulated depreciation 1,220
Income tax expense 165
Income taxes payable 135
Interest expense 400
Inventories 967
Land 2,100
Long-term debt 3,500
Prepaid expenses 12
Retained earnings, beginning 1,600
Revenues 4,600
Selling expenses 210
Short-term investments 1,200
Wages expense 700
Wages payable 222
(a) Complete income statement and a retained earnings statement for Kiley Enterprises for the year ended April 30, 2010.
(b) Complete the classified balance sheet for Kiley Enterprises as of April 30, 2010.
Click here for the solution: You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end
Accounts payable $834
Accounts receivable 810
Building, net of accumulated depreciation 1,537
Cash 1,270
Common stock 900
Cost of goods sold 990
Current portion of long-term debt 450
Depreciation expense 335
Dividends paid during the year 325
Equipment, net of accumulated depreciation 1,220
Income tax expense 165
Income taxes payable 135
Interest expense 400
Inventories 967
Land 2,100
Long-term debt 3,500
Prepaid expenses 12
Retained earnings, beginning 1,600
Revenues 4,600
Selling expenses 210
Short-term investments 1,200
Wages expense 700
Wages payable 222
(a) Complete income statement and a retained earnings statement for Kiley Enterprises for the year ended April 30, 2010.
(b) Complete the classified balance sheet for Kiley Enterprises as of April 30, 2010.
Click here for the solution: You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end
Tuesday, September 8, 2015
Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
Assume that you recently graduated with a degree in finance and have
just reported to work as an investment advisor at the brokerage firm of
Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a
professional tennis player who has just come to the United States from
Chile. Dellatorre is a highly ranked tennis player who would like to
start a company to produce and market apparel that she designs. She also
expects to invest substantial amounts of money through Balik and
Kiefer. Dellatorre is also very bright, and, therefore, she would like
to understand, in general terms, what will happen to her money. Your
boss has developed the following set of questions which you must ask and
answer to explain the U.S. financial system to Dellatorre.
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets
You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets of a product line of Midge Company, a competitor enterprises. The projected acquisition cost is expected to exceed substantially the current fair value of the identifiable net assets to be acquired, which the competitor has agreed to sell because of its substantial net losses of recent years. The board of directors of Software asks if the excess acquisition costs may appropriately be recognized as goodwill.
Prepare a memorandum to the board of directors in answer to the question
Click here for the solution: You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets
Prepare a memorandum to the board of directors in answer to the question
Click here for the solution: You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets
ACC 225 P07-05A You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31
ACC 225 P07-05A
You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31. The company’s previous accountant journalized its transactions through December 15 and posted all items that required posting as individual amounts (see the journals and ledgers in the Working Papers). The company’s transactions beginning on December 16 follow (terms for all its credit sales are 2/10, n/30):
Dec. 16 Sold merchandise on credit to Hanna Seppa, Invoice No. 916, for $7,700 (cost is $4,600).
17 Received a $1,040 credit memorandum from Funk Company for the return of merchandise received on December 15.
AND SO ON
31 Issued Check No. 626 to Jamie Inman, the company’s only sales employee, in payment of her $2,020 salary for the last half of December.
31 Issued Check No. 627 to Access Electric Company in payment of its $710 December electric bill.
31 Cash sales for the last half of the month are $29,600 (cost is $11,200). (Cash sales are recorded daily but are recorded only twice in this problem to reduce repetitive entries.)
Required
1. Record these transactions in the journals provided in the working papers.
2. Verify that amounts that should be posted as individual amounts to the general ledger accounts have been posted, including posting to the customer and creditor accounts. (Such items are immediately posted.) Foot and crossfoot the journals and make the month-end postings.
3. Prepare a December 31 trial balance and prove the accuracy of the subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.
