Author: chris

Question 1 Buttercup Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare Buttercup’s journal entry.

Question 2 Wilco Corporation has the following account balances at December 31, 2014. Common stock, $5 par value $510,000 Treasury stock $90,000 Retained earnings $2,340,000 Paid-in capital in excess of par—common stock $1,320,000. Prepare Wilco’s December 31, 2014, stockholders’ equity section.

Question 3 Woolford Inc. declared a cash dividend of $1.00 per share on its 2 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15. Prepare all journal entries necessary on those three dates. Question 4 Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per share. Prepare the journal entry to record the issuance.

Question 5 The outstanding capital stock of Edna Millay Corporation consists of 2,000 shares of $100 par value, 8% preferred, and 5,000 shares of $50 par value common. Assuming that the company has retained earnings of $90,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should cipating. (b) The preferred stock is cumulative and nonparticipating.receive under each of the following conditions. (a) The preferred stock is noncumulative and nonparti  (c) The preferred stock is cumulative and participating.

Question 6 Matt Schmidt Company’s ledger shows the following balances on December 31, 2014. 7% Preferred Stock—$10 par value, outstanding 20,000 shares $ 200,000 Common Stock—$100 par value, outstanding 30,000 shares 3,000,000 Retained Earnings 630,000 Assuming that the directors decide to declare total dividends in the amount of $366,000, determine how much each class of stock should receive under each of the conditions stated below. One year‘s dividends are in arrears on the preferred stock. (a) The preferred stock is cumulative and fully participating. (b) The preferred stock is noncumulative and nonparticipating. (c) The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.

Question 7 On January 1, 2014, Barwood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $65 per share on the date of grant. The fair value of the options at the grant date is $150,000. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2014, and December 31, 2014 and 2015.

Question 8 Rockland Corporation earned net income of $300,000 in 2014 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are convertible into 16,000 shares of common. Rockland’s tax rate is 40 percent. Compute Rockland’s 2014 diluted earnings per share.

Question 9 Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2014, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $20 on 5,000 SARs. The required service period is 2 years. The fair value of the SARs are determined to be $4 on December 31, 2014, and $9 on December 31, 2015. Compute Ferraro’s compensation expense for 2014 and 2015.

Question 10 Garfield Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.

Question 11 Arantxa Corporation made the following cash purchases of securities during 2014, which is the first year in which Arantxa invested in securities.

1 On January 15, purchased 10,000 shares of Sanchez Company’s common stock at $33.50 per share plus commission $1,980.

2 On April 1, purchased 5,000 shares of Vicario Co.’s common stock at $52 per share plus commission $3,370.3 On September 10, purchased 7,000 shares of WTA Co.’s preferred stock at $26.50 per share plus commission $4,910. On May 20, 2014, Arantxa sold 4,000 shares of Sanchez Company’s common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,850. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Arantxa told you that Arantxa Corporation plans to hold these securities for the long term but may sell them in order to earn profits from appreciation in prices. (a) Prepare the journal entries to record the above three security purchases. (b) Prepare the journal entry for the security sale on May 20. (c) Compute the unrealized gains or losses. (d)Prepare the adjusting entries for Arantxa on December 31, 2014.

Question 12 The following are two independent situations.Situation 1

Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2014. On June 30, Martinez declared and paid a $75,000 cash dividend. On December 31, Martinez reported net income of $122,000 for the year. At December 31, the market price of Martinez Fashion was $15 per share. The securities are classified as available-for-sale.

Situation 2

Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2014. On June 15, Seles declared and paid a cash dividend of $36,000. On December 31, Seles reported a net income of $85,000 for the year.Prepare all necessary journal entries in 2014 for both situations.

Question 13 Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year. Use the information in the following T-account for the investment in Sub to answer the following questions Investment in Sub Co.1,000,000 110,000 44,000 (a) How much was Parent Co.’s share of Sub Co.’s net income for the year?(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?(c) What was Sub Co.’s total net income for the year?(d) What was Sub Co.’s total dividends for the year?

Question 14 Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock was $27 per share at December 31, 2014.

(a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale. (b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski.

