Steve Woods performed an audit on the ABC corporation and issued an unqualified report. Steve performed the audit with due care and in accordance with GAAS. Three months later, he discovers on the news that the CEO of ABC, has been stealing small amounts of inventory. The amount was not material compared to the overall inventory of the corporation. The CFO, Mr. Big called Steve and he asks for Steve to refund the audit fees because Steve did not perform the audit properly and discover this fraud. How should Steve Woods, auditor, respond? Please write at least 300 words.

Eban Corporation uses the FIFO method in its process costing system. The first processing department, the Welding Department, started the month with 22,200 units in its beginning work in process inventory that were 50% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $66,200. An additional 69,000 units were started into production during the month. There were 18,800 units in the ending work in process inventory of the Welding Department that were 20% complete with respect to conversion costs. A total of $312,160 in conversion costs were incurred in the department during the month.

The cost per equivalent unit for conversion costs is closest to:

On 1/1/16, R-U Ready leased a car with a FMV of $45,000 for 5 years with a commitment to make 5 annual payments of $8,000 with the first payment due immediately and the remaining payments due on 12/31 of each year. R-U ready’s incremental borrowing rate is 12%. The estimated life of the car is 10 years. The car ownership does not transfer to R-U Ready at the end of the lease and there is no bargain purchase option.

Requirement: Present the accounts and dollar amounts that would appear on comparative balance sheets and income statements for the years ending 12/31/16 and 12/31/15.

Mary Burden is the CFO of Tidewell Corporation and Tommy Brown is the Treasurer. Mary has been with the company for seven years and Tommy just started earlier this year. They meet to discuss the classification of the corporation's investment portfolio. Mary notes that Tidewell Corporation is having a good year and net income is already more than was forecasted, so she proposes investments that have increased in value since last year be classified as available-for-sale. She also proposes that any that have decreased in value be classified as trading securities. Her logic is that this will result in some amount of reported loss, but that net income will still be more than forecasted. Also, by classifying the securities that have increased in value as available fore sale, Tidewell Corporation will have some reserve gains for future periods. Tommy is not sure about Mary's proposal and thinks it would make more sense to classify the investments that have increased in value as trading, and subsequently sell them to capture the profit. He also believes that classifying the investments that have decreased in value as trading makes more sense, which will give the investments time to recover and not impact net income.

Answer the following questions:

#1Will what Mary and Tommy each suggest have the effect on net income that they suggest? Why or why not?

#2Is what Mary and Tommy each propose ethical? Why or why not?

#3If Tommy prevails and they classify the securities as he proposes for the end of the year, what would you expect Tidewell Corporation to do with the two types of investments shortly after the classification decision is made?

#4If what should happen in #3 doesn't occur, is the classification decision ethical? Why or why not?

On January 1, 2004, Bentham Company sells office furniture for $60,000 cash. The office furniture orginally cost $150,000 when purchased on January 1, 1997. Depreciation is recorded by the straight-line method over 10 years with a salvage value of $15,000. What gain or loss on sale should be recorded on this asset in 2004?

Bruno Company purchased equipment on January 1, 2009 at a total invoice cost of $280,000; additional costs of $5,000 for freight and $25,000 for installation were incurred. The equipment has an estimated salvage value of $10,000 and an estimated useful life of five years. The amount of accumulated depreciation at December 31, 2010 if the straight-line method of depreciation is used is:

Equipment with an invoice cost of $20,000 was placed in service on January 3, 2009. Installation costs of $8,000 were added to Repairs Expense. These cost should have been added to the Equipment account. Depreciation for 2009 was computed using the straight-line method, and an estimated useful life of five years, with no salvage value expected. The net income reported for 2009 was:

Exercise 6-17 Working with a Segmented Income Statement [LO6-4]

Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company’s most recent year is given:

Assume that Minneapolis’ sales by major market are:

The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $11,600. Marketing studies indicate that such a campaign would increase sales in the Medical market by $101,500 or increase sales in the Dental market by $87,000.

Required:

1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market?

2. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market?

3. In which of the markets would you recommend that the company focus its advertising campaign?

Required information

[The following information applies to the questions displayed below.]

Which of the following is a true statement? (Note: A statement may be true even if it does not identify all accounts that appear on that particular financial statement.)

Multiple Choice

• Account numbers 2, 4, and 5 will appear on the income statement.

• Account numbers 1, 3, and 8 will appear on the balance sheet.

• Account numbers 2, 5, and 8 will appear on the statement of cash flows.

• Account numbers 4, 5, and 6 will appear on the statement of changes in stockholders’ equity.

