Audit Risk Model- Example 1

You are assigned to conduct the audit procedures for the inventory account at Tech Toys, a public company in the technology industry that sells the latest technology for fitness watches. Inventory obsolescence and the product’s susceptibility to theft is a business risk that management has identified for its inventory.  As part of your procedures you have to evaluate the overall risk assessment for the inventory account using the audit risk model.  Your team has decided that the acceptable level of overall audit risk for this account is Very Low or Low.  

You perform a walkthrough of Tech Toys’ process for its inventory, which includes internal controls surrounding the existence, completeness, and valuation of inventory.  Based on your walkthrough and test of control procedures, you find that Tech Toys has inadequate internal controls in place surrounding its inventory processes.

Given the above, what is the assigned level of risk (low, moderate, or high) for each of the components of the audit risk model that will enable a Very Low or Low level of audit risk for the inventory account? Briefly describe your judgment regarding the level of risk for each component.  What does your assessment for each of the components of the Audit Risk Model indicate about the nature, timing, and extent of substantive procedures that will be performed?

Audit Risk Model- Example 2

Assume instead that based on your walkthrough and test of control procedures, you find that Tech Toys has adequate internal controls in place surrounding its inventory processes.  How does this change your assessment?

Wanting to finalize a sale before year-end, on December 29, WR Outfitters sold to Bob a warehouse and the land for $213,000. The appraised fair market value of the warehouse was $101,250, and the appraised value of the land was $119,250. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

a. What is Bob’s basis in the warehouse and in the land?

b. What would be Bob’s basis in the warehouse and in the land if the appraised value of the warehouse is $76,250, and the appraised value of the land is $144,250?

c. Which appraisal would Bob likely prefer?

1. Kipley Company is a small manufacturing firm located in Pittsburgh, Pennsylvania. The company has a workforce of both hourly and salaried employees. Each employee is paid for hours actually worked during each week, with the time worked being recorded in quarter-hour increments. The standard workweek consists of 40 hours, with all employees being paid time and one-half for any hours worked beyond the 40 regular hours.

   Wages are paid every Friday, with one week's pay being held back by the company. Assume that the first payday for Kipley Company is January 14 for the workweek ending January 8 (Saturday).

   You are being asked to complete Kipley's Payroll Register for the pay period ending January 8, 20--. Ms. Glenda B. Robey prepares the Time Clerk's Report for each pay period. This along with the Hourly Wage / Salary Report is provided.

   Requirement:

   1. Record the regular hours and the overtime hours worked for each employee, using the time clerk's report as your reference.
   2. Complete the Regular Earnings columns (Rate per Hour and Amount) for hourly employees. For only hourly employees that worked overtime, complete the Overtime Earnings columns (Rate per Hour and Amount).
      For salaried workers, complete the Regular Earnings column and show the hourly overtime rate and earnings only if overtime was worked.
   3. Record the Total Earnings for each employee by adding the Regular Earnings and the Overtime Earnings.

   Hourly Wage / Salary Report

   Hourly Wage / Salary Report

   Kipley's Hourly Wage / Salary Report is provided below, listing each employee's assigned time card number as well as their individual hourly rate or salary.

   Time Card No.	Employee Name	Hourly Wage or Salary
   11	Fran M. Carson	$17.50		per hour
   12	William A. Wilson	17.25		per hour
   13	Harry T. Utley	18.10		per hour
   21	Lawrence R. Fife	17.90		per hour
   22	Lucy K. Smith	19.75		per hour
   31	Gretchen R. Fay	515		per week
   32	Glenda B. Robey	2,700		per month
   33	Thomas K. Schork	3,350		per month
   51	Barbara T. Hardy	2,510		per month
   99	Carson C. Kipley	52,000		per year

   Time Clerk's Report

   Time Clerk's Report

   Ms. Glenda B. Robey prepares the time clerk's report for each pay period. Her report for the first week of operations is given below.

   Note: All employees, except for Carson Kipley, are paid for hours worked beyond 40 at one and one-half times their regular hourly rate of pay.

