(Central Limit Theorem) An insurance company serves 10 large customers. The insurance claim placed by each customer in a year is uniformly distributed between 0 and 100. Assume that the insurance claims from different customers are independent. Use the central limit theorem to approximately compute the probability that the total insurance claim placed by all customers in a year exceeds 625. Let Φ(x) denote the cumulative distribution function of a standard normal distribution, i.e. a normal distribution with mean 0 and variance 1. Express your answer in terms of Φ, and then use software of your choice to evaluate it. (Hint: Compute the mean and standard deviation of the total insurance claim placed in a year. By the central limit theorem, the total insurance claim is approximately normally distributed. Why?)

Journalize the entries for the following transactions. Refer to the Chart of Accounts for exact wording of account titles. (Note: the company uses a clearinghouse to take care of all bank as well as non-bank credit cards used by its customers.)

The restaurant owner Lobster Jack wants to find out what the peak demand periods are, during the hours of operation, in order to be better prepared to serve his customers. He thinks that, on average, 60% of the daily customers come between 6:00pm and 8:59pm (equally distributed in that time) and the remaining 40% of customers come at other times during the operating hours (again equally distributed). He wants to verify if that is true or not, so he asked his staff to write down during one week the number of customers that come into the restaurant at a given hour each day. His staff gave him the following data:

Help the manager figure out if his instincts are correct or not. Use a Chi-Squared test to see if the observed distribution is similar to the expected. Use the average demand for a given time as your observed value.

The owner now wants you to help him analyze his sales data. The restaurant is famous for its Lobo lobster roll. You were given some information based on which you deduced that the demand for the lobster roll was normally distributed with a mean of 220 and standard deviation of 50. You also know that the lobster supplier can provide lobster at a rate that mimics a uniform distribution between 170 and 300. One Lobster is used per roll and the lobsters need to be fresh (i.e. the restaurant can only use the lobsters that are delivered that day).

You decide to run 200 simulations of 1000 days each.

Calculate the expected sales of Lobster roll per day based on your simulation results. Use the expected sales from each of your 200 simulations to create a confidence interval for the average expected sales. What is the 95% confidence interval, L (Your confidence interval is mean +/- L), for this estimate?

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

A purely competitive seller should produce (rather than shut down) in the short run

On January 1st, 2000, Audrey Corporation issued $100,000 of 10% coupon rate bonds to yield an effective rate of 12%. Interest is paid semiannually on June 30th and December 31st. The bonds mature in 5 years ie on January 1, 2005. Audrey incurred $10,000 in issuance costs and has a September 30th fiscal year end.

1. Prepare the Journal entry that Audrey corporation would make on September 30th, 2001.

2. prepare Audrey's statement of cash flows for the fiscal year ended September 30th, 2001.

3. assume that on September 30, 2001, Audrey calls the bonds for 97. Prepare the journal entry to record the bond call.

4. prepare Audrey's statement of Cash flows for the fiscal year ended September 30, 2001 assuming the call took place.

Rapp Company is considering switching to an activity-based costing (ABC) system. The company produces and sells two products: LoEnd and HiEnd. The company consists of two departments: Production (where the products are made) and Marketing (which engages in selling and admin activity). The company's traditional costing system computes unit product costs as dictated by GAAP; direct labor hours (DLHs) are used as the allocation base for manufacturing overhead cost (the overhead rate is rounded to the nearest cent). The ABC system will include in unit costs all costs easily associated with units. In addition, in the ABC system, there are four major indirect activities: Machine Setups, Special Processing, General Factory, and Customer Relation (10% of Customer Relation cost relates to manufacturing and is incurred in the Production Department; the rest of the Customer Relation cost is incurred in the Marketing Department). In the ABC system, Customer Relation costs will be associated with customers; the rest of the costs will be associated with units of the two products Price Dm DLH Units Hourly Wage-DL Shipping Cost Hi end 200 72 2 5000 $20 $3 Low end 150 44 1 6000 $20 $1 OH Cost Low High total Machine Setup #of setups 360,000 40 120 160 Special Processing MH 300,000 8000 12000 20000 General Factory(Excluding customer relations) DLH's 144000 ? Customer Relations # of customers 200,000 5 What is the difference between the HiEnd product's unit costs computed by the traditional and ABC systems?

1. On October 1, the accounts receivable account balance was $208,400. During October, $298,500 was collected from customers on account. Assuming the October 31 balance was $125,300, determine the fees billed to customers on account during October.

2. On November 30, the company accountant discovers that $550 of a transaction recording the purchase of office supplies was really office equipment. Prepare the journal entry to correct this situation.

3. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries when recording business transactions during the month.  Also, indicate the normal balance of each account.

4. On December 1, JumpStart Company provides $2,800 in services to clients.

(a) Journalize this event as if the clients had paid cash at the time the services were rendered.