Question 15 On January 2, 2014, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2014 (the intrinsic value is therefore $0). On March 31, 2014, the market price for Merchant stock is $53 per share, and the time value of the option is $200. (a) Prepare the journal entry to record the purchase of the call option on January 2, 2014.(b) Prepare the journal entries to recognize the change in the fair value of the call option as of March 31, 2014. (c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2014?

Question 16 In 2014, Amirante Corporation had pretax financial income of $168,000 and taxable income of $120,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2014.

Question 17 Clydesdale Corporation has a cumulative temporary difference related to depreciation of $580,000 at December 31, 2014. This difference will reverse as follows: 2015, $42,000; 2016, $244,000; and 2017, $294,000. Enacted tax rates are 34% for 2015 and 2016, and 40% for 2017. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2014.

Question 18 At December 31, 2014, Fell Corporation had a deferred tax liability of $680,000, resulting from future taxable amounts of $2,000,000 and an enacted tax rate of 34%. In May 2015, a new income tax act is signed into law that raises the tax rate to 40% for 2015 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.

Question 19Lahey Corp. has three defined benefit pension plans as follows.

Pension AssetsProjected Benefit

(at Fair Value)Obligation

Plan X$600,000 $500,000 $100,000

Plan Y900,000          720,000$180,000

Plan Z550,000          700,000($150,000)

How will Lahey report these multiple plans in its financial statements?

Question 20 Manno Corporation has the following information available concerning its postretirement benefit plan for 2014. Service cost $40,000 Interest cost $47,400 Actual and expected return on plan assets  $26,900

Compute Manno’s 2014 postretirement expense

Question 21For 2014, Sampsell Inc. computed its annual postretirement expense as $240,900. Sampsell’s contribution to the plan during 2014 was $180,000. Prepare Sampsell’s 2014 entry to record postretirement expense.

Question 22 Wertz Construction Company decided at the beginning of 2014 to change from the completed-contract method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2014, pretax income under the two methods was as follows: percentage-of-completion $120,000, and completed-contract $80,000. The tax rate is 35%. Prepare Wertz’s 2014 journal entry to record the change in accounting principle.

Question 23 In 2014, Bailey Corporation discovered that equipment purchased on January 1, 2012, for $50,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Bailey’s 2014 journal entry to correct the error.

Question 24 At January 1, 2014, Beidler Company reported retained earnings of $2,000,000. In 2014, Beidler discovered that 2013 depreciation expense was understated by $400,000. In 2014, net income was $900,000 and dividends declared were $250,000. The tax rate is 40%. Prepare a 2014 retained earnings statement for Beidler Company.

Question 25 Simmons Corporation owns stock of Armstrong, Inc. Prior to 2014, the investment was accounted for using the equity method. In early 2014, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2014, Armstrong earned net income of $80,000 and paid dividends of $95,000. Prepare Simmons’s entries related to Armstrong’s net income and dividends, assuming Simmons now owns 10% of Armstrong’s stock.

Question 26 DiCenta Corporation reported net income of $270,000 in 2014 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta’s tax rate is 40%. Compute DiCenta’s 2014 diluted earnings per share.

Question 27 AMR Corporation (parent company of American Airlines) reported the following for 2011 (in millions). Service cost $366 Interest on P.B.O. $737 Return on plan assets $593 Amortization of prior service cost $13 Amortization of net loss $154

Question 28 For Warren Corporation, year-end plan assets were $2,000,000. At the beginning of the year, plan assets were $1,780,000. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.

Question 29 For 2012, Campbell Soup Company had pension expense of $73 million and contributed $71 million to the pension fund.Prepare Campbell Soup Company’s journal entry to record pension expense and funding.

Question 30 Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler Corp. with a carrying (and fair) value of $70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is other-than-temporary. Prepare the journal entry, if any, to record the reduction in value.

Write a 1,050- to 1,400-word paper discussing how and why statistical data should be used by criminal justice leadership.

A few examples include: Statistical support to criminal justice policy making or criminal justice research in support of proactive policing.

Include at least three peer reviewed references.