Click here for the solution: ACC 225 P07-05A You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31
You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31. The company’s previous accountant journalized its transactions through December 15 and posted all items that required posting as individual amounts (see the journals and ledgers in the Working Papers). The company’s transactions beginning on December 16 follow (terms for all its credit sales are 2/10, n/30):
Dec. 16 Sold merchandise on credit to Hanna Seppa, Invoice No. 916, for $7,700 (cost is $4,600).
17 Received a $1,040 credit memorandum from Funk Company for the return of merchandise received on December 15.
AND SO ON
31 Issued Check No. 626 to Jamie Inman, the company’s only sales employee, in payment of her $2,020 salary for the last half of December.
31 Issued Check No. 627 to Access Electric Company in payment of its $710 December electric bill.
31 Cash sales for the last half of the month are $29,600 (cost is $11,200). (Cash sales are recorded daily but are recorded only twice in this problem to reduce repetitive entries.)
Required
1. Record these transactions in the journals provided in the working papers.
2. Verify that amounts that should be posted as individual amounts to the general ledger accounts have been posted, including posting to the customer and creditor accounts. (Such items are immediately posted.) Foot and crossfoot the journals and make the month-end postings.
3. Prepare a December 31 trial balance and prove the accuracy of the subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.
Click here for the solution: ACC 225 P07-05A You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31
The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months
PR 22-4A The controller of Dash Shoes Inc. instructs you to prepare a
monthly cash budget for the next three months. You are presented with
the following budget information:
June July August
Sales 120,000 150,000 200,000
Manufacturing costs 50,000 65,000 72,000
Selling & admin exp 35,000 40,000 45,000
Capital expenditures ---- --- 48,000
AND SO ON
INSTRUCTIONS:
1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
Click here for the solution: The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months
June July August
Sales 120,000 150,000 200,000
Manufacturing costs 50,000 65,000 72,000
Selling & admin exp 35,000 40,000 45,000
Capital expenditures ---- --- 48,000
AND SO ON
INSTRUCTIONS:
1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
Click here for the solution: The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months
Sunday, September 6, 2015
You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
Auditing P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule.
AND SO ON
Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.
Click here for the solution: You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
AND SO ON
Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.
Click here for the solution: You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
When would you advise a firm to use direct intervention to set transfer prices?
When would you advise a firm to use direct intervention to set transfer prices? What are the disadvantages of such a practice?
Click here for the solution: When would you advise a firm to use direct intervention to set transfer prices?
Click here for the solution: When would you advise a firm to use direct intervention to set transfer prices?
Wednesday, September 2, 2015
You are auditing payroll for the Goodview Manufacturing Company for the year ended September 30, 2009
Auditing P 8-32 You are auditing payroll for the Goodview Manufacturing company for the year ended September 30, 2009. Included next are amounts from the clients trial balance, along with comparative audited information for the prior year.
AND SO ON
You have obtained the following information to help you perform preliminary analytical procedures for the payroll account balances.
1. There has been a significant increase in the demand for Goodview's products. The increase in sales was due to both an increase in the average selling price of 10% and an increase in units sold that resulted from the increased demand and an increased marketing effort.
2. Even though sales volume increased there was no addition of executives, factory supervisors, or office personnel.
3. All employees including executives, but excluding commission salespeople, received a 3% salary increase starting October 1, 2008. Commission salespeople receive their increased compensation through the increase in sales.
4. The increased number of factory hourly employees was accomplished by recalling employees that had been laid off. They receive the same wage rate as existing employees. Goodview does not permit overtime.
5. Commission salespeople receive a 6% commission on all sales on which a commission is given. Approximately 78% of sales earn sales commission. The other 25% are "call-ins", for which no commission is given. Commissions are paid in the month following the month they are earned.
Required:
a. Use the final balances for the prior year and the information in items 1 thru 5 to develop an expected value for each account included on the preceding page, except sales.
b. Calculate the difference between your expectation and the client's recorded amount a percentage using the formula (expected value-recorded amount)/expected value.
