Gary Theater is in the Hoosier Mall. A cashier's booth is located near the entrance to the theater. Two cashiers are employed. One works from 1:00 to 5:00 p.m., the other from 5:00 to 9:00 p.m. Each cashier is bonded. The cashiers receive cash from customers and operate a machine that ejects serially numbered tickets. The rolls of tickets are inserted and locked into the machine by the theater manager at the beginning of each cashier's shift. After purchasing a ticket, the customer takes the ticket to a doorperson stationed at the entrance of the theater lobby some 60 feet from the cashier's booth. The doorperson tears the ticket in half, admits the customer, and returns the ticket stub to the customer. The other half of the ticket is dropped into a locked box by the doorperson. At the end of each cashier's shift, the theater manager removes the ticket rolls from the machine and makes a cash count. The cash count sheet is initialed by the cashier. At the end of the day, the manager deposits the receipts in total in a bank night deposit vault located in the mall. In addition, the manager sends copies of the deposit slip and the initialed cash count sheets to the theater company treasurer for verification and to the company's accounting department. Receipts from the first shift are stored in a safe located in the manager's office. (a)Identify the internal control principles and their application to the cash receipts transactions of Gary Theater. (b)If the doorperson and cashier decided to collaborate to misappropriate cash, what actions might they take?

The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	919,000		$	262,000		$	405,000		$	252,000
Variable manufacturing and selling expenses		462,000			111,000			200,000			151,000
Contribution margin		457,000			151,000			205,000			101,000
Fixed expenses:
Advertising, traceable		69,300			8,900			40,100			20,300
Depreciation of special equipment		43,700			20,400			7,800			15,500
Salaries of product-line managers		114,300			40,000			39,000			35,300
Allocated common fixed expenses*		183,800			52,400			81,000			50,400
Total fixed expenses		411,100			121,700			167,900			121,500
Net operating income (loss)	$	45,900		$	29,300		$	37,100		$	(20,500)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

Outline five (5) reasons for the discrepancy between the cash book and the bank statement.

What are the answers? Royals Incorporated leases a piece of equipment to Polar Corporation on January 1, 2017. The lease agreement called for annual rental payments of $8,648 at the beginning of each year of the 3-year lease. The equipment has a fair value of $35,000, a book value of $20,000, and an economic useful life of 5 years after which the residual value will be zero. Both parties expect a residual value of $12,500 at the end of the lease term, though this amount is not guaranteed. Royals set the lease payments with the intent of earning a 6% return, and Polar is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. PV Annuity Due PV Ordinary Annuity PV Single Sum 6%, 3 periods 2.83339 2.67301 .83962 6%, 5 periods 4.46511 4.21236 .74726 (

a) Describe the nature of the lease to Polar.

(b) Prepare all necessary journal entries for Polar in 2017.

(c)Show how the rental payment is determined by lessor (show your works).

(d)Suppose that the residual value is guaranteed by Polar. All other facts being equal, how would Royals change the amount of the annual rental payment?

What can we say about the increase of the dividend payout ratio for a company.Is it a good sign and which is the impact on the free cash flows?

Whitt Valley Presbyterian Hospital is a nonprofit initial care facility. For the hospital’s calendar year ending December 31, 2019, prepare (I) journal entries to record the transactions listed in a. through n. below, (II) a trial balance based on your entries and the beginning balances listed at o. below, and (III) a Statement of Operations and a Statement of Changes in Net Assets for the hospital.

1. Third-parties payers and direct-pay patients were billed $6,500,000 at the hospital's established billing rates
2. The hospital determined that certain of its patients qualified for charity care and that it would not seek to collect $950,000 at established billing rates from direct-pay patients
3. The hospital estimated contractual adjustments for the year of $1,600,000
4. The hospital originally estimated uncollectible amounts from direct-pay patients to be $250,000 (recall that original estimated uncollectible amounts reduce revenue; only estimates specific to an individual patient are reported as bad debt expense).
5. The hospital received capitation premiums of $2,500,000. It estimated that the cost of providing this care was $1,800,000
6. The hospital received payments from third-party payers and direct-pay patients totaling $3,500,000
7. The hospital received contributions of $1,100,000 that were restricted by donors for building a new urgent care wing
8. The hospital paid salaries and wages of $4,500,000 in cash; these amounts are reported as patient care expense
9. The fair value of investments required to be held in perpetuity increased by $25,000
10. The hospital received cash from interest and dividend income of $10,000 on investments without donor restrictions
11. The hospital used $1,375,000 of net assets with donor restrictions to construct a new urgent care wing, consistent with the restrictions created by the donors
12. The hospital reported depreciation expense of $475,000
13. The hospital used drug inventories of $365,000
14. The hospital incurred other operating costs for patient care of $275,000 on credit
15. The hospital’s beginning of the year trial balance at January 1, 2019 was as follows:

Whitt Valley Presbyterian Hospital
Trial Balance
As of January 1, 2019

	Without Donor Restrictions		With Donor Restrictions
	Debit	Credit	Debit	Credit
Cash	$1,485,000		$401,600
Investments	153,000		40,000
Patient accounts receivable	250,000
Inventory—drugs	401,000
Property, plant, and equipment	4,400,000
Accumulated depreciation		$600,000
Accounts payable		21,000
Net assets, January 1, 2019	-	6,068,000	-	$441,600
	$6,689,000	$6,689,000	$441,600	$441,600

1.a.)When using FIFO for inventories, market value generally refers to ________ under U.S. GAAP and ________ under IFRS.

A) current replacement cost; historical cost

B) historical cost; net realizable value

C) historical cost; current replacement cost

D) net realizable value; net realizable value

b. Margaret Company reported the following information for the current year:

Net sales	$3,000,000
Purchases	$1,957,000
Beginning Inventory	$245,000
Ending Inventory	$115,000
Cost of Goods Sold	65% of sales

Industry Averages available are:

Inventory Turnover	5.29
Gross Profit Percentage	28%

How do the inventory turnover and gross profit percentage for Margaret Company compare to the industry averages for the same ratios? (Round inventory turnover to two decimal places. Round gross profit percentage to the nearest percent.)

A) Margaret Company has superior gross profit percentage and inventory turnover.

B) Margaret Company has superior gross profit percentage and inferior inventory turnover.

C) Margaret Company has inferior gross profit percentage and superior inventory turnover.

D) Margaret Company has inferior gross profit percentage and inventory turnover.

c.)Ending inventory for the year ended December 31, 2019, is understated by $8,000. How will this affect net income for 2019 and 2020?

A) Net income will be understated by $8,000 in 2019 and 2020.

B) Net income will be overstated by $8,000 in 2019 and 2020.

C) Net income will be understated by $8,000 in 2019 and overstated by $8,000 in 2020.

D) Net income will be overstated by $8,000 in 2019 and understated by $8,000 in 2020.

d.) Ending inventory for the year ended December 31, 2019, is understated by $23,000. How will this error affect net income for 2020?

A) Net income will be understated by $46,000.

B) Net income will be overstated by $46,000.

C) Net income will be understated by $23,000.

D) Net income will be overstated by $23,000.

e.) Beginning inventory for the year ended December 31, 2019, is understated. How will this error affect net income for 2019 and 2020?

A) 2019 overstated; 2020 understated

B) 2019 understated; 2020 overstated

C) 2019 overstated; 2020 no effect

D) 2019 understated; 2020 no effect

f.)Beginning inventory for the year ended December 31, 2019, is understated. How will this error affect net income for 2019 and 2020?

A) 2019 overstated; 2020 understated

B) 2019 understated; 2020 overstated

C) 2019 overstated; 2020 no effect

D) 2019 understated; 2020 no effect

A not-for-profit organization receives a restricted gift. When and in which type of fund should it recognize the revenue? When and in which type of fund should it recognize the related expense? What is the reason for the apparent inconsistencies between the fund types in which the revenue and expenses are reported?

1. Audit sampling requires that the auditor collect only a relatively small sub-sample of data, thereby initiating detection risk, i.e., the risk. . . that, based on the sample the auditor takes, the auditor will fail to detect a material misstatement in the financial statements. Data analytics seems to present a panacea to that notion of risk because, by auditing 100% of the sample, detection risk by definition is lower.
   1. It seems like data analytics is the perfect answer to the audit risk problem. So, comment on a variety of reasons that auditors might not be willing to rely on data analytics to drive audit risk down.
   2. Which do you think is costlier: sampling or data analytics? What are the different costs between sampling and data analytics?
   3. What role does cost-benefit play in the choice between employing statistical sampling versus data analytics?
2. Data analytics enables auditors to audit all transactions, rather than just a sample of transactions.
   1. Do you think that as the use of data analytics increases on audit engagements, the need for sampling will decrease?
   2. What role might the PCAOB or AICPA play in helping auditors determine when and how to incorporate data analytics into the audit?

Discuss the importance of ethics in financial accounting.

What issues may arise if ethics is compromised? How would this impact the company internally, how would it impact the external users such as investors, creditors, government?

