You have been hired as a consultant for ABC Corporation which produces models X, Y, and Z. The CEO tells you that their cost system indicated that they were losing money on their highest end model, which is model X. Due to that information, ABC Corporation dropped model X the previous year. During the current year, ABC Corporation is only producing models Y and Z. However, the preliminary numbers are showing that the profit for ABC Corporation is actually lower after dropping model X and now the cost system is indicating that they are losing money on model Y even though the prices, volumes, and direct costs are the same. Explain to the CEO some of the possible reasons that dropping model X caused a reduction in profits. Also, explain some of the possible actions the company should take going forward. Would dropping model Y benefit the company in any way? Is it possible that producing a product that is unprofitable by itself actually beneficial to the company overall?  

25. Robert, who earns income and pays state tax on that income in Arizona, but resides in California, can claim a tax benefit for that tax on the California tax return. The benefit is called what?

A. A credit

B.A deduction

C.An offset

D. Gift

Information Produced by the Entity

Example 3 – Audit procedures to address audit risks related to IPE from a transaction process

Complete the following table, indicating the audit procedure that would be performed to address the identified risk.

Information Produced by the Entity (IPE)

Example 4 – Examples of IPE from an IT process

Complete the following table, indicating whether the item is an example of IPE from an IT process and explain why or why not.

Information Produced by the Entity

Example 5 – Audit risks associated with IPE from an IT process

Complete the following table, indicating which risk (by number and description) is associated with each processing error.

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) fined Wells Fargo Bank, N.A. $100 million for the widespread illegal practice of secretly opening unauthorized deposit and credit card accounts. Spurred by sales targets and compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges. According to the bank’s own analysis, employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers. Wells Fargo will pay full restitution to all victims and a $100 million fine to the CFPB’s Civil Penalty Fund. The bank will also pay an additional $35 million penalty to the Office of the Comptroller of the Currency, and another $50 million to the City and County of Los Angeles.
“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” said CFPB Director Richard Cordray. “Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed. Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”
The full text of the CFPB’s Consent Order can be found at: http://files.consumerfinance.gov/f/documents/092016_cfpb_WFBconsentorder.pdf
Wells Fargo, headquartered in Sioux Falls, S.D., is one of the biggest banks in the country and offers many consumer financial products and services, including savings and checking accounts, credit cards, debit and ATM cards, and online-banking services. In recent years, the bank has sought to distinguish itself in the marketplace as a leader in “cross selling” these products and services to existing customers who did not already have them. When cross selling is based on efforts to generate more business from existing customers based on strong customer satisfaction and excellent customer service, it is a common and accepted business practice. But here the bank had compensation incentive programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking, and the bank failed to monitor the implementation of these programs with adequate care.
According to today’s enforcement action, thousands of Wells Fargo employees illegally enrolled consumers in these products and services without their knowledge or consent in order to obtain financial compensation for meeting sales targets. The Dodd-Frank Wall Street Reform and
1
Consumer Protection Act prohibits unfair, deceptive, and abusive acts and practices. Wells Fargo’s violations include:
Opening deposit accounts and transferring funds without authorization: According to the bank’s own analysis, employees opened roughly 1.5 million deposit accounts that may not have been authorized by consumers. Employees then transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts. This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals. Consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts.
Applying for credit card accounts without authorization: According to the bank’s own analysis, Wells Fargo employees applied for roughly 565,000 credit card accounts that may not have been authorized by consumers. On those unauthorized credit cards, many consumers incurred annual fees, as well as associated finance or interest charges and other fees.
Issuing and activating debit cards without authorization: Wells Fargo employees requested and issued debit cards without consumers’ knowledge or consent, going so far as to create PINs without telling consumers.
Creating phony email addresses to enroll consumers in online-banking services: Wells Fargo employees created phony email addresses not belonging to consumers to enroll them in online-banking services without their knowledge or consent.
Enforcement Action
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. Today’s order goes back to Jan. 1, 2011. Among the things the CFPB’s order requires of Wells Fargo:
 Pay full refunds to consumers: Wells Fargo must refund all affected consumers the sum of all monthly maintenance fees, nonsufficient fund fees, overdraft charges, and other fees they paid because of the creation of the unauthorized accounts. These refunds are expected to total at least $2.5 million. Consumers are not required to take any action to get refunds to which they are entitled.
 Ensure proper sales practices: Wells Fargo must hire an independent consultant to conduct a thorough review of its procedures. Recommendations may include requiring employees to undergo ethical-sales training and reviewing the bank’s performance measurements and sales goals to make sure they are consistent with preventing improper sales practices.
 Pay a $100 million fine: Wells Fargo will pay a $100 million penalty to the CFPB’s Civil Penalty Fund. Today’s penalty is the largest the CFPB has imposed to date.

