You are an auditor in Smit & Chandra, a mid-tier audit firm. Your firm is the incumbent auditor on Biotech Ltd, a pharmaceutical company. Since the previous audit, the company has listed on the Australian Securities Exchange which means the company has to meet additional reporting regulations. Due to rapid growth, Biotech Ltd is financially stretched and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Australian Financial Review, which stated that Biotech Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll.

Biotech Ltd is a pharmaceutical company, developing drugs to be licensed for use around the world. Products include medicines such as tablets, medical gels and creams. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. Drugs must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2020 financial year, Biotech Ltd lost several customer contracts to overseas competitors.

Biotech Ltd approached its bank during the year to extend its borrowing facilities. An extension of $20 million was sought to its existing loan to support the on-going development of new drugs. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3.5:1.

In addition, the company asked the bank to make cash of $5 million available if an existing court case against the company is successful. The court case is being brought by an individual who suffered severe side effects when participating in a clinical trial in 2016.

On 8 June 2020, the Company announced to the market it had been the victim of a cyber-security incident that resulted in supplier and customer details being disclosed on the dark web. The Company is assessing the costs of the incident and the subsequent reduction in revenue. The Company expects this to have a material impact on future earnings.

In December 2019, the internal audit department of Biotech Ltd performed a review of the operation of controls over processing of overtime payments in the Payroll department. It was found that the company’s specified internal control procedures in relation to the processing of overtime payments were not followed.

Below are some results of the analytical review procedures performed by the Senior Auditor (David) during the planning stage:

Sales                                                                                                            12.5% decrease since prior year

Net profit after tax                                                                                20% decrease since prior year

Accounts payable                                                                                   15% decrease since prior year

Cash at Bank                                                                                             16% increase since prior year

Accounts receivable                                                                              18% increase since prior year

Inventories                                                                                               6%   increase since prior year

Current ratio:                                                                                            3.6:1

Debt to Equity ratio:                                                                               0.6

Minutes from the Audit Planning meeting with Simon Jones (Finance Director of Biotech Ltd) held on 30^th April 2020:

Due to the current government restrictions, the planning meeting with Simon Jones was held via Zoom. In attendance at the meeting was the Audit Partner (Michael), the Audit Manager (Amanda) and the Audit Senior (David).

The following key items were discussed during the meeting:

• Mr Jones raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had been interrupted when they were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor in future.
• Michael reminded Mr Jones that fees relating to the audit engagement from the previous year were still outstanding.
• Both Michael and Mr Jones also discussed the range of non-audit services provided to Biotech Ltd, which includes payroll preparation, tax computation and advice.
• Mr Jones gave the audit team an update on the court case pertaining to the individual who suffered severe side effects from a company trial (refer above). According to legal advice provided to Mr Jones by the company’s legal counsel, it is more likely than not that Biotech will lose the court case, which would result in a significant amount of cash having to be paid as a settlement.
• Amanda asked Mr Jones if he considered the decline in profitability as an indicator of a material uncertainty surrounding the going concern assumption. Mr Jones responded by saying, “Look, everything might seem dire, but we have it under control. We will be here this time next year, so keep that in mind”. Michael then looked at Amanda and David and said, “Make sure that you mention the conversation that we have just had with Mr Jones about the appropriateness of the going concern assumption in the audit working papers. This should be sufficient enough audit evidence for us.”
• Mr Jones also mentioned the following: “As you know, Biotech Ltd has a Goodwill asset on the balance sheet. This is an indefinite useful life intangible asset. In accordance with the Accounting Standards (AASB 138), we are required to test the asset for impairment every year. We usually prepare a Value in Use calculation based on discounted future cash flows that we expect to generate in the next five years. I have completed this year’s calculation by rolling forward the prior year’s calculation and have just updated the dates. There was no need to update the future cash flow figures.”

The Audit Team

The audit team consists of 4 people. The partner is Michael. He has been the audit partner on the Biotech Ltd audit for 6 years. The audit manager is Amanda. This is Amanda’s first time on the Biotech Ltd audit. David is the audit senior and is responsible for the initial audit planning. David has recently completed the Graduate Diploma of Chartered Accounting. David has just been offered a well-paying accountant position at Biotech but he has not yet decided whether to accept the position. The graduate on the audit is Audrey. Audrey’s friend is the receptionist at Biotech Ltd. The receptionist has no accounting knowledge and has no involvement with the recording or processing of accounting transactions.

