Of all the times this hard drive could crash, it had to be now, ” Marcy cried. “How can I finish the June financial reports without all the information? I knew I should have backed up the disk last night before I left work.” News of the disaster traveled quickly through the office, and people began to stop by her cubicle to offer their help.

     John was the first to the rescue. “It might not be as bad as you think, Marcy. I have the financial reports from May right here. According to the balance sheet, we had a total inventory of $99,000 at the end of May. And I remember that the Finished Goods Inventory was one-third of that amount.”

     “I just finished the inventory counts last night,” Peter chimed in from across the hall. “According to my tally sheets, we finished June with $80,000 in Direct Materials Inventory, $52,000 in Work in Process Inventory, and $25,000 in Finished Goods Inventory. This was a 100% increase from the balances in Direct Materials Inventory and Work in Process Inventory at the end of May. I bet with a little more investigative work, we can get all the numbers you need to complete the reports.”

     Sally called from Payroll to tell Marcy that the company had paid a total of $36,000 for direct labor during June. Juan, the billing supervisor, e-mailed Marcy that the company had sent out invoices to customers totaling $291,000.

     Marcy knew that the overhead rate was 200% of direct labor costs. She also knew that the company priced its product using a 50% markup on the cost of goods sold. Armed with all this information, she sat down to reconstruct the inventory accounts for June.

1. Begininng finished goods:

2. Beginning direct materials:

3. Beginning work in process:

4. Cost of goods sold:

5. Cost of goods manufactured

6. Direct material used:

7. Purchases:

8. Direct labor:

9. overhead:

In 2017, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2.4 million as a result of the change and began amortizing the adjustment in 2017. In 2018, Clear received an offer to sell the assets of the radio station business (this would be considered a sale of a trade or business under §1060). If the offer is accepted, Clear plans to purchase a satellite television business. Clear has asked you to explain the consequences of the sale of the radio station on the amortization of the §481 adjustment.

Before her death, Lucy entered into the following transactions. Discuss the estate and income tax ramifications of each of these transactions.

A. Lucy borrowed $600,000 from her brother, Irwin, so that Lucy could start a business. The loan was on open account, and no interest or due date was provided for. Under applicable state law, collection on the loan was barred by the statute of limitations before Lucy died. Because the family thought that Irwin should recover his funds, the executor of the estate paid him $600,000.

B. Lucy promised her sister, Ida, a bequest of $500,000 if Ida would move in with her and care for her during an illness (which eventually proved to be terminal). Lucy never kept her promise, as her will was silent on any bequest to Ida. After Lucy’s death, Ida sued the estate and eventually recovered $600,000 for breach of contract.

C. Before her death, Lucy incurred and paid certain medical expenses but did not have the opportunity to file a claim for recovery from her insurance company. After her death, the claim was filed by Lucy’s executor, and the reimbursement was paid to the estate.

3. A partially completed pension spreadsheet showing the relationships among the elements that constitute Carney, Inc.’s defined benefit pension plan follows. At the end of 2018, Carney revised its pension formula and incurred a prior service cost of $100 million. At the end of 2019, the pension formula was amended again, creating an additional prior service cost of $200 million. At the beginning of 2020, $400 million prior service cost was incurred. At the beginning of 2021, $300 million prior service cost was incurred. In 2018 - 2021, the actuary’s discount rate remained 10%, and the average remaining service life of the active employee group remained 10 years. The expected rate of return on assets was 10% in 2019, and increased by 1% each year.

1. Fill in blanks in the 2021 pension spreadsheet.

2020 Spreadsheet

1. Company A is operating at full capacity, sold 45,600 units during the current year. Its income statement is as follows:

The division of costs between variable and fixed is as follows: (round to nearest dollar)

Management is planning to increase the unit sales price by $3 each, no change to the variable cost, but adding additional fixed cost of $25,000.

1. a. Determine the total variable costs and b. the total fixed costs for the current year.
2. a. Compute the break-even sales units and b. dollar sales for the current year. (round to nearest unit/dollar)
3. a. Compute the break-even sales units and b. dollar sales under the proposed program for the following year. (round to nearest unit/dollar)
4. How many units would have to be sold, under the proposed program, to generate income from operations of $965,500 (round to nearest unit).

A partially completed pension spreadsheet showing the relationships among the elements that constitute Carney, Inc.’s defined benefit pension plan follows. At the end of 2018, Carney revised its pension formula and incurred a prior service cost of $100 million. At the end of 2019, the pension formula was amended again, creating an additional prior service cost of $200 million. At the beginning of 2020, $400 million prior service cost was incurred. At the beginning of 2021, $300 million prior service cost was incurred. In 2018 - 2021, the actuary’s discount rate remained 10%, and the average remaining service life of the active employee group remained 10 years. The expected rate of return on assets was 10% in 2019, and increased by 1% each year.