Format your paper consistent with APA guidelines.

The political makeup of the U.S. Supreme court can affect major rulings. Select a major ruling that has changed or been modified over the last 20 to 30 years (e.g., Miranda advisements, search and seizure rules, the exclusionary rules, use of DNA evidence, police surveillance, data mining, etc.). In your paper:

• Explain the role of the U.S. Supreme Court in criminal justice policy making.
• Explain how the court’s decisions changed the selected criminal justice policy.
• Examine potential issues that must be evaluated in the future by the U.S. Supreme Court that will further shape criminal justice policy (e.g., you could discuss how advances in technology such as surveillance, computer analysis, drones, police equipment, etc., have affected the courts decisions).
• Analyze how the U.S. Supreme Court criminal justice decision affects social justice.

Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm’s fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20 percent cost of capital. A summary of key data about the proposed projects follows.

1. Use the NPV approach to select the best group of projects. (Note that just the PV of inflows is given, you must subtract the initial investment to find the NPV.)
2. Use the IRR approach to select the best group of projects. (Note that the discount rate or the cost of capital is 20%.)
3. Which projects should the firm implement based on your analysis of both techniques and given the capital rationing amount? Write an email to your boss, Andy Fast, the CFO, explaining your rationale proving the choices based on the considerations of shareholder value and the maximum investment budget. Keep in mind that you are less concerned with using the whole budget than with maximizing the total return to Galaxy satellite.

Double space Times New Roman font.  #3 above should be 1-2 pages long, but can reference NPV and IRR tables embedded in the report. Use APA style table formatting.

HACKD, LLC. has a new research and development group – H-R&D. All systems in H-R&D will run the Linux operating system and will access resources, as well as share resources, with HACKD, LLC.’s Microsoft Active Directory domain. The domain consists of several Windows Server 2012 R2 servers running various services (Microsoft Active Directory, DNS, DHCP, web services, printing and file services).

HACKD, LLC. also has around 500 client operating system desktops/laptops that run Windows 7 and Windows XP. There is a mix of desktop and laptop systems.

Current Desktop/Laptop Configuration for Windows 7:

Processor: Intel Core i3 Second Generation

Memory: 4GB RAM

Hard Drive: 350GB

Network Card: 10/100/1000 Mbps

USB Ports: 4 USB 2.0

Monitor: 20inch LCD

Current Desktop/Laptop Configuration for Windows XP:

Processor: Intel Core 2

Memory: 2GB RAM

Hard Drive: 80GB

Network Card: 10/100 Mbps

USB Ports: 4 USB 2.0

Monitor: 15inch LCD

Your boss wants you to come up with a proposal to replace all Windows XP systems with Linux. You will implement using the Red Hat Enterprise Linux variant (or another variant if you can justify it).

Requirements

The final submission should contain at least 5 to 7 pages’ worth of text written by the student (not counting title page, images, diagrams, tables, or quotations that may be used), but may be longer, not to exceed approximately 7 pages’ worth of student-supplied text. It must be double-spaced, have 1-inch margins, and use 12-point Times New Roman or 10-point Arial/Helvetica font. A title page is required.

You must turn this assignment to both the assignment area within our LEO classroom as well as to the TurnItIn website. Failure to do so may result in point deductions. Follow the TurnItIn instructions provided within the class.

You must address the following in your proposal and may make any assumptions which are not specified:

• Research and justify whether CWE will use existing computer hardware that is being used with the Windows XP systems, or if new hardware will be required. [Optional: make recommendations for hardware improvements for performance]
• Plan for migration from Windows XP to Linux. Include level-of-effort estimate for the project.
• Determine the hardware to be used and the installation options.
• How will users log onto the systems? Explain.
• How will systems receive IP addresses? Explain.
• How will DNS be accessed by the CWE systems? Explain.
• Explain how files on the network may be accessed by CWE.
• Explain how CWE can securely share files within their group and other selected groups/users in the company.
• How will printing be handled? Explain.
• What, if any, data will be encrypted? Explain.

Q1

A cash budget is usually thought of as a means of planning for future financing needs. Why would a cash budget also be important for a firm that has excess cash on hand?