Click here for the solution: You are auditing payroll for the Goodview Manufacturing Company for the year ended September 30, 2009
AND SO ON
You have obtained the following information to help you perform preliminary analytical procedures for the payroll account balances.
1. There has been a significant increase in the demand for Goodview's products. The increase in sales was due to both an increase in the average selling price of 10% and an increase in units sold that resulted from the increased demand and an increased marketing effort.
2. Even though sales volume increased there was no addition of executives, factory supervisors, or office personnel.
3. All employees including executives, but excluding commission salespeople, received a 3% salary increase starting October 1, 2008. Commission salespeople receive their increased compensation through the increase in sales.
4. The increased number of factory hourly employees was accomplished by recalling employees that had been laid off. They receive the same wage rate as existing employees. Goodview does not permit overtime.
5. Commission salespeople receive a 6% commission on all sales on which a commission is given. Approximately 78% of sales earn sales commission. The other 25% are "call-ins", for which no commission is given. Commissions are paid in the month following the month they are earned.
Required:
a. Use the final balances for the prior year and the information in items 1 thru 5 to develop an expected value for each account included on the preceding page, except sales.
b. Calculate the difference between your expectation and the client's recorded amount a percentage using the formula (expected value-recorded amount)/expected value.
Click here for the solution: You are auditing payroll for the Goodview Manufacturing Company for the year ended September 30, 2009
Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators
Problem 1-34 Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators.
Required:
For each independent situation, determine which regulating or standard-setting body you should research:
(a) The entity that sets accounting standards for the government sector.
(b) The entity that decides what is required to become a licensed CPA and conduct work as a CPA.
(c) The entity that sets standards for audits of publicly traded companies.
(d) The entity that sets financial reporting standards in the U.S.
(e) The entity that prepares and administers the Uniform CPA Exam.
(f) The entity that has ultimate authority over public company reports as well as accounting and reporting standards.
Click here for the solution: Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators
Required:
For each independent situation, determine which regulating or standard-setting body you should research:
(a) The entity that sets accounting standards for the government sector.
(b) The entity that decides what is required to become a licensed CPA and conduct work as a CPA.
(c) The entity that sets standards for audits of publicly traded companies.
(d) The entity that sets financial reporting standards in the U.S.
(e) The entity that prepares and administers the Uniform CPA Exam.
(f) The entity that has ultimate authority over public company reports as well as accounting and reporting standards.
Click here for the solution: Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators
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
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
Monday, August 31, 2015
Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
E15-18 Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:
2012 2011
Cash $ 58,000 $ 57,000
Short-term investments 31,000 —
Net receivables 110,000 132,000
Inventory 247,000 297,000
Total assets 585,000 535,000
Total current liabilities 255,000 222,000
Long-term note payable 46,000 48,000
Income from operations 180,000 153,000
Interest expense 52,000 39,000
Requirement
• 1.Compute the following ratios for 2012 and 2011:
o a.Current ratio
o b.Acid-test ratio
o c.Debt ratio
o d.Debt to equity ratio
Click here for the solution: Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
2012 2011
Cash $ 58,000 $ 57,000
Short-term investments 31,000 —
Net receivables 110,000 132,000
Inventory 247,000 297,000
Total assets 585,000 535,000
Total current liabilities 255,000 222,000
Long-term note payable 46,000 48,000
Income from operations 180,000 153,000
Interest expense 52,000 39,000
Requirement
• 1.Compute the following ratios for 2012 and 2011:
o a.Current ratio
o b.Acid-test ratio
o c.Debt ratio
o d.Debt to equity ratio
Click here for the solution: Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
Saturday, August 22, 2015
You have the following information for Bernelli Diamonds
P6-6A You have the following information for Bernelli Diamonds. Bernelli Diamonds uses the periodic method of accounting for its inventory transactions. Bernelli only carries one brand and size of diamonds—all are identical. Each batch of diamonds purchased is carefully coded and marked with its purchase cost.