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(b)(1) Journalize this event as if the clients had been rendered the services on account.

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(b)(2) Assume that the clients paid $1,200 of the amount on account on December 30. Journalize this transaction.

5. Prepare a journal entry for the purchase of a truck on April 4 for $85,700, paying $15,000 cash and the remainder on account. Omit explanation.

6. On August 30, JumpStart incurred the following expenses:

         Payment to the landlord for August rent, $2,300

         Payment to the Gas & Electric Company for August’s bill, $525

         Payment of employee wages for the last half of August, $1,750

         Payment of shopping center’s parking lot cleaning fee, $275

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Journalize these payments as one journal entry.

7. On December 1, Nikle Company made a cash payment of $200,000 on a note payable that was generated in the purchase of a building and land. Provide the journal entry for this transaction.

8. On January 31, the cash account balance was $96,750.  During January, cash receipts totaled $305,000 and cash payments totaled $375,880.  Determine the cash balance on January 1.

The Alpha Company manufactures a single product. Its operations began on January 2, 2019. Its production capacity is 150,000 units per year. It is currently preparing to do its financial statements for the year ending December 31, 2019. The following information is related to the production and sale of its product:

The Alpha Company produced and sold 130,000 units in 2019. In order to reward its managers, Alpha has established a bonus system that is based on bottom line.

Work to do:

1) Write the income statement using the full cost method and the variable cost method.

2) Suppose the Alpha Company produces 150,000 units instead in 2019 and its sales remain at 130,000 units. What effect will this change have on the bottom line of both methods? Demonstrate your calculations.

3) Reconcile the two results obtained in question 2.

4) Managers have the choice of calculating net profit using one or the other of two methods, either the full cost method or the variable cost method. If we got used to the data in 2) what method should managers choose knowing that their bonus depends on the deferred net profit? Why ?

Completely and thoroughly explain how any type of Work Measurement Technique was used to determine the labor cost of their services by any Service Company that provides any type of service to its customers. A service company is any company that does some type of work for a customer, such a lawn maintenance, and although they may also include some products, such as applying fertilizer to the lawn, their primary function is providing the service, such as keeping the lawn, hedges, and flowers in an attractive condition.

Gerard grew up in Virginia. One of his colleagues remembers that Gerard was known in school, skilled at his schoolwork and that he liked to play soccer and listen to Opera. The friend also remembers that Gerard’s family was a modest one that can barely satisfy its needs while Gerard was not happy with this type of living. Gerard graduated with an accounting degree from a good college in 1996. He enjoyed the inward mechanisms of accounting systems, and in 2000 he found himself part of Delta Company after his employer, Pioneer manufacturing, was acquired for more than $10 billion. Gerard had an influential role in adopting enterprise resource planning system that replaced the old one in while he was employed at Delta Company. A mistake by his new employer, Pioneer Manufacturing created an opportunity for Gerard to steal company funds.

As a part of the changeover team, Gerard became experienced in all aspects of ERP accounting modules including accounts receivables, accounts payable, fixed assets, financial reporting, journal entries, checks and wire payment processing. I was granted by mistake an authorization to sign and approve checks, along with a co-worker, up to $300,000. I discovered this permission quite by accident some two years after the takeover.

Our accounting department consisted of a manager, assistant manager, accounting controller, and three people whom I supervise. Together with a fellow worker and an associate, I was among those authorized employees who can request checks. The fellow- worker and I also could approve checks. In the accounting department, we shared our passwords with each other so we can finalize the work without any delay in case someone was out of office and the task had to be done immediately. One day, while I was drinking my coffee and thinking, I realized that I can access to one of my colleagues’ account to request a check and I can then log into my credentials and approve my own request. I went to work every day for the next year tempted by the pot of gold that was there for the taking.

In June 2003, my spouse was pregnant and my yearly eighty thousand dollars salary was not covering my due bills and college loans. I thought that in case I fairly paid off my obligations, at that point we might do very well with my salary coordinating our living costs. I tried my scheme by paying the current due on one of my credit cards that had a title that included the word “Universal.” Before I left my office late, I logged on as fellow worker and asked for check issuance in the amount of $1,200 to Universal. This check looked typical since we did a lot of transactions with a company that includes the word “Universal” in its title. After the check was issued, I sent it with my statement of account to my credit card company, and the company credited my account in the amount of $1,200. After some time, I felt guilty and worried because if I were caught, I would lose my job for stealing $1,200. After one week, I continued repeating the same embezzlement process while changing the amounts till I had settled the whole amount of ninety-five thousand dollars due on my credit card. After my credit card settlement, I was free and clear of all debt, except for the mortgage on our house.