Q2

In Enron’s financial fraud, lots of people were aware or should have been aware. Lawyers, bankers, auditors and many employees saw stuff that they knew was wrong or was suspicious and said little or nothing. We need to create the right incentives to keep people honest – or at least not afraid to speak out. The company’s 20,000 employees lost not only their jobs and medical insurance but retirement savings in company stock. In 2001 Enron employees lost $1.2 billion in retirement funds and $2 billion in pension funds while Enron’s top execs cashed in $116 million in stock. Although the Sarbanes Oxley Act created new standards for accounting firms, boards and management, we still had the shocking failures at AIG and other financial companies, such as Bernie Madoff’s.

Even the threat of lawsuits, sanctions, and bar to practice have not deterred the greed.  Any thoughts?

Q3

During the course to an audit the auditor assess whether or not there are control deficiencies that may increase the risk of fraud. One key aspect of this potential fraud is managements ability to override procedures designed to prevent fraud. Management is in a position that gives them the ability to perpetuate fraud by overriding the controls, therefore, the auditor must asses the risks of the potential management override.

To address the potential management override of controls the audit must examine the journal entries and any adjustments for for appropriateness in relation to the reporting process and the impact on financial statements. The auditor must also review the accounting estimate for intentional misstatement. Recording inappropriate estimates is a good sign of fraudulent activity and the auditor must look back to determine if estimate are consistent period over period. Lastly, the auditor must identify and evaluate unusual business activity, this is activity that is not part of the organizations normal course of business. This activity must be evaluated for understanding the purpose of such transactions, appropriate bookkeeping and financial reporting.

An auditors failure to assess and report such potential control overrides may subject them to liability by both the organization in which they are auditing and the user of the financial statements. Thoughts?

Q4

4-20 (Objectives 4-5, 4-6) The following situations involve the provision of nonaudit services. Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes–Oxley requirements on independence. Explain your answer as necessary.

1. Providing bookkeeping services to a public company. The services were preapproved by the audit committee of the company.
2. Providing internal audit services to a public company that is not an audit client.
3. Implementing a financial information system designed by management for a private company.
4. Recommending a tax shelter to a client that is publicly held. The services were preapproved by the audit committee.
5. Providing internal audit services to a public company audit client with the preapproval of the audit committee.
6. Providing bookkeeping services to an audit client that is a private company.

Q5

4-21 (Objectives 4-6, 4-7) Each of the following situations involves a possible violation of the AICPA’s Code of Professional Conduct. For each situation, state the applicable section of the rules of conduct and whether it is a violation.

1. Emrich, CPA, provides tax services, management advisory services, and bookkeeping services and conducts audits for the same nonpublic client. Because the firm is small, the same person often provides all the services.
2. Franz Marteens is a CPA, but not a partner, with 3 years of professional experience with Roberts and Batchelor, CPAs. He owns 25 shares of stock in an audit client of the firm, but he does not take part in the audit of the client, and the amount of stock is not material in relation to his total wealth.
3. A nonaudit client requests assistance of M. Wilkenson, CPA, in the installation of a local area network. Wilkenson had no experience in this type of work and no knowledge of the client’s computer system, so he obtained assistance from a computer consultant. The consultant is not in the practice of public accounting, but Wilkenson is confident of his professional skills. Because of the highly technical nature of the work, Wilkenson is not able to review the consultant’s work.
4. In preparing the personal tax returns for a client, Sarah Milsaps, CPA, observed that the deductions for contributions and interest were unusually large. When she asked the client for backup information to support the deductions, she was told, “Ask me no questions, and I will tell you no lies.” Milsaps completed the return on the basis of the information acquired from the client.
5. Roberta Hernandez, CPA, serves as controller of a U.S. based company that has a significant portion of its operations in several South American countries. Certain 106107government provisions in selected countries require the company to file financial statements based on international standards. Roberta oversees the issuance of the company’s financial statements and asserts that the statements are based on international financial accounting standards; however the standards she uses are not those issued by the International Accounting Standards Board.
6. Steve Custer, CPA, set up a casualty and fire insurance agency to complement his auditing and tax services. He does not use his own name on anything pertaining to the insurance agency and has a highly competent manager, Jack Long, who runs it. Custer often requests Long to review the adequacy of a client’s insurance with management if it seems underinsured. He believes that he provides a valuable service to clients by informing them when they are underinsured.
7. Seven small Seattle CPA firms have become involved in an information project by taking part in an interfirm working paper review program. Under the program, each firm designates two partners to review the audit files, including the tax returns and the financial statements of another CPA firm taking part in the program. At the end of each review, the auditors who prepared the working papers and the reviewers have a conference to discuss the strengths and weaknesses of the audit. They do not obtain authorization from the audit client before the review takes place.
8. Archer Ressner, CPA, stayed longer than he should have at the annual Christmas party of Ressner and Associates, CPAs. On his way home he drove through a red light and was stopped by a police officer, who observed that he was intoxicated. In a jury trial, Ressner was found guilty of driving under the influence of alcohol. Because this was not his first offense, he was sentenced to 30 days in jail and his driver’s license was revoked for 1 year.

