Question

BTN 1-1 Tana Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet’s financial statements. In discussing the audit fee, Allnet’s management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne’s firm.

Required

Identify the parties potentially affected by this audit and the fee plan proposed.

What are the ethical factors in this situation? Explain.

Would you recommend that Thorne accept this audit fee arrangement? Why or why not?

Describe some ethical considerations guiding your recommendation.Page 48

Communicating in Practice  A1 C2  

BTN 1-2 Refer to this chapter’s opening feature about Apple. Assume that the owners, sometime during their first five years of business, desire to expand their computer product services to meet business demand regarding computing services. They eventually decide to meet with their banker to discuss a loan to allow Apple to expand and offer computing services.

Required

Prepare a half-page report outlining the information you would request from the owners if you were the loan officer.

Indicate whether the information you request and your loan decision are affected by the form of business organization for Apple.

Taking It to the Net A2

BTN 1-3 Visit the EDGAR database at SEC.gov. Access the Form 10-K report of Rocky Mountain Chocolate Factory (ticker: RMCF) filed on May 23, 2016, covering its 2016 fiscal year.

Required

Item 6 of the 10-K report provides comparative financial highlights of RMCF for the years 2012–2016. How would you describe the revenue trend for RMCF over this five-year period?

Has RMCF been profitable (see net income) over this five-year period? Support your answer.

Teamwork in Action C1

BTN 1-4 Teamwork is important in today’s business world. Successful teams schedule convenient meetings, maintain regular communications, and cooperate with and support their members. This assignment aims to establish support/learning teams, initiate discussions, and set meeting times.

Required

Form teams and open a team discussion to determine a regular time and place for your team to meet between each scheduled class meeting. Notify your instructor via a memorandum or e-mail message as to when and where your team will hold regularly scheduled meetings.

Develop a list of telephone numbers and/or e-mail addresses of your teammates.

Entrepreneurial Decision A1 P1  

BTN 1-5 Refer to this chapter’s opening feature about Apple. Assume that the owners decide to open a new company with an innovative mobile app devoted to microblogging for accountants and those learning accounting. This new company will be called AccountApp.

Required

AccountApp obtains a $500,000 loan and the two owners contribute $250,000 in total from their own savings in exchange for ownership of the new company.

What is the new company’s total amount of liabilities plus equity?

What is the new company’s total amount of assets?

If the new company earns $80,250 in net income in the first year of operation, compute its return on assets (assume average assets equal $750,000). Assess its performance if competitors average a 10% return.

Check (2) 10.7%

Hitting the Road C2  

BTN 1-6 You are to interview a local business owner. (This can be a friend or relative.) Opening lines of communication with members of the business community can provide personal benefits of business networking. If you do not know the owner, you should call ahead to introduce yourself and explain your position as a student and your assignment requirements. You should request a 30-minute appointment for a face-to-face or phone interview to discuss the form of organization and operations of the business. Be prepared to make a good impression.

Required

Identify and describe the main operating activities and the form of organization for this business.

Determine and explain why the owner(s) chose this particular form of organization.

Identify any special advantages and/or disadvantages the owner(s) experiences in operating with this form of business organization.

Answer 1

ques BTN1-1

Identify the parties potentially affected by this audit and the fee plan proposed.

- There are several parties affected. They include the users of financial statements such as shareholders, lenders, investors, analysts, suppliers, directors, unions, and regulators.

What are the ethical factors in this situation? Explain.

- Issue of the Public Interest With Thorne’s financial income hinging on the reported profits of Allnet after his audit,Thorne’s commitment to presenting the public and shareholders an objective view of thecompany’s financial statements could be put to question due to the motive present for him to be biased and to report untruthfully.

- Issue of Thorne’s Integrity

Would you recommend that Thorne accept this audit fee arrangement? Why or why not?

-

I would not recommend that Thorne accept this audit fee arrangement.Auditors are supposed to be independent of the company issuing the financial statements,and their job is to determine the fairness of these statements. If Thorne accepts this auditfee arrangement, it could be challenging for him to truly be independent and objective inhis audit, due to the temptation of overlooking misleading overstatements of Allnet’s profits to gain an increased audit fee and to achieve his goal of becoming a partner earlier.