Accounts Receivable / Sales Accounting Cycle and Internal Control System

At the end of each month, the sales manager determines the amount of products required to meet sales demand for the following month based on sales orders received. He reviews the sales orders received from customers and then prepares the pre-numbered inventory requisition forms, which he then sends to the warehouse managers so that they can prepare the goods for delivery. One copy of the sales order and inventory requisition form is sent to the warehouse, one copy is sent to the accounts receivable department and one copy is filed in the sales department.

The warehouse prepares the goods for delivery to the customers and generates the delivery document. When the goods have been delivered, the signed delivery document, which includes the delivery details, is forwarded to the accounts receivable department. The other copy is filed in the warehouse. The accounts receivable clerk matches the signed delivery document with the sales order and inventory requisition form. Once satisfied that all of the details agree, the clerk generates the sales invoice. Once generated, the clerk does another check to ensure that all details per the sales invoice agrees to the delivery document and sales order. Once satisfied, she writes “checked” on the sales invoice and sends it to the customer. At the end of every week, a different clerk in the Accounts Receivable team reviews the bank statements for receipt of payments from customers and performs a reconciliation against the sales invoices. Once a customer has paid the sales invoice, the clerk stamps “received” on the sales invoice and files that along with all the other documents in date order.

The walk-through of the accounts receivable/sales cycle confirmed that the accounting and internal control system was working as documented above.

Test of control:

As part of the audit, Audrey tested the controls over the accounts receivable system. She selected a sample of twenty sales transactions and tested the control that all details had been checked. Out of the 20 sales transactions that were selected for testing, 5 sales invoices in the sample did not have the word “checked” written on them. When documenting the results of the test performed, Audrey concluded that the internal control did not operate effectively and consistently throughout the year but that no further audit work is required.

Substantive test

In order to test the occurrence of the sales transactions, Audrey selected a sample of sales invoices and traced them to the General Ledger to test that they were properly recorded.

Subsequent events not previously mentioned

• One of Biotech Ltd’s major customers went into liquidation in July 2020. The balance due from the customer at 30 June 2020 was $564,000. This is a material amount. There has been no provision/allowance for doubtful debts raised for this debtor in the financial statements for the year ended 30 June 2020. Biotech Ltd’s legal adviser stated in a telephone call that that the probability of any funds being received from the debtor is remote.

• On 2 July 2020, Biotech Ltd declared a one-for-five rights issue of 100,000 shares at $2.20. These shares were payable in full on 31 July 2020.

What are the strengths and weaknesses in the payroll cycle?

What misstatements this control should prevent? State the control test that one could undertake to the test the control is operating as expected?

1. We fear the judgement of our peers, which causes us to become _____ in our thinking? Discuss.

2.Before we take risks we need some kind of security. Explain what this means.

3.Playfulness helps us to get better creative solutions, do our jobs better, and help us feel better when we do them. Give an example from your own experience.

4.When we first encounter any new material, we ask “what can we do with it”. Provide an example from a child and adult.

5.A barrier to adult creativity is self-editing. Explain.

6. He discusses “informal prototyping” and available materials to allow for exploration and design. Why do offices and schools remove most adaptive materials.

We ran across this one in the OECD healthcare data. The country names had numbers appended, which served as footnotes in the original spreadsheet but looked dumb when we used them as index labels. The question is how to eliminate them. A short version of the country names is

`names = ['Australia 1', 'Canada 2', 'Chile 3', 'United States 1']`

Do each of these in a separate code cell:

1. Set `us = names[-1]` and call the `rsplit()` method on us. What do you get?
2. Consult the documentation for `rsplit` to split `us` into two pieces, the country name and the number 1. How would you extract just the country name?
3. Use a loop to strip the numbers from all of the elements of `names`.
4. Use a list comprehension to strip the numbers from all of the elements of `names`.

Outback Outfitters is a manufacturer of recreational equipment. It has been experiencing an average growth rate of 20% in sales over the past 5 years. It is August 31 and the financial controller has just prepared the company’s budgeted income statement for next year. The company has no sales force of its own and outsourcing its selling and marketing functions to an independent sales agents. The commission paid to the agent is 12% on sales for all the different products the company sold. The statement follows:（answer question d，e，f and g）

When the financial controller handed the statement to the CEO, the CEO informed the controller that the sales agent demanded an increase in the commission rate to 16% next year to cover the increasing expenses in marketing and selling the products of Outback Outfitters.