Required information

[The following information applies to the questions displayed below.]

Which of the following is a true statement? (Note: A statement may be true even if it does not identify all accounts that have debit balances on that particular financial statement).

Multiple Choice

• Account numbers 1, 3, and 5 normally have debit balances.

• Account numbers 2, 4, and 5 normally have debit balances.

• Account numbers 2, 5, and 8 normally have debit balances.

• Account numbers 4, 5, and 6 normally have debit balances.

Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom in 2013 (approximately $4 billion in U.S. dollars). Its net profits before taxes on these sales were £200 million, and it paid £6 million in corporate tax, resulting in a tax rate of 3 percent. The corporate tax rate in the United Kingdom is between 20 percent and 24 percent.

The CEO of Zoidle held a press conference stating that he was proud of his company for taking advantage of tax loopholes and for sheltering profits in other nations to avoid paying taxes. He called this practice “capitalism at its finest.” He further stated that it would be unethical for Zoidle not to take advantage of loopholes and that it would be borderline illegal to tell shareholders that the company paid more taxes than it had to pay because it felt that it should. Zoidle receives significant benefits for doing business in the United Kingdom, including tremendous sales tax exemptions and some property tax breaks. The United Kingdom relies on the corporate income tax to provide services to the poor and to help run the agency that regulates corporations. Is it ethical for Zoidle to avoid paying taxes? Why or why not?

Describe how you would advise the company to act in the following situation. Please be sure to describe your ethical reasoning process.

On January 1, 2000, Audrey Corporation issued $100,000 of 10% coupon rate bonds to yield an effective rate of 12%. Interest is paid semiannually on June 30 and December 31. The bonds mature in five years, i.e., on January 1, 2005. Audrey incurred $10,000 in issuance costs and has a September 30^th fiscal year end.

Required:

1. Prepare the journal entry to record the bond issuance.

2. Prepare the amortization schedule for the entire bond’s life (5 years).

3. Prepare the journal entries that Audrey Corporation would make on:

1. December 31, 2000.

2. June 30, 2001.

3. September 30, 2001.

4. Prepare Audrey’s Statement of Cash Flows for the fiscal year ended September 30, 2001.

5. Assume that on September 30, 2001 Audrey calls the bonds for 97. Prepare the journal entry to record the bond call.

6. Prepare Audrey’s Statement of Cash Flows for the fiscal year ended September 30, 2001 assuming the call took place.

Required information

[The following information applies to the questions displayed below.]

Packard Company engaged in the following transactions during Year 1, its first year of operations: (Assume all transactions are cash transactions.)

1. 1) Acquired $1,800 cash from the issue of common stock.
2. 2) Borrowed $1,270 from a bank.
3. 3) Earned $1,450 of revenues.
4. 4) Paid expenses of $420.
5. 5) Paid a $220 dividend.

During Year 2, Packard engaged in the following transactions: (Assume all transactions are cash transactions.)

1. 1) Issued an additional $1,175 of common stock.
2. 2) Repaid $815 of its debt to the bank.
3. 3) Earned revenues of $1,600.
4. 4) Incurred expenses of $700.
5. 5) Paid dividends of $270.

What was the balance of Packard's Retained Earnings account before closing in Year 1?

Multiple Choice

• $810

• $0

• $1,030

• $1,050

with the information above....

What is the after-closing amount of retained earnings that will be reported on Packard’s balance sheet at the end of Year 2? (Assume that closing entries have been made).

Multiple Choice

• $2,080

• $1,710

• $1,440

• $2,275

_______________________________________________________________

The following entry is taken from the journal of a merchandising company:

What is the effect of this entry on the company’s financial statements?

Multiple Choice

• Assets and stockholders’ equity increase.

• Assets and liabilities increase.

• Assets and stockholders’ equity decrease.

• Assets decrease and stockholders’ equity increases.

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjustment, dated December 31, Year 1, to record accrued interest expense impact the elements of the financial statements?

Multiple Choice

• Decrease assets and decrease retained earnings by $2,000

• Increase liabilities and decrease equity by $2,000

• Increase liabilities and decrease equity by $1,600

• Decrease equity and increase liabilities by $4,800

The following account balances were taken from the adjusted trial balance of Kendall Company:

What is the Retained Earnings account balance that will be included on the post-closing trial balance?

Multiple Choice

• $28,900.

• $22,900.

• $4,400.

• $10,400.

On August 1, Year 1, Bellisa Company issued a $15,000 4%, 1-year note to Citizens Bank. Which of the following entries reflects the adjustment required as of December 31, Year 1?

