A. Please read the following situation statement and answer the questions that follow:

While traveling on business with a co-worker, you spend quite a few evenings having dinner and cocktails with your co-worker’s extended family that lives in town. After each of these meals your co-worker charges the entire meal to his corporate credit card, which he then submits as a business expense as part of his travel expense report. As these meals were not overly extravagant, the total value is small enough to get “lost” in the overall expense report, thus considered to be insignificant from the perspective of your co-worker.

Would the inclusion of these meals on his corporate expense report be considered fraudulent?

Does the low dollar value of these transactions impact your opinion?

If you consider this activity potentially fraudulent, do you have a responsibility to report the activity? If so, to whom?

If you confronted your co-worker and his response was, “You are correct, that was a mistake on my part. I did not realize that I was improperly handling these expenses. I will be sure to pay them with my own personal funds once the bill is received,” would you take further action and report the incident or consider it settled based on the conversation?

B. Please answer each of the following questions in paragraph form providing examples and support from the chapter readings and other sources:

What is the difference between fraud and error?

Is there evidence to support the notion that instances of fraud have increased at a rapid rate? Provide insight into the driver(s) of this issue.

Please provide the description and at least one example of each type of fraud:

Employee embezzlement

Management fraud

Investment scam

Vendor fraud

Customer fraud

Miscellaneous fraud

The chief executive officer (CEO) of Faoilean Co has just returned from a discussion at a leading university on the 'application of options to investment decisions and corporate value'. She wants to understand how some of the ideas which were discussed can be applied to decisions made at Faoilean Co. She is still a little unclear about some of the discussion on options and their application, and wants further clarification on the following:

(i) Faoilean Co is involved in the exploration and extraction of oil and gas. Recently there have been indications that there could be significant deposits of oil and gas just off the shores of Ireland. The Government of Ireland has invited companies to submit bids for the rights to commence the initial exploration of the area to assess the likelihood and amount of oil and gas deposits, with further extraction rights to follow. Faoilean Co is considering putting in a bid for the rights. The speaker leading the discussion suggested that using options as an investment assessment tool would be particularly useful to Faoilean Co in this respect.

(ii) The speaker further suggested that options were useful in determining the value of equity and default risk, and suggested that this was why companies facing severe financial distress could still have a positive equity value.

(iii) Towards the end of the discussion, the speaker suggested that changes in the values of options can be measured in terms of a number of risk factors known as the 'greeks', such as the 'vega'. The CEO is unclear why option values are affected by so many different risk factors.

Required With regard to

(ii) above, discuss how options could be useful in determining the value of equity and default risk, and why companies facing severe financial distress still have positive equity values.

You are the audit manager of Chestnut & Co and are reviewing the key issues identified in the files of two audit clients.

Palm Industries Co (Palm)

Palm’s year-end was 31 March 2015 and the draft financial statements show revenue of $28·2 million, receivables of $5·6 million and profit before tax of $4·8 million. The fieldwork stage for this audit has been completed.

A customer of Palm owed an amount of $350,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Palm from this customer as they were disputing the quality of certain goods received from Palm. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance.

Ash Trading Co (Ash)

Ash is a new client of Chestnut & Co, its year-end was 31 January 2015 and the firm was only appointed auditors in February 2015, as the previous auditors were suddenly unable to undertake the audit. The fieldwork stage for this audit is currently ongoing.

The inventory count at Ash’s warehouse was undertaken on 31 January 2015 and was overseen by the company’s internal audit department. Neither Chestnut & Co nor the previous auditors attended the count. Detailed inventory records were maintained but it was not possible to undertake another full inventory count subsequent to the year-end.

The draft financial statements show a profit before tax of $2·4 million, revenue of $10·1 million and inventory of $510,000.

Required:

For each of the two issues:

(i) Discuss the issue, including an assessment of whether it is material;

(ii) Recommend ONE procedure the audit team should undertake to try to resolve the issue; and

(iii) Describe the impact on the audit report if the issue remains UNRESOLVED.

