You are the auditor from a CPA firm who each year audits a company called ABC Grocers, Inc. ABC Grocers, understandably, has a large amount of their assets tied up in Inventory. Some of their inventory is small such as candy at the check out counters, but some of it is rather large in size and dollar amount such as large amounts of meat that is waiting to be butchered. The inventory is susceptible to spoilage and theft.

During the second quarter of this fiscal year, ABC Grocers uncovered a scheme of employees' stealing produce and meats from the store and selling them at discount to friends and family. Based on their investigation these thefts had been going on for approximately two months before it was discovered.

Based on this information, evaluate which financial statement accounts are at risk of being misstated. Also, explain what you would do as the auditor to ensure that the Inventory account is valued properly and that all losses from the theft have been accounted for.

An importer from the United States who owes a Belgian company 500,000 euros payable in 30 days, anticipates that the United States dollar will depreciate in that period.

What would you recommend doing to the importer?

Buy euros now or wait for the debt due date?

What would happen to the importer's utility if, having followed his advice, the dollar appreciated instead of depreciating as the importer had anticipated?

Tutorial: Partnerships

1, Alpha Ltd is incorporated in Singapore and its shares are listed on the Singapore Stock Exchange. Alpha Ltd’s board, by which the company is managed, is comprised of Australian citizens resident in Singapore. Board meetings are held in Singapore. The company manufactures plastic toys and has factories in both Singapore and Malaysia. 30 million shares have been issued of which 51% are held by Bravo Pty. Ltd., a company incorporated in New Guinea and carrying on business as a wholesaler in Port Moresby and in Townsville. Bravo Pty. Ltd. is a wholly owned subsidiary of Charlie Ltd., a company incorporated in Australia and controlled by Australian residents.

(a)       Is Alpha Ltd an Australian resident company?

(b)       What difference would it make if:

(i)     Alpha Ltd. carried on trading activities in Australia; or

(ii)    the Board of Alpha Ltd. was accustomed to voting as suggested by Echo, an Australian resident who is the managing director of Charlie Ltd. and who has power of appointment and dismissal of Charlie Ltd’s board?

2.         NFS Pty Ltd, a resident company, had a taxable income of $10,000 last tax year on which it paid tax at the applicable company tax rate. In the current tax year it distributed the balance of that income to its shareholders franking the dividends to the greatest extent possible. Its shareholders include:

(1)       David - a resident individual;

(2)       Bravo Ltd - a resident company; and

(3)       Ethel - a non-resident individual.

Each owned 10% of NFS’s issued shares and each was entitled to 10% of any dividend NFS paid.

Required:

(a)       Calculate the amount of company tax paid by NFS Pty Ltd last tax year. (You may assume that there were no tax offsets not mentioned in the fact situation above).

(b)       Calculate the tax payable by each of Bravo Ltd, David and Ethel on the dividends they received from NFS. (Assume that David and Ethel pay tax at the top marginal tax rate. Ignore the Medicare levy.))

(c)        Explain how Bravo Ltd would have treated the franking credits that were attached to the dividend it received from NFS.

3.         A family company XYZ Pty Ltd acquired an asset (with an effective life of 10 years) on 1 July tax year 1 for $100,000 (assume after 2006). It was depreciated using the diminishing value method.

On 1 July tax year 3 it was disposed of for $120,000. That was the company’s only income generating transaction for that year.

On 30 June tax year 3 the company paid a fully franked $10,000 cash dividend to Alex, a shareholder. Alex’s other income in that year was $180,000.

Calculate:

a, the depreciation deductions for the tax years 1 and 2;

b, the company’s taxable income and income tax for tax year 3;

c, the amount of fully franked dividend the company could pay;

d, what tax Alex will have to pay on the $10,000 cash dividend he receives.              

You may assume that:

the company has no carry forward franking account balance

the company’s tax rate was 30%

the marginal rate of tax applicable to individuals with income over $180,000 is 47% (inclusive of levies)

e.         If Alex’s wife Joan held a different class of shares in the company and her other income was only $10,000, what might be your advice, to the Board of Directors on 30 June and why? Would this advice differ if she was a non-resident?