1. Prepare all the necessary journal entries for 2019.

Fred currently earns $9,000 per month. Fred has been offered the chance to transfer for three to five years to an overseas affiliate. His employer is willing to pay Fred $10,000 per month if he accepts the assignment. Assume that the maximum foreign-earned income exclusion for next year is $104,100.

a-1. How much U.S. gross income will Fred report if he accepts the assignment abroad on January 1 of next year and works overseas for the entire year?

a-2. If Fred’s employer also provides him free housing abroad (cost of $20,000), how much of the $20,000 is excludable from Fred’s income?

b. Suppose that Fred's employer has offered Fred a six-month overseas assignment beginning on January 1 of next year. How much U.S. gross income will Fred report next year if he accepts the six-month assignment abroad and returns home on July 1 of next year?

c-1. Suppose that Fred’s employer offers Fred a permanent overseas assignment beginning on March 1 of next year. How much U.S. gross income will Fred report next year if he accepts the permanent assignment abroad? Assume that Fred will be abroad for 305 days out of 365 days next year. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

c-2. If Fred’s employer also provides him free housing abroad (cost of $16,000 next year), how much of the $16,000 is excludable from Fred’s income? Assume that Fred will be abroad for 305 days out of 365 days next year. (Use 365 days in a year. Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

7 Simple Steps to Corporate Fraud Prevention: A Case Study

Evidence of internal theft shines a bright light in the rear-view mirror. Posted by Chris Hamilton on September 6th, 2012

The shock when a victim discovers that a trusted employee – and even a friend – has stolen from him or her is absolute. It’s a feeling of betrayal and violation that strikes fear in some, grief in others and anger in most.

In my experience, it is almost always accompanied by a sense that the victim should have known it was going on. The evidence of theft sheds a bright light in the rear-view mirror. Patterns and circumstances take on a clarity that contemporaneous experience obscured. Sometimes the clarity was there but for a variety of reasons it was ignored.

A Case Study

The internal fraud was revealed, he felt stupid for allowing it to happen and the lesson cost him several hundred thousands of dollars in uninsured losses.

A victim uncovered theft when his bookkeeper unexpectedly missed a few days of work and he opened a bank statement. The simple act of thumbing through cancelled checks from one month’s bank statement prompted a phone call to his attorney who directed him to a forensic accountant. The internal fraud was revealed, he felt stupid for allowing it to happen and the lesson cost him several hundred thousands of dollars in uninsured losses.

The forensic accountant uncovered evidence of a simple but effective embezzlement scheme. The bookkeeper had set up vendors that were very similar to existing real vendors. For example, if the real vendor was ABC Service Company then a fake vendor was established called ABC Service Co. The bookkeeper set up bank accounts for the fake vendors. That was the hard part. The rest was easy. The business owner signed hundreds of checks to the fake vendors thinking the checks went to legitimate business activity.

Since that worked so well, the bookkeeper began forging checks to pay the vendors, personal expenses, and provide cash gifts to family and friends. And, since all that worked without detection by the business owner, the bookkeeper took an unauthorized increase in salary.

It was bold. It was also easily discovered and should have been easily prevented. The bookkeeper was quickly arrested and has spent time in jail.

Fraud Prevention 101

The following are fraud prevention steps that were ignored and could have prevented the theft:

1. Know your employee. In this particular case the business owner recounted that he knew the prior employer of the bookkeeper well. He was aware that the bookkeeper had left the prior employer on less than positive terms but figured it was none of his business and hired the bookkeeper because of knowledge of the industry. A phone call to the prior employer/friend after the embezzlement was discovered revealed that the bookkeeper was probably stealing from the current employer to pay off a judgment obtained by the prior employer to recover embezzled funds.
2. Do a background check. Embezzlers tend to be repeat offenders. This is an obvious follow-up to the prior point. A simple background check is not expensive, is easy to do and, in this case, would have prevented a bad hiring decision. It would have confirmed the ill-at-ease feeling the employer had at the time of hiring.
3. Open your own mail. Let the bookkeeper do the bookkeeping. You cannot abdicate other important (and seemingly unimportant) functions because the clerk is always around and does his or her job well. Vendor communications, bank statements, and bills from vendors and suppliers are important sources of information.
4. Separate functions and duties. Many small business owners are so busy that they tend to overlook common sense when assigning work. In this case a bookkeeper was eventually given the responsibility for answering the phones, opening all the mail, writing checks, making deposits, preparing invoices, reconciling the bank statements, and preparing the financial reporting provided to the business owner and his outside tax preparer. As noted above, simply opening the mail would have prevented some of the problems – or would have caught it a lot earlier.
5. Don’t accept bad answers to good questions. When the forensic accountant arrived on the scene, the business owner requested a report showing payments to all vendors. The bookkeeper had previously argued that it was difficult to put such a report together, would take a long time, and would not be correct. The accountant produced the report in about 90 seconds. The business owner was shocked – and the point was made. His bookkeeper, for a long time, had prevented him from seeing the very report that exposed the whole scheme.
6. Force vacations. Nobody else had access to the bookkeepers work for more than two years. Any other eyes on the accounting records would have exposed everything.
7. Acknowledge your instinct. If the lifestyle of the employee exceeds what you know about their legitimate compensation there is good reason to look harder. If the bookkeeper can’t produce simple reports from “the books” they are keeping there is a problem. If you feel like you are working for the bookkeeper rather than them working for you, something is wrong. If it feels like the business is doing better than ever but there isn’t any cash find out why.

