An investment center manager: Select one: a. does not have the ability to produce revenue. b. may be the manager who oversees the operations of a retail store. c. often oversees divisional operations. d. may be involved with the sale of new marketing programs to clients. e. would normally be held accountable for producing an adequate return on invested capital.

1) Making rent payments in advance is an example of a(n):

A) Accrued revenue.

B) Accrued expense.

C) Deferred revenue.

D) Prepaid expense.

2) A company purchased $270,000 in supplies during the year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. For what amount was the adjusting entry to supplies expense?

A) $300,000.

B) $280,000.

C) $260,000.

D) $240,000.

In Question 18, our authors focus on the Revenue Recognition and Matching Principles to distinguish between the Income Statement and the Cash Flow Statement. Is there another way to think of the Cash Flow Statement? What type of statement might it be? Think about the two different bases of Accounting (cash vs accrual).

The other day a CPA friend of mine received a subpoena from the Alabama Revenue Department. The criminal investigation subpoena asked the CPA to produce his entire tax return files for a particular individual filer for the last three years. The CPA knew that this individual had taken some deductions and tax positions that were more likely than not to be disallowed but he though that they had say a 25% chance of being upheld. The CPA remembered that he did not get paid for doing this person's taxes last year but he has a history of being slow to pay.  Just never this slow before. Some of the things in the CPAs file might be embarrassing to the individual because the CPA advised the individual of the riskiness of some of his tax positions. Also, the CPA had up charged this individual a higher fee because of his slow payment history and because the CPA also had some risk on the tax positions taken. The subpoena says that if the CPA produced the requester a copy of the records by a certain date, (now 2 weeks away) then the CPA did not have to show up and testify. What are the CPAs ethical responsibilities and what actions should he/she take?

How do you forecast earnings for a company. Example: Revenue for Google was $156,562,000 in year 1, $164,251,000 in year 2, and $166,251,000 in year 3. Forecast years 4, 5, and 6. How would you do that? Also, would it be the same way for all forcasting on Balance sheet and Income Statement items?

Please list three tests of internal controls for each of the following: Revenue and cash receipts. Why do you think these controls are important?

Metro Bus Company had $400,000 of revenue and $401,000 of expense (including depreciation) for the current year resulting in a $1,000 net loss. All revenues were received in cash. All expenses were paid in cash, except for depreciation of $181,000. At the end of the year, the Balance Sheet shows $225,000 of Cash and $1,775,000 of other assets. The Company has no debt and all of the busses are modern - there is no plan to purchase more busses. Although there is sufficient Retained Earnings and they historically have paid dividends of $25,000, Management has decided against paying a dividend to stockholders in the current year. Instead, they issue a statement to their stockholders, explaining that "with a $1,000 net loss, Management feels there is insufficient cash for the dividend."

What is the Company's cash flow? What is the difference between cash flow and net income? Evaluate the accuracy of Management's statement: "with a $1,000 net loss, Management feels there is insufficient cash for the dividend." Evaluate the plan to skip the dividend. How would your response change if the stockholders were (a) common stockholders, (b) non-cumulative preferred, or (c) cumulative preferred?

Taxes: The Internal Revenue Service reports that the mean federal income tax paid in the year

2010

was

$8040

. Assume that the standard deviation is

$4700

. The IRS plans to draw a sample of

1000

tax returns to study the effect of a new tax law.

(a) What is the probability that the sample mean tax is less than

$8000

? Round the answer to at least four decimal places.

Thome and Crede, CPAs, are preparing their service revenue (sales) budget for the coming year (2020). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.

Average hourly billing rates are auditing $85, tax $94, and consulting $105.

Prepare the service revenue (sales) budget for 2020 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.

we discussed revenue recognition and it's complexities.   In this weeks forum, lets continue the concept of revenue recognition.

So many frauds over time have been surrounding revenue that was either not properly earned or shifted from one period to another.

A common trick for shifting in revenue from the following year into the current year is something called stuffing the channel.   When this is done the selling company convinces the buyer to take more merchandise in the current year than they would normally want and offers them an incentive to do so.   Typically that incentive is in the form of a discount and or extended payment terms for the account receivable.  

So lets say the customer would have normally ordered 1 M units in the fourth quarter of the year.   The seller says, look, buy an extra 1 M units that you would have needed in the first quarter anyway, but buy them now and for that, we will give you a 20% discount and extent the accounts receivable terms to 90 day.   (lets assume that 90 days AR terms was not totally outside of industry standard, so while questionable ethically, not an out right fraud)

Question is, is this activity a fraudulent one, ie stuffing the channel to pull in sales.    You all know the answer. It depends, there is nothing necessarily pulling in a sale, if there is a good business reason, and offering sales prices to do so is acceptable.   But, if it is material and will create unnatural deficit in sales in the next quarter, as the customer will obviously not need more goods, it would be a problem if not disclosed.

So it may nor may not be a problem from an accounting point of view.   From a business point of view, how do you view this. As a shareholder, would you be very happy with the actions of management.   Could they have done this to get a bonus they did not deserve.   Potentially cause a fraud. What about the loss of profit on the sale.   Believe it or not, this behavior is not that uncommon. What do you think of the business practice.