March 1 Beginning inventory 150 diamonds at a cost of $300 per diamond.
March 3 Purchased 200 diamonds at a cost of $350 each.
March 5 Sold 180 diamonds for $600 each.
March 10 Purchased 350 diamonds at a cost of $375 each.
March 25 Sold 400 diamonds for $650 each.
Instructions
(a) Assume that Bernelli Diamonds uses the specific identification cost flow method.
(1) Demonstrate how Bernelli Diamonds could maximize its gross profit for the month by specifically selecting which diamonds to sell on March 5 and March 25.
(2) Demonstrate how Bernelli Diamonds could minimize its gross profit for the month by selecting which diamonds to sell on March 5 and March 25.
(b) Assume that Bernelli Diamonds uses the FIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would Bernelli Diamonds report under this cost flow assumption?
(c) Assume that Bernelli Diamonds uses the LIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would the company report under this cost flow assumption?
(d) Which cost flow method should Bernelli Diamonds select? Explain.
Click here for the solution: You have the following information for Bernelli Diamonds
March 1 Beginning inventory 150 diamonds at a cost of $300 per diamond.
March 3 Purchased 200 diamonds at a cost of $350 each.
March 5 Sold 180 diamonds for $600 each.
March 10 Purchased 350 diamonds at a cost of $375 each.
March 25 Sold 400 diamonds for $650 each.
Instructions
(a) Assume that Bernelli Diamonds uses the specific identification cost flow method.
(1) Demonstrate how Bernelli Diamonds could maximize its gross profit for the month by specifically selecting which diamonds to sell on March 5 and March 25.
(2) Demonstrate how Bernelli Diamonds could minimize its gross profit for the month by selecting which diamonds to sell on March 5 and March 25.
(b) Assume that Bernelli Diamonds uses the FIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would Bernelli Diamonds report under this cost flow assumption?
(c) Assume that Bernelli Diamonds uses the LIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would the company report under this cost flow assumption?
(d) Which cost flow method should Bernelli Diamonds select? Explain.
Click here for the solution: You have the following information for Bernelli Diamonds
You wish to calculate the risk level of your portfolio based on its beta
You wish to calculate the risk level of your portfolio based on its beta. The five stocks in the portfolio with their respective weights and betas are shown in the accompanying table. Calculate the beta of your portfolio.
Stock portfolio weight Beta
Alpha 20% 1.15
Centauri 10 0.85
Zen 15 1.60
Wren 20 1.35
Yukos 35 1.85
Click here for the solution: You wish to calculate the risk level of your portfolio based on its beta
Stock portfolio weight Beta
Alpha 20% 1.15
Centauri 10 0.85
Zen 15 1.60
Wren 20 1.35
Yukos 35 1.85
Click here for the solution: You wish to calculate the risk level of your portfolio based on its beta
Friday, August 21, 2015
You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting
You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting. Sheila is an excellent consultant, but not a good accountant. She has attempted to prepare the first month’s financial statements, however, the statements do not balance. Her financial statements are a good starting point, but your job is to correct the errors.
The statements are presented here.