1.Which of the following statements is not true about the level of significance in a hypothesis test?

A.The larger the level of significance, the more likely you are to reject the null hypothesis

B.The level of significance is the maximum risk we are willing to accept in making a Type II error

C.The significance level determines the total size of the rejection region(s)

D.The level of significance provides the critical value(s) of the hypothesis test

2.If an economist wishes to determine whether there is evidence that average family income in a community equals $25,000

A.either a one-tailed or two-tailed test could be used with equivalent results

B.a lower-tailed test should be utilized

C.an upper-tailed test should be utilized

D.a two-tailed test should be utilized

3.If the level of significance of a hypothesis test is raised from 0.01 to 0.05, the probability of a Type II error

A.will also increase from 0.01 to 0.05

B.will decrease

C.will not change

D.will increase

4.The president of a university would like to estimate the proportion of the student population who owns a personal computer. In a sample of 500 students, 417 own a personal computer. Which one of the following statements is false?

A.None of these is false

B. A 90% confidence interval calculated from the same data would be narrower than a 99% confidence interval

C. The parameter of interest is the proportion of the student population who own a personal computer

D.It is possible that the 99% confidence interval calculated from the data will not contain the proportion of the student population who own a personal computer

1. Under what conditions would Labor be replaced by Capital? What would be examples of such an action? Be specific and provide examples. When does labor replace labor? Under what conditions?  Be specific and provide examples.
2. True or False and why: Companies move to other countries like Mexico and China from the US, because the other countries have cheaper labor costs than in the US.
3. If the MR is greater than MC, then what should a company in the perfect competition industry decide to do:

A. Sell more

B. Sell less.

C. Try to raise prices.

D. Lower the price

Levels of measurement are a way of analyzing how ____ a variable measures something. The ____ level of measurement is the weakest measure. The ____ level of measurement is present when the data can be put in some order, such as lowest to highest.

Forty-five percent of people living in Pleasantville are Baptist. In this statement, the percentage is a numeric, or ____ measure, and Baptist is a ____ measure.

Larry Maugh is a male, 43-year old, a rock star who wears size 12 Doc Marten boots. His guitar ability is rated as "expert" but his song choices are considered "amateur." These last two ratings are the ____ level of measurement.

Larry Maugh is a male, 43-year old, a rock star who wears size 12 Doc Marten boots. Last year he earned $23,222 but expects to earn millions this year due to the wrongful death lawsuit related to his wife. He requires that his Tab Cola backstage be exactly 86 degrees. This temperature is the ____ level of measurement.

Larry Maugh is a male, 43-year old, a rock star who wears size 12 Doc Marten boots. Last year he earned $23,222 but expects to earn millions this year due to the wrongful death lawsuit related to his wife. His gender is the ____ level of measurement.

Larry Maugh is a male, 43-year old, rock star who wears size 12 Doc Marten boots. Last year he earned $23,222, but expects to earn millions this year due to the wrongful death lawsuit related to his wife. His income is the ____ level of measurement.

Larry Maugh is a male, 43-year old, rock star who wears size 12 Doc Marten boots. Last year he earned $23,222, but expects to earn millions this year due to the wrongful death lawsuit related to his wife. His music style, rock, is the ____ level of measurement.

Larry Maugh is a male, 43-year old, a rock star who wears size 12 Doc Marten boots. Last year he earned $23,222 but expects to earn millions this year due to the wrongful death lawsuit related to his wife. Larry wants to fulfill the Prince lyric to "Act your age, not your shoe size." Larry's shoe size is the ____ level of measurement.

Of the 5,000 products at the Pleasantville Wal-Mart, researchers collected 50 to see if the prices were correct. The 5,000 are the ____ and the 50 are just a ____. Had the researchers checked all 5,000 products it would have been a ____.