   TIME CLERK'S REPORT NO. 1 For Period Ending January 8, 20-- Employee Time Record Time Worked* Time Lost M T W T F S 11 Fran M. Carson 8 8 8 8 8 – 40 12 William A. Wilson 8 8 8 8 8 8 48 13 Harry T. Utley 8 5½ 8 8 8 – 37½ 2½ hrs. tardy 21 Lawrence R. Fife 10 10 8 8 10 – 46 22 Lucy K. Smith 8 8 8 8 8 – 40 31 Gretchen R. Fay 8 8 8 8 8 1¼ 41¼ 32 Glenda B. Robey 8 8 8 8 8 – 40 33 Thomas K. Schork 8 8 8 8 8 – 40 51 Barbara T. Hardy 8 8 8 8 8 4 44 99 Carson C. Kipley 8 8 8 8 8 – 40

   Payroll Register

   Payroll Register

   This is the first task to completing Kipley Company's payroll register. Complete the steps outlined below:

   1. Record the regular hours and the overtime hours worked for each employee, using the time clerk's report as your reference.
   2. Complete the Regular Earnings columns (Rate per Hour and Amount) for hourly employees. For only hourly employees that worked overtime, complete the Overtime Earnings columns (Rate per Hour and Amount).
      For salaried workers, complete the Regular Earnings column and show the hourly overtime rate and earnings only if overtime was worked.
   3. Record the Total Earnings for each employee by adding the Regular Earnings and the Overtime Earnings.

   If an amount box does not require an entry, leave it blank or enter "0". If required, round your intermediate calculations to the nearest cent and use the rounded amounts in subsequent computations. Round fraction values to the nearest two decimal places, e.g. 1 1/2 to 1.50.

   KIPLEY COMPANY, INC. Employee Payroll Register For Period Ending January 8, 20 --
   				Regular Earnings			Overtime Earnings
   Time Card No.	Name	Marital Status	No.W/H Allow.	Hours Worked	Rate per Hour	Amount	Hours Worked	Rate per Hour	Amount	Total Earnings
   11	Carson, F.	S	1		$	$		$	$	$
   12	Wilson, W.	S	0
   13	Utley, H.	M	2
   21	Fife, L.	M	4
   22	Smith, L.	S	2
   31	Fay, G.	M	3		………
   32	Robey, G.	M	6		………
   33	Schork, T.	S	1		………
   51	Hardy, B.	M	5		………
   99	Kipley, C.	M	7		………
   Totals						$	………	………	$	$

Check My Work

On the basis of your research and findings your paper should address the following: Do a cost-benefit analysis of the selected healthcare organization. Explain your analysis of the cost-benefit ratio and how it helps an organization. Explain the impact of the cost-benefit ratio on recruitment and retention strategies of a healthcare organization. Outline ways to improve the cost-benefit ratio of the selected healthcare organization. Explain the role of HRM in ensuring the most competitive compensation package for employees. Describe methods of improving the compensation package of the selected healthcare organization. Explain how your recommendations could enhance recruitment and retention strategies of the organization. Discuss how you would address competitive compensation, benefits packages, career development, and succession planning in working towards the selected healthcare organization's strategic goals.

Ratios from Comparative and Common-Size Data
Consider the following financial statements for Waverly Company. During 2013, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months.
As a holder of both common and preferred stock, you decide to analyze the financial statements:

Required
a. Calculate the following for each year: current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $78,000,000 at January 1, 2012), inventory turnover (inventory was $87,000,000 at January 1, 2012), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $493,000,000 at January 1, 2012), and return on common stockholders' equity (common stockholders' equity was $236,000,000 at January 1, 2012).
b. Calculate common-size percentages for each year's income statement.

Round answers to two decimal places.

Round answers to one decimal place.

Enlighten on how can one conduct sensitivity analysis by using CVP analysis, what is the relevance in managerial decision making?

Exercise 4-13 At December 31, 2016, Grouper Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 107,710 shares $10,771,000 Common stock, $5 par, 4,024,000 shares 20,120,000 During 2017, Grouper did not issue any additional common stock. The following also occurred during 2017. Income from continuing operations before taxes $21,850,000 Discontinued operations (loss before taxes) $3,295,000 Preferred dividends declared $1,077,100 Common dividends declared $2,380,000 Effective tax rate 35 % Compute earnings per share data as it should appear in the 2017 income statement of Grouper Corporation. (Round answers to 2 decimal places, e.g. 1.48.)