Multiple Choice

• Interest Payable	600
  Interest Expense		600

• Interest Expense	250
  Notes Payable		250

• Interest Expense	250
  Interest Payable		250

• Interest Expense	600
  Interest Payable		600

Vargas Company purchased a computer for $6,200 on January 1, Year 1. The computer is estimated to have a 5-year useful life and a $2,100 salvage value. What adjusting entry would Vargas record on December 31, Year 1 to recognize expense related to use of the computer?

Multiple Choice

• Depreciation Expense	820
  Accumulated Depreciation		820

• Depreciation Expense	820
  Computer		820

• Depreciation Expense	1,240
  Accumulated Depreciation		1,240

• Accumulated Depreciation	820
  Depreciation Expense		820

Manhattan Company recorded an adjusting entry to accrue interest owed of $850 as of December 31, Year 1. When the related note was paid during Year 2, the company paid $1,550 in interest. Which of the following journal entries correctly records this Year 2 transaction? (Assume that the entry to record the payment of the note itself was recorded in a separate journal entry.)

Multiple Choice

• Interest Expense	700
  Interest Payable	850
  Cash		1,550

• Interest Expense	1,550
  Cash		1,550

• Interest Expense	1,550
  Cash		850
  Interest Payable		700

• Interest Expense	700
  Cash		700

Manhattan Company recorded an adjusting entry to accrue interest owed of $850 as of December 31, Year 1. When the related note was paid during Year 2, the company paid $1,550 in interest. Which of the following journal entries correctly records this Year 2 transaction? (Assume that the entry to record the payment of the note itself was recorded in a separate journal entry.)

Multiple Choice

• Interest Expense	700
  Interest Payable	850
  Cash		1,550

• Interest Expense	1,550
  Cash		1,550

• Interest Expense	1,550
  Cash		850
  Interest Payable		700

• Interest Expense	700
  Cash		700

• What is audit risk?
• What is the Audit Risk Model?
• What are the components of audit risk and how do these relate to each other?
• How does materiality and the audit approach interact with the Audit Risk Model?

Farmer Company sold a piece of equipment for $6,000. The equipment had an original cost of $34,000 and accumulated depreciation of $31,000 at the time of the sale. Which of the following correctly shows the effect of the sale on the elements of the financial statements?

Multiple Choice

• Option A

• Option B

• Option C

• Option D

On January 1, Year 1, Friedman Company purchased a truck that cost $49,000. The truck had an expected useful life of 8 years and an $9,000 salvage value. Friedman uses the double-declining-balance method. What is the book value of the truck at the end of Year 1? (Do not round intermediate calculations.)

Multiple Choice

• $27,750

• $36,750

• $39,000

• $30,000

Chico Company paid $670,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture, $195,000; Building, $570,000, and Land, $165,000. Based on this information, what is the cost that should be allocated to the office furniture? (Round your intermediate percentages to four decimal places: ie .054231 = 5.42%.)

Multiple Choice

• $195,000

• $140,499

• $158,333

• $52,500

On September 1, Year 1, West Company borrowed $52,000 from Valley Bank. West agreed to pay interest annually at the rate of 9% per year. The note issued by West carried an 18-month term. West Company has a calendar year-end. What is the amount of interest expense that will be reported on West's income statement for Year 1?

Multiple Choice

• $0

• $1,560

• $468

• $1,170

On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $85,050 in assets in exchange for its common stock to launch the business. On October 31, the company’s records show the following items and amounts.  

Also assume the following:

1. The owner’s initial investment consists of $39,040 cash and $46,010 in land in exchange for its common stock..
2. The company’s $19,060 equipment purchase is paid in cash.
3. The accounts payable balance of $9,430 consists of the $4,200 office supplies purchase and $5,230 in employee salaries yet to be paid.
4. The company’s rent, telephone, and miscellaneous expenses are paid in cash.
5. No cash has been collected on the $17,500 consulting fees earned.

Using the above information prepare an October 31 statement of cash flows for Ernst Consulting. (Cash outflows should be indicated by a minus sign.)

A partnership has liquidated all assets but still reports the following account balances:

The partners split profits and losses as follows: Cisneros, 40 percent; Beck, 20 percent; Sadak, 10 percent; Emerson, 20 percent; and Page 10 percent.

Assuming that all partners are personally insolvent except for Sadak and Emerson, how much cash must Sadak now contribute to this partnership? (Do not round intermediate calculations. Round the final answer to nearest dollar amounts.)