SHEILA SHAW CONSULTING
Balance Sheet
August 31, 2007
Assets Liabilities
Current assets: Current liabilities:
Cash................................ $ 21,300 Accounts payable........ $ 1,250
Accounts receivable....... 3,800 Prepaid rent................. 2,050
Supplies........................... 875 Unearned fees.............. 1,150
Salaries payable.............. 150 Total liabilities................ $ 4,450
Prepaid insurance.......... 1,670
Total current assets..... $ 27,795
Property, plant, and
Equipment:...................... Owner's Equity
Office equipment............ $ 21,250 Sheila Shaw, capital....... 47,720
Less accum. depr............ 675
Total Property, plant,
and equipment............. 20,575 Total liabilities and
Total assets......................... $ 48,370 owner's equity............. $ 52,170
SHEILA SHAW CONSULTING
Income Statement
For the Month Ended August 31, 2007
Fees earned.................................................................................... $ 24,325
Expenses:
Salary expense....................................................................... $1,550
Rent expense.......................................................................... 1,200
Supplies expense.................................................................... 1,250
Insurance expense................................................................. 1,000
Miscellaneous expense.......................................................... 715
Interest expense..................................................................... 65
Bad Debt expense.................................................................. 150
Repairs and Maintenance.................................................... 200
Utilities expense..................................................................... 150
Payroll Tax expense.............................................................. 125
Office expense....................................................................... 525
Total expenses................................................................... 6,930
Net income..................................................................................... $ 17,395
SHEILA SHAW CONSULTING
Statement of Owner's Equity
For the Month Ended August 31, 2007
Sheila Shaw, capital, August 1, 2007........................................... $ 0
Additional investments during the month................................... 36,000
Total............................................................................................... $ 36,000
Net income for the month............................................................. $ 17,395
Less withdrawals........................................................................... 5,000
Increase in owner's equity............................................................ 12,395
Sheila Shaw, capital, August 31, 2007......................................... $ 48,395
SHEILA SHAW CONSULTING
Statement of Cash Flows
For the Month Ended August 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the month:................................................... $17,395
Adjustment for depreciation....................................... 675
Cash provided by operating activities................................. 18,070
(Increase) in working capital items
Accounts receivable.......................................................... (3,800)
Supplies.............................................................................. (875)
Prepaid expenses............................................................... 3,720
Accounts payable.............................................................. 1,250
Salaries payable................................................................. 150
Unearned fees.................................................................... 1,150
Cash flows from operating activities........................................... $18,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment........................................... (21,250)
Cash flows from investing activities............................................ $(21,250)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from shareholder (net of withdrawals).............. 31,000
Cash flows from financing activities........................................... $31,000
Net increase in cash....................................................................... $28,740
CASH-BEGINNING OF PERIOD............................................. 0
CASH-END OF PERIOD............................................................ $21,300
Sheila is grateful to have you on board as her controller, and you are eager to make a good impression on her by finding the errors in her statements. Download Sheila’s statements and make the changes to them. All the information you need to find the errors is contained in these statements.
Hint: There are 2 errors in the Balance Sheet, 1 error in the Income Statement, 1 error in the Statement of Owner’s Equity, and 2 errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another.
Assignment Checklist:
1. Report 2 balance sheet errors
2. Produces 1 statement of owner’s equity errors
3. Report 2 errors on the statement of cash
4. Prepare corrected financial statements
Click here for the solution: You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting
The statements are presented here.
SHEILA SHAW CONSULTING
Balance Sheet
August 31, 2007
Assets Liabilities
Current assets: Current liabilities:
Cash................................ $ 21,300 Accounts payable........ $ 1,250
Accounts receivable....... 3,800 Prepaid rent................. 2,050
Supplies........................... 875 Unearned fees.............. 1,150
Salaries payable.............. 150 Total liabilities................ $ 4,450
Prepaid insurance.......... 1,670
Total current assets..... $ 27,795
Property, plant, and
Equipment:...................... Owner's Equity
Office equipment............ $ 21,250 Sheila Shaw, capital....... 47,720
Less accum. depr............ 675
Total Property, plant,
and equipment............. 20,575 Total liabilities and
Total assets......................... $ 48,370 owner's equity............. $ 52,170
SHEILA SHAW CONSULTING
Income Statement
For the Month Ended August 31, 2007
Fees earned.................................................................................... $ 24,325
Expenses:
Salary expense....................................................................... $1,550
Rent expense.......................................................................... 1,200