The following balance sheet, which has some weaknesses in terminology and classification, has been prepared by an inexperienced accountant and submitted to you for review:

Required:
Prepare a classified balance sheet in proper form. Make any necessary corrections.

(1)        The standard costs of wooden ducks on wheels, for the CURRENT year, for 5 mm board and for cutting are as follows:-

            5 mm board: 0.2 sq. metre at £4.50 per sq. metre.

            Cutters: 1.5 minutes at £7.20 per hour.

In the most recent period, 120 wooden ducks on wheels were produced.

25 sq. metres of 5 mm board were requisitioned from stores at a total cost of £110.

            2.75 hours were recorded for cutters at a total cost of £22.

            Required

(a)        Calculate the material price variance and material usage variance for 5 mm board

(ii)        Calculate the wage rate variance and labour efficiency variance for cutters

Suggest possible reasons for the variances calculated.

(2)        Given standard cost per unit:

            Direct materials (4 kg. @ 75p per kg)

            Direct labour (2 hrs @ £1.60 per hr)

            Actual details are:

            Calculate:        Material and labour variances.

1.Carlson, a citizen and resident of Denmark, is a commodities dealer operating in Copenhagen. During the tax year, Carlson, by e-mail from her home office, purchased several carloads of wheat. She took title to the wheat in Minneapolis. The wheat was sold to the government of India, FOB New York City, where the wheat was placed aboard a Liberian flag vessel. Carlson has never been to the United States. While she has occasionally purchased U.S. commodities in the past, this is her sole transaction in the United States during the current year. Does she have any potential U.S. income tax liability? 5. Rosario, a corporation organized in Argentina, sells consumer products to retailers in the main cities of that country. Rosario has no office in the United States.

2.Rosario sales representatives in Argentina send orders to a purchasing agent in New York. The purchasing agent purchases the products from U.S. manufacturers in Rosario’s name. The products are shipped to Miami and delivered to vessels bound for Argentina. Orders are accepted in Argentina. Title to the goods is transferred to customers at the port of destination. However, the customers have agreed contractually to insure against all losses attributable to shipwreck, fire and accident while the goods are in transit. The Argentine customers make payment to an account maintained by Rosario in Switzerland. Does Rosario have any liability for U.S. taxes? Would your answer differ if the purchasing agent is properly characterized as an “independent agent”?

eBookCalculator Effect of Proposals on Divisional Performance A condensed income statement for the Jet Ski Division of Amazing Rides Inc. for the year ended December 31, 20Y2, is as follows: Sales $3,720,000 Cost of goods sold (2,666,600) Gross profit $ 1,053,400 Operating expenses (607,000) Operating income $ 446,400 Invested assets $3,100,000 Assume that the Jet Ski Division received no charges from service departments. The president of Amazing Rides has indicated that the division’s rate of return on a $3,100,000 investment must be increased to at least 16.8% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $620,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by $111,600. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $409,200. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,550,000 for the year. Proposal 3: Reduce invested assets by discontinuing the tandem jet ski line. This action would eliminate sales of $658,800, cost of goods sold of $440,200, and operating expenses of $193,800. Assets of $1,569,500 would be transferred to other divisions at no gain or loss. Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Jet Ski Division for the past year. For investment turnover and ROI, round to one decimal place. Jet Ski Division Profit margin % Investment turnover ROI % Feedback 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Amazing Rides Inc.-Jet Ski Division Estimated Income Statements For the Year Ended December 31, 20Y2 Proposal 1 Proposal 2 Proposal 3 Sales $ $ $ Cost of goods sold Gross profit $ $ $ Operating expenses Operating income $ $ $ Invested assets $ $ $ Feedback 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. Profit margin Investment turnover ROI Proposal 1: % % Proposal 2: % % Proposal 3: % % 4. Select whether each of the three proposals would meet the required 16.8% return on investment. Proposal 1: No Proposal 2: Yes Proposal 3: Yes 5. If the Jet Ski Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 16.8% return on investment? Round intermediate calculations to two decimal places and your final answer to one decimal place. %

Choi Company manufactures two skin care lotions, Smooth Skin and Silken Skin, from a joint process. The joint costs incurred are $430,000 for a standard production run that generates 200,000 pints of Smooth Skin and 170,000 pints of Silken Skin. Smooth Skin sells for $4.00 per pint, while Silken Skin sells for $5.20 per pint. (Do not round intermediate calculations. Round final answers to nearest whole dollar amounts.)