Read the above enforcement notification dated September 08, 2016, by CFPB of the action it has taken and answer the following questions:
1. Explain in your own words, the details of alleged illegal practice of opening credit card accounts on behalf of consumers without authorization
2. What would you consider to be a well-designed internal control that would have prevented such unauthorized openings by the employees of the bank? Discuss in detail. You should identify a specific internal control.
3. Discuss a detective control that could detect such unauthorized openings and alert senior management. You should identify a specific internal control.

Many CPAs have complained that lots of CEOs and CFOs consider audit service a "commodity". As a result, corporate executives don't care much about the quality of audit service, and all they want is clean opinion from any auditors at the lowest audit fee (opinion shopping). How would a CPA firm differentiate itself from other firms when the firm is approached by a CFO shopping opinion?

Disposal of Fixed Asset

Equipment acquired on January 6 at a cost of $236,000 has an estimated useful life of 9 years and an estimated residual value of $30,800.

a. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation?

YearDepreciation Expense

Year 1$

Year 2$

Year 3$

b. What was the book value of the equipment on January 1 of Year 4?
$

c. Assuming that the equipment was sold on January 3 of Year 4 for $159,200, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Jan. 3

d. Assuming that the equipment had been sold on January 3 of Year 4 for $171,000 instead of $159,200, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Jan. 3

Internet Case 20.4 – Using the SEC EDGAR Database

(MUST POST FIRST) Initial Post – As an employee, write an internal memo to your manager addressing the following:

Visit the home page of The Securities & Exchange Commission at the following address: www.sec.gov

Use EDGAR to locate the most recent 10-K by researching an automotive company of your choice on the Internet and examine its consolidated income statement.

WRITE A MEMORANDUM INCLUDING

1. In the most recent year reported, what percentage of the company’s total revenue was from financial services?

2. In the most recent year reported, what was the company’s gross profit as a percentage of automotive sales?

3. How might the company’s sales mix (e.g., trucks, cars, sport utility vehicles, etc.) influence its profitability?

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials): Selling expenses $ 212,000 Purchases of raw materials $ 261,000 Direct labor ? Administrative expenses $ 157,000 Manufacturing overhead applied to work in process $ 371,000 Actual manufacturing overhead cost $ 357,000 Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw materials $ 60,000 $ 31,000 Work in process ? $ 27,000 Finished goods $ 35,000 ? The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $750,000; the unadjusted cost of goods sold totaled $664,000; and the net operating income was $38,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold. Required: Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)

Class, describe the differences between financial and managerial accounting. Focus your post on the different type of users and how the information is used.

For this and all other Discussion questions, post an initial response (at least 200 words)

Frank is a consultant who earns $72,000 annually. His spouse, Julie is a homemaker, and they have one child, Betty. Frank is covered by $200,000 life insurance policy. The couple assumes an average annual inflation rate of 3%. How would you design a financial plan for them regarding how much life insurance they should have? NOTE no mortgage is assumed.