Transactions of Sky Company for the month of December 2017 are presented below: 1. The owner invested $400,000 to start his business. 2. Purchased equipment for $48,000, paying $12,000 cash and the remaining amount will be paid after 10 days. 3. Purchased office supplies on credit for $3,200. 4. Invested additional $160,000 cash in the business. 5. Services billed to customers amounted to $20,000. 6. Received a bill for $1,200 for advertising of the current month. 7. Paid $10,000 as salaries of the month. 8. The owner withdrew $1,400 cash from the business for his personal use. Required: a. Using the following table, show the effect of the above transactions on the accounting equation b. Prepare the income statement, statement of owner’s equity, and balance sheet of Sky Company on 31 December 2017

Helix Company purchased tool sharpening equipment in April 1, 2010 for $72,000. The equipment was expected to have a useful life of four years, or 9,000 operating hours, and a residual value of $2,700. The equipment was used for 2,400 hours during 2010, 4,000 hours in 2011, 2,000 hours in 2012, and 600 hours in 2013.

Instructions: Determine the amount of depreciation expense for the years ended December 31, 2010, 2011, 2012, and 2013 by each of the following methods:

1. Straight-line

2. The units of activity method

3. Double Declining balance method

Turner Video will invest $84,500 in a project. The firm’s cost of capital is 6 percent. The investment will provide the following inflows. Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Year	Inflow
1	$	28,000
2		30,000
3		34,000
4		38,000
5		42,000

The internal rate of return is 12 percent.

a. If the reinvestment assumption of the net present value method is used, what will be the total value of the inflows after five years? (Assume the inflows come at the end of each year.) (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Total value of inflows: ___________________.

b. If the reinvestment assumption of the internal rate of return method is used, what will be the total value of the inflows after five years? (Use the given internal rate of return. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Total value of inflows: ___________________.

c. Which investment assumption is better?

	Reinvestment assumption of IRR
	Reinvestment assumption of NPV

a large hotel​ chain, has been using​ activity-based costing to determine the cost of a​ night's stay at their hotels.

One of the​ activities, "Inspection," occurs after a customer has checked out of a hotel room.

Fitzgerald

inspects every

10th

room and has been using​ "number of rooms​ inspected" as the cost driver for inspection costs. A significant component of inspection costs is the cost of the supplies used in each inspection.

Dawn

McAdams​,

the chief​ inspector, is wondering whether inspection​ labor-hours might be a better cost driver for inspection costs.

Dawn

gathers information for weekly inspection​ costs, rooms​ inspected, and inspection​ labor-hours as​ follows:

Week	Rooms Inspected	Inspection Labor-Hours	Inspection Costs
Week 1	260	85	$1,800
Week 2	328	129	2,560
Week 3	341	101	2,310
Week 4	437	142	2,850
Week 5	200	67	1,460
Week 6	245	80	1,750
Week 7	258	127	1,780
Week 8	331	146	2,260

Dawn

runs regressions on each of the possible cost drivers and estimates these cost​ functions:

                                               Inspection

Costs=$246.60

​+

​($6.17

x Number of rooms​ inspected)

                                               Inspection

Costs=$787.71

​+

​($11.94

x Inspection​ labor-hours)

1.	Explain why rooms inspected and inspection​ labor-hours are plausible cost drivers of inspection costs.
2.	Plot the data and regression line for rooms inspected and inspection costs. Plot the data and regression line for inspection​ labor-hours and inspection costs. Which cost driver of inspection costs would you​ choose? Explain.
3.	Dawn expects inspectors to inspect 306 rooms and work for 124 hours next week. Using the cost driver you chose in requirement​ 2, what amount of inspection costs should Dawn ​budget? Explain any implications of Dawn choosing the cost driver you did not choose in requirement 2 to budget inspection costs.

Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment. Project H represents an investment in a hydraulic lift. Keller wishes to use a net present value profile in comparing the projects. The investment and cash flow patterns are as follows: Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
  

Project E					Project H
($37,000 Investment)					($35,000 Investment)
Year	Cash Flow				Year	Cash Flow
1	$	9,000			1	$	17,000
2		12,000			2		18,000
3		18,000			3		17,000
4		20,000

a. Determine the net present value of the projects based on a zero percent discount rate.

Project E - ____________________

Project H - _____________________

b. Determine the net present value of the projects based on a discount rate of 9 percent. (Do not round intermediate calculations and round your answers to 2 decimal places.)
  

Project E - ____________________

Project H - _____________________

c. If the projects are not mutually exclusive, which project(s) would you accept if the discount rate is 9 percent?
  

	Project E
	Project H
	Both H and E