Q6

4-22 (Objectives 4-6, 4-7) Each of the following situations involves possible violations of the AICPA’s Code of Professional Conduct. For each situation, state whether it is a violation of the Code. In those cases in which it is a violation, explain the nature of the violation and the rationale for the existing rule.

1. The audit firm of Miller and Yancy, CPAs has joined an association of other CPA firms across the country to enhance the types of professional services the firm can provide. Miller and Yancy share resources with other firms in the association, including audit methodologies and audit manuals, and common IT systems for billing and time reporting. One of the partners in Miller and Yancy has a direct financial interest in the audit client of another firm in the association.
2. Bruce Sullivan, CPA, is the audit partner on the engagement of Xylium Corporation, which is a public company. In structuring the agreement with the audit committee for the audit of Xylium’s financial statements, Sullivan included a clause that limits the liability of Sullivan’s firm so that shareholders of Xylium are prohibited from suing Sullivan and the firm for performance issues related to the audit.
3. Jennifer Crowe’s audit client has a material investment in Polex, Inc. Jennifer’s nondependent parents also own shares in Polex and Polex is not an attest client of Jennifer’s firm. The amount of her parent’s ownership in Polex is not significant to Jennifer’s net worth.
4. Joe Stokely is a former partner in Bass and Sims, CPAs. Recently, Joe left the firm to become the chief operating officer of Lacy Foods, Inc., which is an audit client of Bass and Sims. In his new role, Joe has no responsibilities for financial reporting. Bass and Sims made significant changes to the audit plan for the upcoming audit.
5. Odonnel Incorporated has struggled financially and has been unable to pay the audit fee to its auditor, Seale and Seale, CPAs, for the 2009 and 2010 audits. Seale and Seale is currently planning the 2011 audit.
6. Connor Bradley is the partner in charge of the audit of Southern Pinnacle Bank. Bradley is in the process of purchasing a beach condo and has obtained mortgage financing from Southern Pinnacle.
7. Jessica Alma has been serving as the senior auditor on the audit of Carolina BioHealth, Inc. Because of her outstanding work, the head of internal audit at Carolina BioHealth 107108extended her an offer of employment to join the internal audit department as an audit manager. When the discussions with Carolina BioHealth began, Jessica informed her office’s managing partner and was removed from the audit engagement.
8. Lorraine Wilcox is a CPA and professor of accounting at a major state university. One of her former students recently sat for the Audit section of the CPA exam. One day, the student dropped by Lorraine’s office and told her about many of the questions and simulation content on the exam. Lorraine was grateful for the information, which will be helpful as she prepares the course syllabus for the next semester.
9. Audrey Glover is a financial analyst in the financial reporting department of Technologies International, a privately held corporation. Audrey was asked to prepare several journal entries for Technologies International related to transactions that have not yet occurred. The entries are reflected in financial statements that the company recently provided to the bank in connection with a loan outstanding due to the bank.
10. Austin and Houston, CPAs, is performing consulting services to help management of McAlister Global Services streamline it production operations. Austin and Houston structured the fee for this engagement to be a fixed percentage of costs savings that result once the new processes are implemented. Austin and Houston perform no other services for McAlister Global.