The ____ level of measurement is like the ordinal level of measurement in that we can order the values from lowest to highest, but this level of data has equal increments between each measure. ____ is the strongest level of measurement because this level of measurement has all the characteristics of the other three levels.

The ____ method is a process of trying to discover some truth (or perhaps disprove some fallacy) by 1) defining the question, 2) gathering information and resources, 3) form ____, 4) perform experiments and collect data, 5) analyze data, 6) interpret data, and 7) publish results.

____ data can only assume specific values, usually whole numbers. ____ data can assume any value within a reasonable range.

____ data is data that has been measured at the same time. ____ data measures the same variable over time.

____ data is numeric data. ____ data is sometimes referred to as attribute data and is non-numeric data.

____ is a measure of the association between two variables.

____ is a number between 0 and 1 indicating the likelihood of an event occurring.

____ is the science of collecting data, describing data, and interpreting data for effective decision making.

____ refers to all cases of interest to the researcher. ____ is a subset of the population.

Assignment Details

Final Project Overview

Throughout this course, you have learned various components of accounting. These components work hand-in-hand to create the accounting cycle – the process of recording, summarizing and reporting transactions. The final project will provide you the opportunity to apply the skills covered in this course through the completion of the accounting cycle. In addition, you will be able to demonstrate your understanding through analysis of the completed information. This project will be completed in two parts in Units 3 and 5.

Final Project Data

On December 1, 2015 John Trap created a new travel agency, Trap Adventures, Inc. providing exclusive adventure trips. The following transactions occurred during December 2015.

(NOTE: There are no beginning balances – this is a new company.)

Adjustment Data:

One month's insurance coverage has expired.

The company occupied the office space for the month of December.

At the end of the month, $600 of office supplies are still available.

This month's depreciation on the computer equipment is $325.

Employees earned $525 of unpaid and unrecorded salaries as of month-end.

Final Project Requirements

Using the spreadsheet found here and information above, complete the following:

Journal entries to record the transactions that occurred during the month of December.

Prepare an unadjusted trial balance.

Conch Republic Electronics Part 1

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republic currently has one smart phone model on the market, and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing smart phone but adds new features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone.

Conch Republic can manufacture the new smart phones for $215 each in variable costs. Fixed costs for the operation are estimated to run $6.1 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new smart phone will be $520. The necessary equipment can be purchased for $40.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $6.1 million.

As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch Republic does not introduce the new smart phone, sales will be 95,000 units and 65,000 units for the next two years, respectively. The price of the existing smart phone is $380 per unit, with variable costs of $145 each and fixed costs of $4.3 million per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 30,000 units per year, and the price of the existing units will have to be lowered to $210 each. Net working capital for the smart phones will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelley has asked Jay to prepare a report that answers the following questions.

Conch Republic Electronics Part 2

Shelley Couts, the owner of Conch Republic Electronics, had received the capital budgeting analysis from Jay McCanless for the new smart phone the company is considering. Shelley was pleased with the results, but she still had concerns about the new smart phone. Conch Republic had used a small market research firm for the past 20 years, but recently the founder of that firm retired. Because of this, she was not convinced the sales projections presented by the market research firm were entirely accurate. Additionally, because of rapid changes in technology, she was concerned that a competitor could enter the market. This would likely force Conch Republic to lower the sales price of its new smart phone. For these reasons, she has asked Jay to analyze how changes in the price of the new smart phone and changes in the quantity sold will affect the NPV of the project.

Shelley has asked Jay to prepare a memo answering the following questions.

QUESTIONS

5.How sensitive is the NPV to changes in the price of the new smart phone?

6.How sensitive is the NPV to changes in the quantity sold of the new smart phone?

Currently, around 17% of US electricity comes from renewables. The US government begins requiring that 30% of electricity come from renewables.

a) Draw a graph of the electric car market that clearly labels supply and demand and shows how they shift. How do the equilibrium price and quantity change?

b) Draw a graph of the oil market that clearly labels supply and demand and shows how they shift. How do the equilibrium price and quantity change?

