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Winter Accounting Module Help
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• Type of confirmation (negatives normally require a larger sample size)Selection of the Items for Testing Some type of stratification is desirable with most confirmations. In a typical approach to stratification for selecting the balances for confirmation, an auditor considers both the dollar size of individual accounts and the length of time an account has been outstanding. In most audits, the emphasis should be on confirming larger and older balances because these are most likely to include a significant misstatement. But it is also important to sample some items from every material segment of the population. In many cases, the auditor selects all accounts above a certain dollar amount and selects a random sample from the remainder. Management may refuse to allow the auditor to send confirmation requests to certain customers. The auditor must inquire about the reason for the client’s request, which is often due to litigation or negotiations between the client and customer. The auditor should obtain evidence to evaluate the reasonableness of the client’s request, and evaluate whether the request indicates a potential fraud risk or increased risk of material misstatement. The auditor should perform procedures to verify the addresses or email addresses used for confirmation. For example, auditors should consider performing additional procedures when the address is a post office box, or an email address is inconsistent with the customer’s Web site address. For confirmations sent by mail, the auditor must maintain control of the con - firmations until they are returned from the customer. The client may assist with preparing the confirmations, but the auditor must be responsible for mailing the confirmation outside the client’s office. A return address must be included on all envelopes to make sure that undelivered mail is received by the CPA firm. Similarly, self-addressed return envelopes accompanying the confirmations must be addressed for delivery to the CPA firm’s office. These procedures are designed to ensure that responses will be received directly by the auditor. It is inappropriate to regard confirmations mailed but not returned by customers as significant audit evidence. For example, nonresponses to positive confirmations do not provide audit evidence. Similarly, for negative confirmations, the auditor should not conclude that the recipient received the confirmation request and verified the informa - tion requested. Negative confirmations do, however, provide some evidence of the existence assertion. When positive confirmations are used, auditing standards require follow-up procedures for confirmations not returned by the customer. It is common to send second and some times even third requests for confirmations. Even with these efforts, some customers do not return the confirmation, so it is necessary to follow up with alternative procedures. The objective of alternative procedures is to determine by a means other than con firmation whether the nonconfirmed account existed and was properly stated at the confirmation date. For any positive confirmation not returned, auditors can examine the following documentation to verify the existence and accuracy of individual sales transactions making up the ending balance in accounts receivable: Subsequent Cash Receipts Evidence of the receipt of cash subsequent to the con - firmation date includes examining remittance advices, entries in the cash receipts records, or perhaps even subsequent credits in the accounts receivable master file. On the one hand, the examination of evidence of subsequent cash receipts is a highly useful alterna - tive procedure because it is reasonable to assume that a customer would not have made a payment unless it was an existing receivable. On the other hand, payment does not establish whether an obligation existed on the date of the confirmation. In addition, auditors should take care to match each unpaid sales transaction with evidence of its subsequent payment as a test for disputes or disagreements over individual outstanding invoices. Duplicate Sales Invoices These are useful in verifying the actual issuance of a sales invoice and the actual date of the billing. Shipping Documents These are important in establishing whether the shipment was actually made and as a test of cutoff. Correspondence with the Client Usually, the auditor does not need to review correspondence as a part of alternative procedures, but correspondence can be used to disclose disputed and questionable receivables not uncovered by other means.
12. Critz Company was started on January 1, 2018. During the month of January, Critz earned $7,500 of...
Critz Company was started on January 1, 2018. During the month of January, Critz earned $7,500 of revenue and incurred $4,800 of expenses. During the remainder of 2018, Critz earned $86,000 and incurred $51,000 of expenses. Critz closes its books on December 31 of each year. Required a. Determine the balance in the Retained Earnings account as of January 31, 2018. b. Determine the balance in the Revenue and Expense accounts as of January 31, 2018. c. Determine the balance in the Retained Earnings account as of December 31, 2018, before closing. d. Determine the balances in the Revenue and Expense accounts as of December 31, 2018, before closing. e. Determine the balance in the Retained Earnings account as of January 1, 2019. f. Determine the balance in the Revenue and Expense accounts as of January 1, 2019.