Frank and Julie have set the following goals and assumptions:

a. Income need (re-adjustment period 1 year) $72,000 year

b. Income need—dependency period $42,000 year

c. Income needed—empty nest period $36,000 year

d. Estate expenses and debts $15,000

e. Education funding (today’s dollars) $180,000 (4 years)

f. Emergency fund $15,000

g. Investment assets (cash/cash equivalents) $100,000

h. Julie’s life expectancy 85 years

i. Discount rate 6%

Tottenham Berhad is a trading company. The management team is concerned about the storage capacity to maintain stock levels. For the benefit of the management team, discuss about the usefulness of EOQ model and elaborate the criticisms associated to the implementation of this model.

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):

On July 1, 2021, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2021, for $116,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

In addition to the account balances above, several events occurred during 2021 that have not yet been reflected in the above accounts:

1. A fire caused $67,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
2. Inventory that had cost $57,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $8,000.
3. Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2021, showing 2020 information in comparative format, including income taxes computed at 25% and EPS disclosures assuming 800,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

Facts: Opportunity Landscaping Inc. (Opportunity) appreciated your assistance in preparing their 2018 Federal income tax return. As a result, they have come to you for advice on acquiring new facilities for their manufacturing operations. They plan to take access to their new facilities on January 2, 2020.

The corporation has the opportunity to purchase an appropriate facility in suburban Chicago for $90,000,000 ($87,000,000 for the factory building; $3,000,000 for the land). If they purchase the facility, they would finance the acquisition via a 15-year mortgage at 3.5% interest with a $18,000,000 down payment (due at closing on January 2, 2020). The mortgage would be payable annually in arrears (i.e., the first mortgage payment would be due January 2, 2021). Real property taxes on the facility in 2020 would be $1,000,000 (the property taxes are also due annually in arrears with 2020 taxes due on January 2, 2021). Further, Opportunity estimates that property taxes will increase annually at a rate of 3% in years subsequent to 2020.

As an alternative, a local real estate investor has offered to purchase the facility and lease it to the corporation. The investor would require Opportunity to sign a 7-year non-cancelable lease. The first lease payment of $3,700,000 would be due on January 2, 2020. Lease payments will increase by 4% each year during the term of the lease with the final lease payment due on January 2, 2026. In addition, the lease would require a refundable deposit of $1,850,000 (payment due on January 2, 2020) against significant damages to the facility; this deposit will be refunded to the corporation on January 2, 2027 (when the occupancy ends and assuming that there are no significant damages).

Opportunity must decide whether to lease or buy the facility. In order to make a proper decision, the corporation will assume that it could sell the facility (building and land) on January 2, 2027 for $100,000,000. Under this scenario, they would make their final mortgage and property tax payments on January 2, 2027 and then sell the facility.

Opportunity’s Federal corporate tax rate is 21% and it uses a 7% discount rate to compute the present value of its future cash flows. For purposes of this analysis, assume that all cash flows occur at the beginning of the respective year.

Required:

1. Based on the above facts, which option (lease or buy) minimizes Opportunity’s after-tax cost of obtaining the facility?

2. The local real estate investor has provided an option for Opportunity to consider. Under this option, a payment of $12,000,000 is due on January 2, 2020. If this payment is made, no deposit is required and the payment is deemed to cover the first three years of the lease. On January 2, 2023, lease payments resume with a $4,000,000 lease payment due (and a 4% increase in the lease payment each year for the remainder of the lease term). Is this an alternative that Opportunity should consider? Read and apply the materials in text Section 6-2d as part of your analysis.

3. Opportunity’s CFO is not certain that the current 21% Federal tax rate will be maintained over the next seven years. She feels that an increase in the Federal rate to around 30% is likely at some point in the near term. As a result, she would like to know how your analysis would be affected if the Federal income tax rate increased to 30% on January 1, 2025.

I have calculated and found that the NPV for the lease option is ($19,516,098). I have also used the PMT function on excel and found that the annual mortgage payments are $6,251,405 (15 years; $72 million; 3.5% interest rate). I need help computing the NPV for the buy option in order to decide which option is best.