Required: 1. Assuming that both products are sold at the split-off point, how much of the joint cost of each production run is allocated to Smooth Skin using the relative sales value method?

2. If no separable costs are incurred after the split-off point, how much of the joint cost of each production run is allocated to Silken Skin using the physical measure method?

3. If separable processing costs beyond the split-off point are $1.40 per pint for Smooth Skin and $1.40 per pint for Silken Skin, how much of the joint cost of each production run is allocated to Silken Skin using a net realizable value method?

4. If separable processing costs beyond the split-off point are $1.40 per pint for Smooth Skin and $1.40 per pint for Silken Skin, how much of the joint cost of each production run is allocated to Smooth Skin using a physical measure method?

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

Caiman Distribution Partners is the Brazilian distribution company of a U.S. consumer products firm. Inflation in Brazil has made bidding and budgeting difficult for marketing managers trying to penetrate some of the country's rural regions. The company expects to distribute 450,000 cases of products in Brazil next month. The controller has classified operating costs (excluding costs of the distributed product) as follows:

Although overhead costs were related to revenues throughout the company, the experience in Brazil suggested to the managers that they should incorporate information from a published index of Brazilian prices in the distribution sector to forecast overhead in a manner more likely to capture the economics of the business.

Following instructions from the corporate offices, the controller's office in Brazil collected the following information for monthly operations from last year:

These data are considered representative for both past and future operations in Brazil.

Determine the variable cost per case assuming that 450,000 cases will be shipped next month based on the controller's analysis of accounts. (round your answer to 2 decimal places).

VARIABLE COST PER CASE _______?_____

Prepare an estimate of operating costs

ESTIMATE OF OPERATING COST _________?_________

Use the high-low method to compute an estimate of operating costs assuming that,450,000 cases will be shipped next month. (Round variable cost to 5 decimal places. Round
intermediate calculations and final answer to the nearest whole dollar amount).

ESTIMATE OF OPERATING COST    _____?__________

Enter the regression coefficients. (Round "Cases" to 5 decimal places.)

INTERCEPT _____?______
CASES ____?_______

Compute the estimation of operating costs assuming that 450,000 cases will be shipped next month by using the results of a simple regression
of operating costs on cases shipped. (Round variable costs per unit to 5 decimal places. Round the intercept and final answer to the nearest
whole dollar amount)

ESTIMATE OF OPERATING COST    _____?___________

Enter the regression coefficients. (Round "Cases" to 5 decimal places and "Price Index" to 5 decimal places.)

INTERCEPT    _______?__________
CASES    _______?__________
PRICE INDEX _________?________

Compute the estimation of operating costs assuming that 450,000 cases will be shipped next month by using the results of a multiple regression
of operating costs on cases shipped and the price level. Assume a price level of 146 for next month. (Round "Cases" and "Price Index" to 5 decimals
places. Round the final answer to the nearest whole dollar amount.

ESTIMATE OF OPERATING COST    ________?______________

Question 6: The following selected information is from Imagine Corporation’s partial aging schedule at the end of August:

Number of Days Outstanding:   Accounts Receivable:   Estimated Percentage Uncollectible: Estimated Uncollectible Accounts

0-30 days $280, 000 1%

31-60 days $90,000 3%

61-90 days $45,000 10%

Over 90 days $18,000 15%

Total: $433,000

The unadjusted balance in Allowance for Doubtful Accounts is a debit of $4,300.

Required

(a) Complete the aging schedule and calculate the total estimated uncollectible accounts from the above information.

(b) Prepare the adjusting journal entry to record the bad debts for the month using the information determined in part (a)

(c) In September, management determined that $4,200 of the outstanding receivables were uncollectible. Prepare the journal entry to write off the uncollectible amount.

(d) Imagine Corporation subsequently collected $2,300 of the $4,200 that was determined to be uncollectible in part (c). Prepare the journal entry(ies) to record the collection.