The CEO concerns that the sales agent might ask for further increase in the commission rate in the future and would like to set up its own sales team. He asks the help of the financial controller and he gathers the following information for setting up the sales team:

Commission rate to own sales team 8%

Required:

a. Prepare a contribution margin income statement for next year at the 16% commission rate.

b. Calculate the contribution margin ratio and break-even in dollar sales for next year assuming:

(1) Commission rate remains at 12%.

(2) Commission rate is increased to 16%.

c. Determine the volume of sales under 16% commission rate that would be required to generate the same net operating income under the 12% commission rate. Compute the margin of safety percentage under 16% commission rate.

d. Calculate the contribution margin ratio, break-even dollar sales and margin of safety if the company employs its own sales team.

e. Determine the volume of sales at which the net operating income would be equal regardless of whether the company sells through agents at 16% commission rate or employs its own sales team.

f. What is meant by the term operating leverage? Calculate the degree of operating leverage that the company would expect to have for next year assuming the company (1) sells through agents at 16% commission rate and (2) employs its own sales team.

g. Based on the data in (a) through (f) above, make a recommendation as to whether the company should continue to use sales agent (at 16% commission rate) or employ its own sales team. Give reasons for your answer.

The gender wage gap in the United States:

Group of answer choices

proves the existence of discrimination.

may be partially due to factors other than wage discrimination.

proves that men on average invest more in human capital than do women.

indicates that men are on average smarter than women are.

Scenario 18-7
Suppose the following events occur in the market for university economics professors.

Event 1: A recession in the U.S. economy lowers the opportunity cost of going to graduate school in economics to become a university economics professor.

Event 2: A decreasing number of students in U.S. primary and secondary schools decreases the number of students entering college and university.

Refer to Scenario 18-7. As a result of these two events, holding all else constant, the equilibrium quantity of university economics professors will

Group of answer choices

increase.

decrease.

not change.

It is not possible to determine what will happen to the equilibrium quantity.

Scenario 27
Suppose the following events occur in the market for university economics professors.

Event 1: A recession in the U.S. economy lowers the opportunity cost of going to graduate school in economics to become a university economics professor.

Event 2: A decreasing number of students in U.S. primary and secondary schools decreases the number of students entering college and university.

Refer to Scenario 27. As a result of these two events, holding all else constant, the equilibrium wages of university economics professors will

Group of answer choices

increase.

decrease.

not change.

It is not possible to determine what will happen to the equilibrium wages.

Other things being equal, what happens to labor supply in the pear-picking market when the wage paid to apple pickers decreases?

Group of answer choices

The labor supply will stay unchanged until the wages paid to pear pickers change.

The labor supply will decrease.

The labor supply will increase.

The labor supply may fall or rise, depending on the price of pears.

Scenario 22
Sam has two jobs, one for the winter and one for the summer. In the winter, he works as a lift attendant at a ski resort where he earns $11 per hour. During the summer, he drives a tour bus around the ski resort, earning $13 per hour.

Refer to Scenario 22. During the winter months, what is Sam's opportunity cost of taking an hour off work to go skiing?

Group of answer choices

$13

between $11 and $13

$11

less than $11

Your college roommate receives a pay raise at her part-time job from $9 to $11 per hour. She used to work 25 hours per week, but now she decides to work 30 hours per week. For this price range, her labor supply curve is

Group of answer choices

vertical.

horizontal.

upward sloping.

backward sloping.

Which of the following could increase the supply of labor in the market for cranberry pickers?

Group of answer choices

(ii) only

(i), (ii), and (iv) only

(i) and (iv) only

(ii) and (iii) only

(a) Explain how you determine to fit either multiplicative or additive
decomposition model to a time series data.
(b) The following table gives quarterly sales figures of a well-known brand of
designer bag in a shop in City center in the last two years.
Year 201
7

201
8

201
9

Quarte
r
1 2 3 4 1 2 3 4 1 2 3 4
Sales 10 15 25 34 18 19 33 38 14 27 29 46
You have been requested by the shop owner to forecast sales for 2020 (ignore
the lockdown). Le t us suppose you have decided to use multiple
decomposition method to carry out the forecast, and not use any statistical
software.
(i) Compute appropriate four-period moving averages for these data.
(ii) Compute centered moving averages for the data.
(iii) Calculate sn t x ir t values for the data.
(iv) Calculate estimates of the seasonal factors of the quarterly sales data.
(v) Compute the deseasonalized observations.
(vi) Assuming that a linear trend TR t = describes the deseasonalized
observations, with computed least squares point estimates of to be
18.02 and 1.09, respectively, compute forecasts for the 2020 quarters.