Q7

5-19 (Objectives 5-4, 5-5) Lauren Yost & Co., a medium-sized CPA firm, was engaged to audit Stuart Supply Company. Several staff were involved in the audit, all of whom had attended the firm’s in-house training program on effective auditing methods. Throughout the audit, Yost spent most of her time in the field planning the audit, supervising the staff, and reviewing their work.

A significant part of the audit entailed verifying the physical count, cost, and summarization of inventory. Inventory was highly significant to the financial statements, and Yost knew the inventory was pledged as collateral for a large loan to First City National Bank. In reviewing Stuart’s inventory count procedures, Yost told the president she believed the method of counting inventory at different locations on different days was highly undesirable. The president stated that it was impractical to count all inventory on the same day because of personnel shortages and customer preference. After considerable discussion, Yost agreed to permit the practice if the president would sign a statement that no other method was practical. The CPA firm had at least one person at each site to audit the inventory count procedures and actual count. There were more than 40 locations.

Eighteen months later, Yost found out that the worst had happened. Management below the president’s level had conspired to materially overstate inventory as a means of covering up obsolete inventory and inventory losses resulting from mismanagement. The misstatement occurred by physically transporting inventory at night to other locations after it had 135136been counted in a given location. The accounting records were inadequate to uncover these illegal transfers.

Both Stuart Supply Company and First City National Bank sued Lauren Yost & Co.

Required

Answer the following questions, setting forth reasons for any conclusions stated:

1. What defense should Lauren Yost & Co. use in the suit by Stuart?
2. What defense should Lauren Yost & Co. use in the suit by First City National Bank?
3. Is Yost likely to be successful in her defenses?
4. Would the issues or outcome be significantly different if the suit was brought under the Securities Exchange Act of 1934?

Q8

5-20 (Objective 5-5) 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 of 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.

Required

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.

Q8

5-21 (Objectives 5-3, 5-5) Doyle and Jensen, CPAs, audited the accounts of Regal Jewelry, Inc., a corporation that imports and deals in fine jewelry. Upon completion of the audit, the auditors supplied Regal Jewelry with 20 copies of the audited financial statements. The firm knew in a general way that Regal Jewelry wanted that number of copies of the auditor’s report to furnish to banks and other potential lenders.

The balance sheet in question was misstated by approximately $800,000. Instead of having a $600,000 net worth, the corporation was insolvent. The management of Regal Jewelry had doctored the books to avoid bankruptcy. The assets had been overstated by $500,000 of fictitious and nonexisting accounts receivable and $300,000 of nonexisting jewelry listed as inventory when in fact Regal Jewelry had only empty boxes. The audit failed to detect these fraudulent entries. Thompson, relying on the audited financial statements, loaned Regal Jewelry $200,000. She seeks to recover her loss from Doyle and Jensen.

Required

State whether each of the following is true or false and give your reasons:

1. If Thompson alleges and proves negligence on the part of Doyle and Jensen, she will be able to recover her loss.
2. If Thompson alleges and proves constructive fraud (that is, gross negligence on the part of Doyle and Jensen), she will be able to recover her loss.
3. Thompson does not have a contract with Doyle and Jensen.
4. Unless actual fraud on the part of Doyle and Jensen can be shown, Thompson cannot recover.
5. Thompson is a third-party beneficiary of the contract Doyle and Jensen made with Regal Jewelry.

Q9

5-26 (Objective 5-5) Sarah Robertson, CPA, had been the auditor of Majestic Co. for several years. As she and her staff prepared for the audit for the year ended December 31, 2010, Herb Majestic told her that he needed a large bank loan to “tide him over” until sales picked up as expected in late 2011.

In the course of the audit, Robertson discovered that the financial situation at Majestic was worse than Majestic had revealed and that the company was technically bankrupt. She discussed the situation with Majestic, who pointed out that the bank loan will “be his solution”—he was sure he will get it as long as the financial statements don’t look too bad.