13. Which of the following, in the most precise sense, means the process of converting noncash resources...
Which of the following, in the most precise sense, means the process of converting noncash resources and rights into cash or claims to cash?
a. Allocation
b. Recordation
c. Recognition
d. Realization.
14. GAAP
2. Which of the following is not a generally accepted accounting principle relating to the valuation of assets?
A. The cost principle - in general, assets are valued at cost, rather than at estimated market values.
B. The objectivity principle - accountants prefer to use objective, rather than subject...
15. MULTIPLE CHOICE —Earnings Per Share—Conceptual 82. With respect to the computation of earnings per..
MULTIPLE CHOICE—Earnings Per Share—Conceptual
82. With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?
a.Common stock, preferred stock, and convertible securities outstanding in lots of even thousands
b.Earnings derived from one primary line of business
c.Ownership interest consisting solely of common stock
d.None of these
83. In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the
a.preferred dividends in arrears.
b.preferred dividends in arrears times (one minus the income tax rate).
c.annual preferred dividend times (one minus the income tax rate).
d.none of these.
84. In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are
a.weighted by the number of days outstanding.
b.weighted by the number of months outstanding.
c.considered outstanding at the beginning of the year.
d.considered outstanding at the beginning of the earliest year reported.
85. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?
a.Decrease and no effect
b.Increase and no effect
c.Decrease and increase
d.Increase and decrease
86. Due to the importance of earnings per share information, it is required to be reported by all
Public Companies Nonpublic Companies
a.YesYes
b.YesNo
c.NoNo
d.NoYes
87. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is
DilutiveAntidilutive
a.YesYes
b.YesNo
c.NoYes
d.NoNo
88. When computing diluted earnings per share, convertible bonds are
a.ignored.
b.assumed converted whether they are dilutive or antidilutive.
c.assumed converted only if they are antidilutive.
d.assumed converted only if they are dilutive.
89. Dilutive convertible securities must be used in the computation of
a.basic earnings per share only.
b.diluted earnings per share only.
c.diluted and basic earnings per share.
d.none of these.
90. In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?
a.Annual preferred dividend
b.Annual preferred dividend times (one minus the income tax rate)
c.Annual preferred dividend times the income tax rate
d.Annual preferred dividend divided by the income tax rate
91. In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would
a.fairly present diluted earnings per share on a prospective basis.
b.fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.
c.reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share.
d.be antidilutive.
92. In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants
a.are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share.
b.are added, net of tax, to the numerator of the calculation for diluted earnings per share.
c.are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock.
d.none of these.
93. When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the
a.price at the end of the year.
b.average market price.
c.price at the beginning of the year.
d.none of these.
94. Antidilutive securities
a.should be included in the computation of diluted earnings per share but not basic earnings per share.
b.are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share.
c.include stock options and warrants whose exercise price is less than the average market price of common stock.
d.should be ignored in all earnings per share calculations.
95. Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the
a.greater earnings adjustment.
b.greater earnings per share adjustment.
c.smaller earnings adjustment.
d.smaller earnings per share adjustment.