Supplies expense.................................................................... 1,250
Insurance expense................................................................. 1,000
Miscellaneous expense.......................................................... 715
Interest expense..................................................................... 65
Bad Debt expense.................................................................. 150
Repairs and Maintenance.................................................... 200
Utilities expense..................................................................... 150
Payroll Tax expense.............................................................. 125
Office expense....................................................................... 525
Total expenses................................................................... 6,930
Net income..................................................................................... $ 17,395
SHEILA SHAW CONSULTING
Statement of Owner's Equity
For the Month Ended August 31, 2007
Sheila Shaw, capital, August 1, 2007........................................... $ 0
Additional investments during the month................................... 36,000
Total............................................................................................... $ 36,000
Net income for the month............................................................. $ 17,395
Less withdrawals........................................................................... 5,000
Increase in owner's equity............................................................ 12,395
Sheila Shaw, capital, August 31, 2007......................................... $ 48,395
SHEILA SHAW CONSULTING
Statement of Cash Flows
For the Month Ended August 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the month:................................................... $17,395
Adjustment for depreciation....................................... 675
Cash provided by operating activities................................. 18,070
(Increase) in working capital items
Accounts receivable.......................................................... (3,800)
Supplies.............................................................................. (875)
Prepaid expenses............................................................... 3,720
Accounts payable.............................................................. 1,250
Salaries payable................................................................. 150
Unearned fees.................................................................... 1,150
Cash flows from operating activities........................................... $18,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment........................................... (21,250)
Cash flows from investing activities............................................ $(21,250)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from shareholder (net of withdrawals).............. 31,000
Cash flows from financing activities........................................... $31,000
Net increase in cash....................................................................... $28,740
CASH-BEGINNING OF PERIOD............................................. 0
CASH-END OF PERIOD............................................................ $21,300
Sheila is grateful to have you on board as her controller, and you are eager to make a good impression on her by finding the errors in her statements. Download Sheila’s statements and make the changes to them. All the information you need to find the errors is contained in these statements.
Hint: There are 2 errors in the Balance Sheet, 1 error in the Income Statement, 1 error in the Statement of Owner’s Equity, and 2 errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another.
Assignment Checklist:
1. Report 2 balance sheet errors
2. Produces 1 statement of owner’s equity errors
3. Report 2 errors on the statement of cash
4. Prepare corrected financial statements
Click here for the solution: You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting
Monday, August 17, 2015
You are the accountant for a division of a company that is constructing a building for its own use
C10-11 (Ethics and Construction Cost) You are the accountant for a division of a company that is constructing a building for its own use. It is January 2011, and you are working on closing the books for 2010. The CEO of the division stops by your office and says, “I have some questions about our building. Although we started construction at the beginning of “June this year, we started planning it at the beginning of the previous year. I believe we can capitalize interest since then. Check to see if we did capitalize some in 2009. If not we can take it out of this year’s expense and get a double dose. Also I want you to add lots of overhead to the cost of the building so we can increase our profit for this year. For example, you spent quite a bit of time on the project. So perhaps we could add 1/12 of your salary to the cost of the cost of the building. You get the idea?” when the CEO leaves you check the files and find a letter to an architect dated January 2, 2009. There are numerous subsequent letters to and from the architect. From financial reporting and ethical perspectives, how would you reply to the CEO?
Click here for the solution: You are the accountant for a division of a company that is constructing a building for its own use
Click here for the solution: You are the accountant for a division of a company that is constructing a building for its own use
Saturday, August 15, 2015
You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method
E9-24 (Dollar-Value LIFO Retail) You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method.
Cost Retail
Inventory on January 1, 2010 $222,000 $300,000
Purchases 364,800 480,000
Increase in price level for year 9%
Instructions
Compute the cost of the inventory on December 31, 2010, assuming that the inventory at retail is (a) $294,300 and (b) $359,700.
Click here for the solution: You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method
Cost Retail
Inventory on January 1, 2010 $222,000 $300,000
Purchases 364,800 480,000
Increase in price level for year 9%
Instructions
Compute the cost of the inventory on December 31, 2010, assuming that the inventory at retail is (a) $294,300 and (b) $359,700.
Click here for the solution: You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method
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