All of the steps above were recognized by the business owner in this case: “I knew something wasn’t right. I should have known this was happening.” That is never good after the fact.

Please let us know whether you agree or disagree with the article below

Waterloo Co. sells product P-14 at a price of $48 a unit. The per-unit cost data are direct materials $15, direct labour $10, and overhead $12 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 40,000 units, but at a discount of 10% from the regular price. Selling costs associated with this order would be $3 per unit. There are no selling costs on its regular orders.

a) Should Waterloo Co. should accept the special order? Show your calculations.

b) Assume the same information as part a) except that Waterloo has no excess capacity. Indicate the net income (loss) that Waterloo would realize by accepting the special order.

c) Assume the information in part b) except that the company could rent the special purpose machine that is required for this order for $100,000. This would allow the company to fulfill its regular orders and this special order on a one time basis.

1. Should the company go ahead and rent this machine and accept the special order?

2. What is the highest price the company can afford to pay to rent the machine to be indifferent as to whether to accept the special order or not. d) List two qualitative considerations that management should consider in deciding whether to accept this offer beyond its immediate impact on profits.

d. List two qualitative considerations that management should consider in deciding whether to accept this offer beyond its immediate impact on profits.

Towing Company employs a periodic inventory system and sells its inventory
to customers for $34 per unit. Towing Company had the following inventory
information available for the month of May:

May 1    Beginning inventory 2,200 units @ $17 cost per unit
May 8    Sold 1,700 units
May 13   Purchased 1,800 units @ $13 cost per unit
May 18   Sold 1,600 units
May 21   Purchased 1,300 units @ $23 cost per unit
May 22   Purchased 1,100 units @ $15 cost per unit 
May 28   Sold 1,300 units
May 30   Purchased 1,600 units @ $10 cost per unit

During May, Towing Company reported operating expenses of $49,000 and had
an income tax rate of 32%.

Calculate the dollar amount of ending inventory shown on Towing Company's
May 31 balance sheet using the weighted average method.

The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for the coming year:

The company allocates service department costs to other departments in the order listed below.

Machining and Assembly are operating departments; the other departments are service departments. Factory Administration is allocated based on labor-hours; Custodial Services based on square feet occupied; Personnel based on number of employees; and Maintenance based on machine-hours.

Required:

1. Allocate service department costs to consuming departments by the step-down method. Then compute predetermined overhead rates in the operating departments using machine-hours as the allocation base in Machining and direct labor-hours as the allocation base in Assembly.

2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in Machining and Assembly.

3. Assume that the company doesn’t bother with allocating service department costs but simply computes a single plantwide overhead rate that divides the total overhead costs (both service department and operating department costs) by the total direct labor-hours. Compute the plantwide overhead rate.

4. Suppose a job requires machine and labor time as follows:

Using the overhead rates computed in (1), (2), and (3) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step-down method, the direct method, and the plantwide method.

The advent of Corporate Governance & Compliance and business ethics represented a major change in the way that senior leadership manages corporate operations. Since the Sarbanes-Oxley Act (SOX) in 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and other legislation have been enacted there is a concerted effort to bring transparency, accountability, and ethical behavior back into the market place. Discuss the effects these laws and regulations involving Corporate Governance, Corporate Compliance and business ethics activities on: corporate leadership, stockholders and stakeholders in the corporation and our economy. (Please type answer)

Please visit www.irs.gov and answer the following: 1) What percentage of bankruptcy petitions does the IRS estimate contain some kind of fraud? 2) What are the major goals of the CI division’s bankruptcy fraud program? 3) Read two or three examples of bankruptcy fraud and discuss.

Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows:    

Suppose that Ironwood has been approached about producing a special order for 2,800 units of custom CV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the league’s signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $49.00 per unit in the special order. Additional costs for the special order total $3.00 per unit for mixing the special frame color and purchasing the emblem with the league’s logo that will be attached to the glasses.  

Required:
1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order.



2-a. Calculate the current contribution margin per unit. (Round your answer to 2 decimal places.)



2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean reducing production of its regular CV model. Should Ironwood accept the special order in this case?

     

3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order. (Round your answer to 2 decimal places.)