Amy, a self employed US customs broker, obtained a customs broker’s license from US Customs and Border Protection in 1991. Since 2003 Amy has operated a customs brokerage business, Atlantic Air Express, LLC, (Atlantic Air), from her home. For 2004 Amy reported self employment income of $45,649. From this activity, Amy reported a net profit on Schedule C, Profit or Loss From Business, for each year from 2005 to 2011. For 2007 the year in issue, Amy reported a net profit of $130,872 on Schedule C.

Amy began breeding Great Pyrenees dogs in 1994 on a half acre of property in New York, where she sets up kenneling facilities. Amy incurred expenses to set up the kennel and to purchase dogs, food, grooming supplies and equipment, a vehicle to transport the animals, and advertising. From 1994 to 1999 Amy sought to build the prestige and reputation of the dog breeding operation, Impyrial Great Pyrenees (Impyrial), by producing a robust stock of Great Pyrenees dogs and showing the dogs at dog shows. She spoke with experienced Great Pyrenees breeders and visited various successful kennels to gather information for developing a breeding program.  Amy’s dog breeding activity sustained losses every year until 2010, for which she reported a small net profit.

In 1999, when Amy owned five dogs, she moved Impyrial to a 15-acre farm in Orange County, New York. The purpose of the move was to accommodate a large breeding program. Amy also obtained a purbred dog license from the New York State Department of Agriculture and Markets, which is available only for kennels that maintain more than 10 dogs. By 2007 Amy owned 26 dogs.

Amy’s main source of income from the dog breeding activity is the sale of puppies. Amy typically charges $1,200 for a puppy but charges as much as $4,000 for a puppy sired from one of her top winning show dogs. Amy sold approximately six puppies between 1994 and 1999. During 2000 and 2001 Amy’s dogs produced six litters. In 2002 the dogs began to have fertility problems. Amy’s dogs had other health problems that also disrupted the breeding program, including Lyme disease, bacterial infections, and thyroid problems. From 2002 to 2009 Amy attempted to breed 46 female dogs, resulting in 17 pregnancies.  The pregnancies produced 13 litters. In 2009 after consultations with veterinarians and fertility specialists Amy administered a month long antibiotic treatment to all of the dogs and treated some of the female dogs with thyroid medication. Amy’s dogs produced two litters shortly after the medical treatment. These were the first pregnancies in nearly 18 months.  Amy sold 18 puppies in 2010.

In addition to selling puppies, Amy sells semen from the male dogs to breeders and charges stud fees ranging from $1,200 to $2,500 for top winning show dogs.

Amy reported profit or loss on Schedule C for Impyrial as follows:

Year             Income                   Expenses      Gain or (loss)

2005             $4,729                    $76,590        ($71,861)

2006               6,900                    96,996          (90,096)

2007               4,600                    71,116         (66,516)

2008               4,500                     69,340         (64,840)

2009               6,800                    30,790           (23,990)

2010             33,600                    30,120          3,480

2011                8,320                    27,369          (19,049)

Amy reported the income and expenses attributable to Impyrial on a Schedule C attached to her 2007 Federal income tax return.  Amy asserts that (1) she engaged in the activity with the intent to make a profit and (2) that her return for taxable year 2002 was examined and that the Commissioner of Revenue allowed her to treat Impyrial as a trade or business.

Commissioner of Revenue determined that Amy did not engage in the dog breeding activity for profit and disallowed Amy’s expense deductions claimed in excess of the reported income.

Please note that Amy began Impyrial in 1994. Impyrial sustained losses every year from 1994 to 2009. The record does not reflect the amounts of Impyrial’s income, expenses, and losses between 1994 and 2004.

QUESTIONS

1)Based on the facts presented do you believe that Amy's activity constitute a trade or business. ? EXPLAIN

2) Assume that you work as an agent of the IRS and you are challenging Amy's tax position.  What argument will you present against Amy?

3) Assume that Amy is your client and was audited by the IRS.  What arguments will         
you present to defend your Client