Near the end of 2019, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2019. DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2019 Assets

Cash $ 35,500 D

Accounts receivable 520,000 D

Inventory 90,000 D

Total current assets $ 645,500 CR

Equipment 612,000 D

Less: Accumulated depreciation 76,500 D

Equipment, net 535,500 CR

Total assets $ 1,181,000 CR

Liabilities and Equity

Accounts payable $ 355,000 D

Bank loan payable 14,000 D

Taxes payable (due 3/15/2020) 90,000 D

Total liabilities $ 459,000 CR

Common stock 470,500 D

Retained earnings 251,500 D

Total stockholders’ equity 722,000 CR

Total liabilities and equity $ 1,181,000 CR

To prepare a master budget for January, February, and March of 2020, management gathers the following information.

a.The company’s single product is purchased for $20 per unit and resold for $56 per unit. The expected inventory level of 4,500 units on December 31, 2019, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are January, 7,250 units; February, 9,250 units; March, 10,750 units; and April, 10,500 units.

b. Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 57% is collected in the first month after the month of sale and 43% in the second month after the month of sale. For the December 31, 2019, accounts receivable balance, $130,000 is collected in January 2020 and the remaining $390,000 is collected in February 2020.

c.Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining $290,000 is paid in February 2020.

d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year.

e. General and administrative salaries are $144,000 per year. Maintenance expense equals $1,900 per month and is paid in cash.

f. Equipment reported in the December 31, 2019, balance sheet was purchased in January 2019. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $38,400; February, $93,600; and March, $24,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month’s depreciation is taken for the month in which equipment is purchased.

g. The company plans to buy land at the end of March at a cost of $140,000, which will be paid with cash on the last day of the month.

h. The company has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $42,000 at the end of each month.

i. The income tax rate for the company is 43%. Income taxes on the first quarter’s income will not be paid until April 15.

Required: Prepare a master budget for each of the first three months of 2020; include the following component budgets.

1. Monthly sales budgets.

2. Monthly merchandise purchases budgets.

3. Monthly selling expense budgets.

4. Monthly general and administrative expense budgets.

5. Monthly capital expenditures budgets.

6. Monthly cash budgets.

7. Budgeted income statement for the entire first quarter (not for each month).
8. Budgeted balance sheet as of March 31, 2020.

Please prepare a general journal AND General Ledger that include account explanations.

Q1- Ali, Betty, Carmel, Devaki and Eli are enthusiast stamp collectors and want to start an
online business that buys and sells historical collector-item stamps from around the world.
They decide to set up a company to do this. All four agree to put in $5,000 each to buy
shares in the company. Ali and Betty are assigned to put in an application to ASIC to register
a company called ‘Stamps R Us Pty Ltd’. Carmel is to look into getting a web design company
to design a website and get a quote. She visits Software Designs Pty Ltd in Parramatta CBD
and the salesman spends some time showing her various web design packages. Carmel is
very impressed with the ‘Super Delux’ package but is a little concerned about the $15,000
cost. The salesman informs her, however, that they currently have a 30 per cent sale on that
package, but that it finishes at 5 pm that day. Carmel excitedly calls Ali from the store, who
has been the driving force behind creating the business, to get his thoughts. He says ‘Yes.
Let’s do it’. Carmel signs the contract on behalf of both Stamps R Us and Ali, then and there.
Eli is assigned to investigate buying some stamps that the new company can have as stock
when it first launches. He visits his local stamp dealer, Charlie, of Charlie’s Stamps Pty Ltd,
who is very keen to get Eli’s business. Charlie tells Eli that if the new business buys stamps
from him worth over $10,000, he will give Eli a rare 1901 Australian Federation stamp, now
worth around $2,000 as a personal gift to show his appreciation. Eli is excited about this. He
contacts the group at their next meeting and they agree to buy $11,000 worth of stamps.
However, he doesn’t mention the personal gift. He goes ahead and buys the stamps and
receives the Federation stamp.
The following week, Ali and Betty’s application is successful and the company is registered.
All five become directors. However, at their first board meeting, Betty, Devaki and Eli are
unhappy about the cost of the website package and refuse to accept the contract, saying
the basic package would have been more than sufficient.
Advise the parties of their respective legal rights and liabilities.

Swifty Company purchased equipment for $1008000 on January 1, 2020, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $43000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2022 will be