16. James and Esther Johnson live at 45678 S.W. 112th Street, Homestead, FL 33033. James, who is 67 y...
James and Esther Johnson live at 45678 S.W. 112th Street, Homestead, FL 33033. James, who is 67 years old (date of birth 12/14/1950), is retired receiving social security benefits, and Esther, who is 66 years old (date of birth 6/11/1951), is also retired but working on a part-time basis. Their social security numbers are 412-34-5670 and 412-34-5671, respectively. The Johnsons had qualifying health care coverage at all times during the tax year. Annual social security income for Jim is $18,000 (SSA-1099, box 5) and for Esther is $10,800 (SSA-1099, box 5). Interest received by them from Central Bank is $2,545 (1099-INT, box 1). No income tax withholding was made. Esther is working part-time as an interior decorator as an employee of Decorating House, a corporation. Her Form W-2 shows the following information: Their itemized deductions are as follows: Mortgage interest on their main home, $8,100. Real estate taxes, $5,600. Personal property taxes, $185. Doctors’ expenses unreimbursed by insurance, $5,400. Medical insurance premiums for the year, $2,400. Prescribed medicine, $1,995. Vitamins, $300. Total cash contributions to their church, $675. The contributions were made over the course of the year and no individual contribution was greater than $250. Tax preparation fees for their 2016 return, $325, paid in 2017 Lottery tickets bought by Esther during the year, $750. Winnings received, $940 (W-2G, box 1). Income tax withholding on winnings, $35 (W-2G, box 4).Because the Johnsons live in Florida, where there is no state income tax, they will deduct the estimation of the general sales tax related to the area in which they live. The most efficient way to do this is by using the Sales Tax Calculator on the IRS Web site at http://apps.irs.gov/app/stdc/. A key point to remember in using the calculator is that “income� for this calculation also includes the nontaxable portion of social security benefits. To use the calculator, go to www.irs.gov and enter “sales tax deduction calculator� in the search box. When using the sales tax tables, taxpayers determine their sales tax deduction based on their income and number of exemptions. Income is defined as AGI plus any nontaxable items such as tax-exempt interest, workers’ compensation, nontaxable social security or retirement income, and similar items. The number of exemptions is equal to the exemptions claimed on Form 1040, line 6d. Required: Prepare their individual income tax return using form 1040 and Schedule A. They do not want to contribute to the presidential election campaign and do not want anyone to be a third-partydesignee. Supplemental W2s, a 1098, and a 1099 are attached. Use them to add information to your tax forms. For any missing information, make reasonable assumptions
17. holding costs
Question 10:
A supplier to Toyota stamps out parts using a press. Changing a part type requires the supplier to change the die on the press. This changeover currently takes four hours. The supplier estimates that each hour spent on the changeover costs $500. Demand for parts is 1,000 per month. Each ...
18. Bank reconciliation and entries The cash account for Brentwood Bike Co. at May 1, 2016, indicated...
Bank reconciliation and entries
The cash account for Brentwood Bike Co. at May 1, 2016, indicated a balance of $34,250. During May, the total cash deposited was $140,300, and checks written totaled $138,880.
The bank statement indicated a balance of $43,525 on May 31. Comparing the bank state-
ment, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $6,440.
b. A deposit of $1,850 representing receipts of May 31, had been made too late to appear on the bank statement.
c. The bank had collected for Brentwood Bike Co. $5,250 on a note left for collection. The face of the note was $5,000.
d. A check for $390 returned with the statement had been incorrectly charged by the bank as $930.
e. A check for $210 returned with the statement had been recorded by Brentwood Bike Co. as $120. The check was for the payment of an obligation to Adkins Co. on account.
f. Bank service charges for May amounted to $30.
g. A check for $1,325 from Jennings Co. was returned by the bank due to insufficient funds.
Instructions
1. Prepare a bank reconciliation as of May 31.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Brentwood Bike Co. on May 31, 2016, what amount should be reported as cash?
19. Exercise 9-45 Cash Budget The owner of a building supply company has requested a cash budget for...
Exercise 9-45 Cash Budget
The owner of a building supply company has requested a cash budget for June. After examining the records of the company, you find the following:
a.
b. Cash balance on June 1 is $736.
Actual sales for April and May are as follows:
April May
Cash sales $10,000 $18,000
Credit sales 28,900 35,000
Total sales $38,900 $53,000
c. Credit sales are collected over a three-month period: 40% in the month of sale, 30% in the second month, and 20% in the third month. The sales collected in the third month are sub- ject to a 2% late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible.
d. Inventory purchases average 64% of a month’s total sales. Of those purchases, 20% are paid for in the month of purchase. The remaining 80% are paid for in the following month.
e. Salaries and wages total $11,750 per month, including a $4,500 salary paid to the owner.
f. Rent is $4,100 per month.
g. Taxes to be paid in June are $6,780.
The owner also tells you that he expects cash sales of $18,600 and credit sales of $54,000 for June. No minimum cash balance is required. The owner of the company doesn’t have access to short-term loans.
Required:
1. Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments.
2. CONCEPTUAL CONNECTION Did the business show a negative cash balance for June? Suppose that the owner has no hope of establishing a line of credit for the business, what recommendations would you give the owner for dealing with a negative cash balance?