I noticed that one of my checks for $5,555 had apparently gone missing just before I’d cleared all the charges to the Universal card; it wasn’t posted against my credit card account, and it had not cleared the company’s bank account. I was stressed that something had caused the bank not to prepare the check or that my extortion had been discovered. For a couple of weeks, I anxiously looked at my emails each morning checking the subject lines for words like “explanation requested.” Each time the phone rang I expected that I would be called for a meeting. At that point at around 10 on a hot late-August morning, I received a mail envelope from our accounts payable department in Chicago. There was the check I had overlooked to put my individual credit card number on the check, and so the card payment processors didn’t know whose account to credit. The accounts payable department sent it back to me since they did not know the purpose and the nature of this check.

In the middle of cold winter, the impacts of the panic had worn off, and I began considering around how simple it was to get that $95,000 “bonus. I am thinking of repeating again the fraud although I was not really in need of that money as was the case before. I remembered the missing check scare, and so I now wanted a scheme that bypassed mailing the checks to my credit card company. I registered “Sigma Enterprise” with our secretary of state, got a federal ID number, and opened a bank account at a major bank with lots of branches in Chicago. I chose Sigma because our company did a lot of business with another company that had Sigma in its name. On a Wednesday afternoon, right before I left for the day, I logged on as associate and requested a check made out for $35,250. I then logged on as myself and approved it. I picked up the check on Thursday and deposited it in Sigma’s bank account on Saturday morning. The teller treated the transaction like any other routine transaction and handed me the deposit receipt showing that the whole $35,250 was available. Using this method, I stole about $2.1 million in 2004, $1.9 million in 2005, $3.4 million in 2006, and $0.9 million in 2007.

Getting a check was easy because I logged on as fellow worker or associate and requested a check and then I approved the check. The checks were printed overnight, and it was associate’s job to collect the physical checks every day from the company building next door. I had to make sure that associate had the day off the next day because, when associate was away, I was the person who collected the checks. At my desk I would remove the Sigma check from the batch, and all the other checks were mailed off to where they were supposed to go. Normally, I would just wait for associate to take the day off, and I’d request a Sigma check the day before. If I needed money urgently, I’d give associate the day off so that I could collect the checks.

For every credit, there has to be a debit, and my debits needed to be hidden somewhere. Our payments were usually for purchases, sales commission expenses, miscellaneous expenses, or an administrative expense. In 2003 and 2004, I hid all the debits in ledger accounts that had a lot of reconciliation activity, making sure that my debit helped the account reconcile to zero. One of my accounting tasks was to record the investment income of our Australian investments in U.S. dollars (USD) in our U.S. accounting records. I was supposed to use the average Australian-dollar-to-USD exchange rate to record the interest income. From 2005 to 2007, I would calculate the real exchange rate, and then I would purposely weaken the Australian dollar by a few basis points to understate the USD value of that income. I was the only person who worked on this task for seven years, and because the accounting system had thousands of journal entries and billions of dollars of transactions, my Sigma checks remained hidden.

Every Sigma check was deposited in my account, and I have to find some explanations and excuses to spend my money without making my spouse and colleagues suspicious. In the beginning, I told my friends and wife that I have a side business where I have many clients and good source of money; at that time, all was convinced because my lifestyle was normal. However, when my lifestyle changed to the ownership of unique luxury cars, travel trips to different cities on business class, I told people that I was a gambler at Vegas and brought with me proofs that I really gambled. The gambling story did not work with my wife especially that my wealth jumped to three million dollars in less than two years. So, I knew that I had to choose either my wife or continue my fraudulent activities. I chose to insulate her from all the acts I committed and I did not want to engage her with any of my dirty actions, so I divorced her.

By mid-2007, my extortion had cooled off, and I’d as it was taken $1 million so distant that year. An internal audit found that 3 of us in the accounting department had an authorization to approve checks and we were given internal forms that we had to fill them. One morning, the fellow worker and I were discussing this matter with our boss and we all agreed that we must not have approval checks authority since we are much involved in the accounting function. We actually revoked our own check approval authority.

My ex-wife and the fellow worker became friends and she informed him that she was not convinced of the gambling story which raised the suspicion of the fellow worker. The fellow worker went immediately to the office and ran a query about the whole list of 2007 checks that she had approved or requested. She found the Sigma checks which amounted to 0.9 million dollars. On Friday, I was called for a meeting which did not went well and after two days I was arrested by fraud investigators and I told them that I wanted to talk with my attorney

Required:

Answer the following questions:

1. What anti-fraud policies would have Delta Company adopt to prevent such fraudulent activities?

2. Based on your analysis of the case, why the accounting information system controls are important?

3. What are the fraudulent behaviors encountered in the case, and what are the mitigating controls that can be implemented to avoid such fraudulent activities?

4.        Suppose that you were assigned to conduct an integrated audit for Delta Company., what are the high-risk areas that you may identify?