The following figure shows the yield curve on November 11, 2006. Your mother asks you to explain this yield curve. She suspects something is wrong but is not sure. What do you tell her? And what explanations do you have for why her suspicions are right?

Figure: The Yield Curve, November 11, 2006

The Clarke Co. acquired a machine on May 1, 2006, at a cost of $60,000. The machine is expected to have a ten-year life and a residual value of $5,000. The estimated lifetime output from the machine is expected to be 55,000 units. Under which of the following depreciation methods would the depreciation charge be the greatest in 2006, if 9,100 units were produced in that year?

On January 1st 2001, Patterson Inc. issued bonds with a total face value of $4,000,000 (4 million), a 9% coupon rate and a life of 12 years. The market rate of interest for these bonds is 10% per year on the date of issue. The coupon payment is made annually on December 31. (a) What is the bond payable balance that Patterson should report on its balance sheet dated January 1st 2002? (b) What is the interest expense that Patterson should report on its calendar year 2002 income statement? (c) On January 1st 2006 Patterson buys back from the market 30% of the bonds that it had issued i.e. it buys back bonds with a face value of 1.2 million. The market rate of interest on January 1st 2006 for Patterson’s bonds is 12% per year. Prepare the journal entry that Patterson should record on January 1st 2006. (d) What is the amount of interest expense that Patterson should report on its 2006 income statement?

Prepare the journal entries for the transactions below:

Credit terms for all sales on account are 2/10, n/30. Huff Fitness uses a perpetual inventory system and therefore records the cost of merchandise sold as well as the sale.

Apr 2     Received a check for $14,406.00 from Extreme Fitness Club in payment of our invoice of March 27 for $14,700 less discount.

Apr 2     Issued Check # 2202 for $6,720.00 to Harvey Insurance Company as a prepayment of insurance for a 12-month policy.

Apr 3     Issued check #2203 for $46,480.00 to Fitness Network in payment of its invoice of March 27 (no discount).

Apr 3     Sold merchandise on account, Invoice 302, to Day & Night Fitness Centers for $12,162.50. COGS is $7,784.00.

Many publicly listed companies include some segment information in their annual report. Usually this information can found in their forms 10-K under Item 6: Selected Financial Data and Item 7: Management's Discussion and Analysis. Please pick any company of your choice, find their most recent form 10-K on the internet and summarize the type of segment data they publish. Also provide us with the most important findings you discovered when reading the segment information of your company.

AC. U3

INFO

Fraud is the intentional deceit or trickery that results in a misstatement of the financial statements. Management is responsible for taking steps to reduce the risk of fraud. After quite a few instances of fraud in many large, publicly owned companies in recent years, a number of accounting reforms have been put into place to safeguard against fraud. One major change was the Sarbanes-Oxley Act (SOX) of 2002.

SOX included a set of reforms that toughened penalties for corporate fraud, restricted the types of consulting that CPAs can perform for audit clients, and created the Public Company Accounting Oversight Board (PCAOB). SOX requires publicly traded companies to strictly follow government policies and procedures.

Since cash is the most liquid of all assets, it needs to be safeguarded. Both large and small companies are susceptible to fraud and other unethical activities without proper controls are in place. Managers and business owners can protect against fraud by using an internal control system to protect their assets. An effective control system can also help businesses to conduct reliable accounting, operate efficiently, and encourage employees to follow company policies.

To ensure that the internal controls implemented around cash are designed properly, there should be a segregation of duties:

Recordkeeping

Custody

Authorization

Reconciliation

In an ideal situation, there should be one individual assigned the responsibility of only one component. The record keeping function of an asset should be separated from the custody of an asset. In addition, the individual responsible for authorizing a transaction related to cash should not be the same person that has custody of the cash or performs the recordkeeping. Furthermore, reconciliations should be completed by different individuals to ensure that the internal controls are working effectively. This includes doing physical audits, checks, reviews of internal control procedures that are in place to catch errors in time and to avoid fraud.

QUESTIONS

Now that you understand segregation of employee duties, imagine you own a small retail business and employ four employees. Prepare a one to two-page report in which you respond to the following questions. If you use any additional resources, use APA style for your citations.

Identify the type of company you own and briefly describe the nature of your business. Perhaps you sell shoes, clothing, furniture, or computers. You might own a restaurant or a small drug store or small walk-in health clinic.

Identify at least two kinds of internal control procedures that you can implement to protect your cash.

How would you protect the cash in your vault?

How would you protect the cash in your cash register?

How would you protect the cash in your bank account?

How can internal controls help to protect your cash receipts and disbursements?

How can you use technology to implement an effective internal control system to help your business? Explain your answer.

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.40 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:

The total cost of operating the company for the year is $354,000 which includes the following costs:

Resource consumption is distributed across the activities as follows:

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required:

1. Prepare the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. The company recently completed a 200 square foot carpet-cleaning job at the Flying N Ranch—a 51-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.

4. The revenue from the Flying N Ranch was $44.80 (200 square feet @ $22.40 per hundred square feet). Calculate the customer margin earned on this job.

Since the computer hard drive was invented in 1956, a con- stantly increasing data storage capacity has been available at an ever-decreasing cost. Use the historical data of hard drive capacities and prices shown in Figure 3-29 (or download the Excel file named CH03Ex01). Modify the spreadsheet so that it includes a new column containing formulas that calculate a common measure of disk size (GB) and a second new column that computes the cost per GB for each year. (Recall 1 gigabyte = 1,024 megabytes; 1 terabyte = 1,024 gigabytes.) Now, create one line graph to show the cost per gigabyte from the period 1995 to 2016. Create a second line graph to show changes in the size of hard disks across the same period. (Tip: Use the “Hide” function to cover the columns you don’t need for each graph.) Write a brief summary of the trends you found. What factors have contributed to these trends? What are the implications of these trends? 1980 26 MB $5,000 1981 63 MB $2,895 1983 20 MB $3,495 1984 20 MB $2,399 1987 40 MB $1,799 1989 20 MB $899 1995 1.7 GB $1,499 1996 3.2 GB $469 1997 7.0 GB $670 1998 8.4 GB $382 1999 19.2 GB $512 2000 27.3 GB $375 2001 40 GB $238 2002 100 GB $230 2003 120 GB $168 2004 250 GB $250 2006 390 GB $106 2008 1 TB $200 2010 1.5 TB $220