20. Ex 9-1 Costs of acquiring fixed assets Melinda Stoffers owns and operates ABC Print Co. During...
Ex 9-1 Costs of acquiring fixed assets
Melinda Stoffers owns and operates ABC Print Co. During February, ABC Print Co. incurred the following costs in acquiring two printing presses. One printing press was new, and the other was bought from a business that recently filed for bankruptcy.
Costs related to new printing press:
1. Fee paid to factory representative for installation
2. Freight
3. Insurance while in transit
4. New parts to replace those damaged in unloading
5. Sales tax on purchase price
6. Special foundation
Costs related to used printing press:
7. Fees paid to attorney to review purchase agreement
8. Freight
9. Installation
10. Repair of damage incurred in reconditioning the press
11. Replacement of worn-out parts
12. Vandalism repairs during installation
a. Indicate which costs incurred in acquiring the new printing press should be debited to the asset account.
b. Indicate which costs incurred in acquiring the used printing press should be debited to the asset account.
21. What would you think of a company’s ethics if it changed accounting methods every year?
During 20X8, Vanguard, Inc., changed to the LIFO method of accounting for inventory. Suppose that during 20X9, Vanguard changes back to the FIFO method and the following year Vanguard switches back to LIFO again.
Required
1. What would you think of a company’s ethics if it changed accounting methods every year?
2. What accounting principle would changing methods every year violate?
3. Who can be harmed when a company changes its accounting methods too often? How?
22. Who is the best person in Dr. Conrad"s office to reconcile the bank statement?
Carol Benton, Sue Knox, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows. Benton opens the mail and prepares a triplicate list of money received. She sends one copy of the list to Knox, the cashier, who deposits the receipts daily in the bank. Diamond, the record keeper, receives a copy of the list and posts payments to patients’ accounts. About once a month the office clerks have an expensive lunch they pay for as follows. First, Knox endorses a patient’s check in Dr. Conrad’s name and cashes it at the bank. Benton then destroys the remittance advice accompanying the check. Finally, Diamond posts payment to the customer’s account as a miscellaneous credit. The three justify their actions by their relatively low pay and knowledge that Dr. Conrad will likely never miss the money.
Required
1. Who is the best person in Dr. Conrad’s office to reconcile the bank statement?
2. Would a bank reconciliation uncover this office fraud?
3. What are some procedures to detect this type of fraud?
4. Suggest additional internal controls that Dr. Conrad could implement.
23. Multiple Choice
The following exhibit is for Kmart bonds.
Bonds Close Yield Volume Net Change
Kmart 8 3/8 17 100¼ 8.4 35 +7/8
The contractual interest rate of the K mart bonds is
a. less than the market interest rate.
b. not determinable.
c. equal to the market interest rate.
d. greater than the market interest rat...
24. Discuss the major control implications of batch systems with real-time data input. What compensating...
1. Discuss the major control implications of batch systems with real-time data input. What compensating procedures are available?
2. Discuss some specific examples in which information systems can reduce time lags and how the firm is positively affected by such time lags.
3. Discuss some service industries that may require their workers to use job tickets.
25. Exercise 33-34 Revenue Recognition and matching
Exercise 33-34 Revenue Recognition and matching
Carrico Advertising Inc. performs advertising services for several fortune 500 companies. The following information describes Carrico's activities during 2011.
A. At the beginning of 2011, customers owed Carrico $45,800 for advertising services performed during 2010. During 2011, Carrico performed an additional $695,100 of advertising services on account. Carrico collected $708,700 cash from customers during 2011.
B. At the beginning of 2011, Carrico had $13,350 of supplies on hand for which it owed suppliers $8,150. During 2011, Carrico purchased an additional $14,600 of supplies on credit. Carrico had $2,230 of supplies on hand at the end of 2011.
C. Carrico's 2011 operating and interest expenses were $437,600 and $133,400, respectively.
Required:
1. Calculate Carrico's 2011 income before taxes.
2. Calculate the amount of Carrico's accounts receivable, supplies, and accounts payable at December 31, 2011.
3. Explain the underlying principles behind why the three accounts computed in part 2 exist.