Robertson stated that she believed the statements will have to include a going concern explanatory paragraph. Majestic said that this wasn’t needed because the bank loan was so certain and that inclusion of the going concern paragraph will certainly cause the management of the bank to change its mind about the loan.

Robertson finally acquiesced and the audited statements were issued without a going concern paragraph. The company received the loan, but things did not improve as Majestic thought they would and the company filed for bankruptcy in August 2011.

The bank sued Sarah Robertson for fraud.

Required

Indicate whether or not you think the bank will succeed. Support your answer.

*AICPA adapted.

Q10

11-19 (Objective 11-7) You have identified a suspected fraud involving the company’s controller. What must you do in response to this discovery? How might this discovery affect your report on internal control when auditing a public company?

Q11

11-23 (Objective 11-2) During audit planning, an auditor obtained the following information:

1. Management has a strong interest in employing inappropriate means to minimize reported earnings for tax-motivated reasons.
2. The company’s board of directors includes a majority of directors who are independent of management.
3. Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate.
4. The company is marginally able to meet exchange listing and debt covenant requirements.
5. New accounting pronouncements have resulted in explanatory paragraphs for consistency for the company and other firms in the industry.
6. The company has experienced low turnover in management and its internal audit function.
7. Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist.
8. There are recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality.
9. The company’s financial performance is threatened by a high degree of competition and market saturation.

Your main task is to identify and define three possible career pathways in which you might be interested in pursuing after graduation. Conduct a search on the internet for each of your career options in order to define your job choices. First, you will prepare a page job description for each of the three careers and include any references that helped you to construct these definitions (list the references at the end of the career description in APA

Assume you are the partner in an accounting firm hired to perform the audit on a fortune 1000 company.  Assume also that the initial public offering (IPO) of the company was approximately five (5) years ago and the company is concerned that, in less than five (5) years after the IPO, a restatement may be necessary. During your initial evaluation of the client, you discover the following information:

• The client is currently undergoing a three (3) year income tax examination by the Internal Revenue Service (IRS). A significant issue involved in the IRS audit encompasses inventory write-downs on the tax returns that are not included in the financial statements. Because of the concealment of the transaction, the IRS is labeling the treatment of the write-down as fraud.
• The company has a share-based compensation plan for top-level executives consisting of stock options. The value of the options exercised during the year was not expensed or disclosed in the financial statements.
• The company has several operating and capital leases in place, and the CFO is considering leasing a substantial portion of the assets for future use. The current leases in place are arranged using special purpose entities (SPEs) and operating leases.
• The company seeks to acquire a global partner, which will require IFRS reporting.
• The company received correspondence from the Securities and Exchange Commission (SEC) requesting additional supplemental information regarding the financial statements submitted with the IPO.

Write an eight to ten (8-10) page paper in which you:

1. Evaluate any damaging financial and ethical repercussions of failure to include the inventory write-downs in the financial statements. Prepare a recommendation to the CFO, evaluating the negative impact of a civil fraud penalty on the corporation as a result of the IRS audit. In the recommendation, include essential internal control procedures to prevent fraudulent financial reporting from occurring, as well as the major obligation of the CEO and CFO to ensure compliance.
2. Examine the negative results on stakeholders and the financial statements of an IRS audit which generates additional tax and penalties or subsequent audits. Assume that the subsequent audit and / or additional tax and penalties result from the taxpayer’s use of an inventory reserve account, applying a 10 percent reduction to inventory over three (3) years.
3. Discuss the applicable federal tax laws, regulations, rulings, and court cases related to the inventory write-downs, and explain the specific relevance of each to the write-down.
4. Research the current generally accepted accounting principles (GAAP) regarding stock option accounting. Evaluate the current treatment of the company’s share-based compensation plan based on GAAP reporting. Contrast the financial benefits and risks of the share-based compensation stock option plan with the financial benefits and risks of a share-based stock-appreciation rights plan (SARS). Recommend to the CFO which plan the company should use, and provide the correct accounting treatment for each.
5. Research the reporting requirements for lease reporting under GAAP and International Financial Reporting Standards (IFRS). Based on your research, create a proposal for future lease transactions to the CFO. Within the proposal, discuss the use of off-the-balance sheet financing arrangements, capital leases, and operating leases, and indicate the related business and financial risks of each.
6. Create an argument for or against a single set of international accounting standards related to lease accounting based on the global market and cross border leases of assets. Examine the benefits and risks of your chosen position.
7. Examine the major implications of SAS 99 based on the factors you discovered during the initial evaluation of the company. Provide support for your rationale.
8. Analyze the potential for a material misstatement in the financial statements based on the issues identified in your initial evaluation. Make a recommendation to the CFO for the issuance of        restated financial statement restatement. Identify at least three (3) significant issues that can result from the failure to issue restated financial statements.
9. Examine the economic effect of restatement of the financial statements on investors, employees, customers, and creditors.
10. Use six (6) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources. (Include 3 Online resources)

