Specialized Fraud Areas

Case 4

Cindy Williams is the owner of Williams Concrete Company. Her company fabricates and supplies pre-cast concrete slabs for home construction throughout the Omaha area. Dunn Construction, one of her highest volume customers recently discovered a problem with slabs supplied by Williams Concrete. Dunn is a major home builder that focuses on the upscale housing market. In most months, Williams Concrete supplies Dunn with hundreds of pre-cast slabs.

Because of an error in the fabrication process, the concrete slabs for 23 of Dunn’s new homes did not meet basic materials requirements. This was not discovered until after the homes were completed. It has been determined that none of these homes are safe for habitation. Homeowners must move out and the slabs must be replaced at a considerable cost and months of inconvenience for the homeowners. As a result, Dunns’ reputation has suffered.

The slab fabrication process is complex and the possibility of a problem like this was not unforeseen. For this reason, Williams’ sales contracts with all vendors make it the responsibility of the purchaser to test the quality of all slabs before installation.

Dunn contends that despite this provision in the contract, Williams could be reasonably expected to supply quality slabs and they should assume the liability for the current problems. Dunn is demanding that Williams pay $20 million to cover the damages.

Write responses to the following:

1) From Williams’s point of view, is litigation or Alternative Dispute Resolution (ADR) preferred? Why?

2) From Dunn’s point of view, is litigation or ADR preferred? Why?

3) Which form of ADR could be preferred by the two companies?

Chesterfield County had the following transactions.

a. A budget is passed for all ongoing activities. Revenue is anticipated to be $940,750 with approved spending of $631,000 and operating transfers out of $248,000.

b. A contract is signed with a construction company to build a new central office building for the government at a cost of $6,300,000 . A budget for this project has previously been recorded.

c. Bonds are sold for $6,300,000 (face value) to finance construction of the new office building.

d. The new building is completed. An invoice for $6,300,000 is received and paid.

e. Previously unrestricted cash of $1,220,000 is set aside to begin paying the bonds issued in (c).

f. A portion of the bonds comes due and $1,220,000 is paid. Of this total, $150,000 represents interest. The interest had not been previously accrued.

g. Citizens' property tax levies are assessed. Total billing for this tax is $815,000. On this date, the assessment is a legally enforceable claim according to the laws of this state. The money to be received is designated for the current period and 90 percent is assumed to be collectible in this period with receipt of an additional 6 percent during subsequent periods but in time to be available to pay current period claims. The remainder is expected to be uncollectible.

h. Cash of $169,000 is received from a toll road. This money is restricted for highway maintenance.

i. The county received investments valued at $379,000 as a donation from a grateful citizen. Income from these investments must be used to beautify local parks.

Prepare the entries first for fund financial statements and then for government-wide financial statements.

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.

Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this:

The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 280,000 units were transferred in from the prior processing department and 270,000 units were completed and sold. Costs transferred in from the prior department totaled $55,720,000. No materials are added in the final processing department. A total of $19,347,500 of conversion cost was incurred in the final processing department during the year.

Required:

1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?

2. Does Gary Stevens want the estimated percentage completion to be increased or decreased?

3. What percentage completion would result in increasing reported net operating income by $62,100 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.

Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this:

The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 290,000 units were transferred in from the prior processing department and 274,000 units were completed and sold. Costs transferred in from the prior department totaled $75,835,000. No materials are added in the final processing department. A total of $19,932,600 of conversion cost was incurred in the final processing department during the year.

Required:

1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?

2. Does Gary Stevens want the estimated percentage completion to be increased or decreased?

3. What percentage completion would result in increasing reported net operating income by $73,980 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.

Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this:

The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 290,000 units were transferred in from the prior processing department and 270,000 units were completed and sold. Costs transferred in from the prior department totaled $60,030,000. No materials are added in the final processing department. A total of $18,012,500 of conversion cost was incurred in the final processing department during the year.

Required:

1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?

2. Does Gary Stevens want the estimated percentage completion to be increased or decreased?

3. What percentage completion would result in increasing reported net operating income by $70,200 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders. Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this: Gary: How’s it going, Mary? Mary: Fine, Gary. How’s it going with you? Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $70,470 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top! Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by Tom Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates. Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it. The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 290,000 units were transferred in from the prior processing department and 261,000 units were completed and sold. Costs transferred in from the prior department totaled $76,270,000. No materials are added in the final processing department. A total of $19,099,400 of conversion cost was incurred in the final processing department during the year. Required: 1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year? 2. Does Gary Stevens want the estimated percentage completion to be increased or decreased? 3. What percentage completion would result in increasing reported net operating income by $70,470 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders. Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this: Gary: How’s it going, Mary? Mary: Fine, Gary. How’s it going with you? Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $53,000 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top! Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by Tom Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates. Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it. The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 290,000 units were transferred in from the prior processing department and 265,000 units were completed and sold. Costs transferred in from the prior department totaled $53,070,000. No materials are added in the final processing department. A total of $21,428,750 of conversion cost was incurred in the final processing department during the year. Required: 1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year? 2. Does Gary Stevens want the estimated percentage completion to be increased or decreased? 3. What percentage completion would result in increasing reported net operating income by $53,000 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders. Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this: Gary: How’s it going, Mary? Mary: Fine, Gary. How’s it going with you? Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $179,400 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top! Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by Tom Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates. Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it. The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 379,000 units were transferred in from the prior processing department and 345,000 units were completed and sold. Costs transferred in from the prior department totaled $84,517,000. No materials are added in the final processing department. A total of $25,628,750 of conversion cost was incurred in the final processing department during the year. Required: 1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year? 2. Does Gary Stevens want the estimated percentage completion to be increased or decreased? 3. What percentage completion would result in increasing reported net operating income by $179,400 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.

Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this:

The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 310,000 units were transferred in from the prior processing department and 295,000 units were completed and sold. Costs transferred in from the prior department totaled $58,590,000. No materials are added in the final processing department. A total of $20,285,125 of conversion cost was incurred in the final processing department during the year.

Required:

1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?

2. Does Gary Stevens want the estimated percentage completion to be increased or decreased?

3. What percentage completion would result in increasing reported net operating income by $70,800 over the net operating income that would be reported if the 25% figure were used?

Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 5% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders. Shortly after the beginning of the new year, Mary received a phone call from Gary that went like this:

Gary: How’s it going, Mary?

Mary: Fine, Gary. How’s it going with you?

Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $200,000 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top!

Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories.

Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by Tom Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates. Besides, I have already sent the percentage completion figures to corporate headquarters.

Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it.

The final processing department in Mary’s production facility began the year with no work in process inventory. During the year, 210,000 units were transferred in from the prior processing department and 200,000 units were completed and sold. Costs transferred in from the prior department totaled $39,375,000. No materials are added in the final processing department. A total of $20,807,500 of conversion cost was incurred in the final processing department during the year.

Required: 1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?

2. Does Gary Stevens want the estimated percentage completion to be increased or decreased?

3. What percentage completion would result in increasing reported net operating income by $200,000 over the net operating income that would be reported if the 30% figure were used?