Your assignment must follow these formatting requirements:

• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
• Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

• Analyze accounting situations to apply the proper accounting rules and make recommendations to ensure compliance with generally accepted accounting principles.

• Analyze business situations to determine the appropriateness of decision making in terms of professional standards and ethics

• Analyze business situations and apply advanced federal taxation concepts.

• Use technology and information resources to research issues in accounting.

• Write clearly and concisely about accounting using proper writing mechanics.

Your paper with my comments is attached to this email. Please review my comments carefully. While this submission is better than what you have provided to date, it still needs substantial work to earn a passing grade.

Your paper creates a fundamental contradiction. Your task was to recommend policies to protect the industry in the event of the next economic crisis. Your main recommendation was to open the industry and allow more competitors into the industry. This tends to lower profit margins. While this is preferable from a consumer point of view, it actually weakens the industry in the short term.

You spend a considerable amount of time discussing improving service to consumers. Again, while admirable, this does nothing to address the topic at hand; protecting the industry in the event of a recession. If you are actually arguing that a stronger customer orientation will protect the industry, you need to make this point in a more effective and succinct way.

There has been little improvement in the quality of your writing. Your paper still suffers from run on sentences, weak grammar and editorial mistakes (the company is call BELL NOT BELLUS).

Your paper needs substantial work if you wish to earn a passing grade in this course.

Review the Final Research Project instructions located in Week Five. To help with the preparation of the paper, complete the following items and submit them to your instructor as a single document.

• Introduction to Topic: Refer to the Final Research Project guidelines for your topic selection. For your introduction, you should write a 150-word paragraph which clearly explains the topic, the importance of further research, ethical implications, and how the topic relates to one’s academic and professional pursuits. Make sure you effectively inform the reader of the rationale behind your topic.
• Thesis statement: Write a direct and concise thesis statement, which will become the point or perspective you will argue or prove in the Final Research Project. A thesis statement should be a single declarative sentence that makes one point in 25 words or less. The thesis statement must appear within the introduction paragraph.
• Annotated Bibliography: To help prepare for your Final Research Project, write an annotated bibliography to indicate the quality of the sources you have read. The bibliography must include no less than five scholarly sources that will be used to support the major points of the Final Research Project. Critical thinking skills need to be demonstrated by accurately interpreting evidence used to support various positions of the topic. Please make sure to provide full reference information in accordance with APA style as outlined in the Ashford Writing Center. Write a brief paragraph (around 150 words) summarizing the source and explaining how it is pertinent and relevant to the topic of the project and how each source will support your thesis statement. See the Sample Annotated Bibliography in the Ashford Writing Center for more detailed information. Keep in mind the academic research standards for all Ashford University papers.

For information regarding APA, including samples and tutorials, visit the Ashford Writing Center.

The Final Research Project Preparation

• Must be 1,000 – 1,250 words in length (excluding the title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center.
• Must include a separate title page with the following:
  • Title of paper
  • Student’s name
  • Course name and number
  • Instructor’s name
  • Date submitted
• Must use at least five scholarly sources.
• Must document all sources in APA style as outlined in the Ashford Writing Center.