CULTURES IN HIERARCHY AND CULTURES ALONGSIDE Asante (2003b) claims that difference alone does not create a problem, and that it is the assigning of hierarchical value to difference that creates a problem. His idea of “multiculturalism without hierarchy” thus pinpoints how cultures should relate to one another in the context of diversity. He implies that, if multiculturalism is defined as the co-existence of many cultures, there are two ways of cultural co-existence: (1) cultures in hierarchy and (2) cultures along- side. Cultures in hierarchy is the form of cultural co- existence in which we see one culture above others so that we learn a frame of reference from one culture and view others through the single cultural standpoint. Cultures alongside is the form of cultural co-existence in which we see all cultures equal so that we learn different outlooks from different cultures and view all cultures through their respective cultural lenses. Asante (1993) refers to the second form of cultural co-existence as pluralism without hierarchy and hegemony. He believes that, when we bring together local knowledges from all cultures, we will have a truly global knowledge about people in the world and move toward a truly transcultural understanding of humanity, diversity, and communication. In this section, using Satoshi Ishii’s (1997) conceptualization of culture, I will envision the ideal of culture learning that enhances “multiculturalism without hierarchy.” My premise here is that, in order to appreciate any culture, we must understand the worldview of the culture and its impact on the forms and functions of communication.

What is meant by “cultures in hierarchy”? Is this considered a negative or positive perspective? Why? Is there a better way of viewing cultures?

The budget director for Campbell Cleaning Services prepared the following list of expected selling and administrative expenses. All expenses requiring cash payments are paid for in the month incurred except salary expense and insurance. Salary is paid in the month following the month in which it is incurred. The insurance premium for six months is paid on October 1. October is the first month of operations; accordingly, there are no beginning account balances.

Complete the schedule of cash payments for S&A expenses by filling in the missing amounts.

• 
  b.Salaries payable
• c.Prepaid insurance

After the 2016 presidential election, Gallup collected a random sample of 1,021 Americans and estimated that 47% of Americans wanted to keep the electoral college. One month before the election, in October 2016, another random poll of 1,100 Americans estimated that 52% wanted to keep the Electoral College. Statistically speaking, we can look at whether or not we can be sure that there was a change in opinions about keeping the Electoral College between October of 2016 and November of 2016.

(a) What is the point estimate for the November poll?

(b) What is the point estimate for the October poll?

(c) Are these point estimates statistics or parameters? Explain why or why not.

(d) Report and interpret the difference between the two point estimates.

(e) Compute the estimated standard error for the difference between two estimates. Show your work.

(f) Construct and interpret the difference between these groups at the 95% level. Show your work. 1 Now we can also perform a significance test.

(g) State the null hypothesis.

(h) State an alternative hypothesis.

(i) The test statistic z=-2.3012 and its associated p-value is approximately 0.021 for a two-tailed test at the 5% significance level. Interpret this result in regards to the hypotheses you stated above.

Major Communications Ltd., a publicly traded company that specializes in data capture, has been in operation for several years. On October 1, 2019, it had 10 million common shares authorized and 1.5

million shares issued at an average value of $30 per share. As well, there were 1 million preferred shares authorized, with 200,000 of them issued at $15 per share. On October 1, 2019, the balance in Retained Earnings was $20,375,000. During the fiscal year 2020, the following transactions affected shareholders' equity:

1. On November 1, 2019, 400,000 new common shares were issued at $32 per share.
2. On March 15, 2020, a 5% common stock dividend on the outstanding shares was declared and distributed when the market price was $45 per share.
3. On September 1, 2020, a dividend of $5.15 per common share was declared. The date of record was September 15, 2020, with the date of payment being October 5, 2020.
4. The preferred shares pay an annual dividend of $1.20. The preferred dividend for the year was declared and paid.
5. During the fiscal year ended September 30, 2020, the company generated net income after taxes of $25 million. RequiredComplete the below statement of changes in shareholders' equity as at September 30, 2020

Fire Out Company manufactures its product, Vitadrink, through two manufacturing processes: Mixing and Packaging. All materials are entered at the beginning of each process. On October 1, 2020, inventories consisted of Raw Materials $26,000, Work in Process—Mixing $0, Work in Process—Packaging $251,000, and Finished Goods $290,000. The beginning inventory for Packaging consisted of 11,000 units that were 50% complete as to conversion costs and fully complete as to materials. During October, 51,000 units were started into production in the Mixing Department and the following transactions were completed.

Journalize the October transactions.

Provide complete answers to the following:

The City of Sambaville received a gift of $1,800,000 from a local resident on April 1, 2017, and signed an agreement that the funds would be invested permanently, and that the income would be used to maintain the city cemetery (through the Cemetery Perpetual Care Fund). The following transactions took place during the year ended December 31, 2017.

1. The gift was recorded on April 1.
2. On April 1, 2017, XYZ Company bonds were purchased in the amount of $1,750,000, at par. The bonds carry an annual interest rate of 5 percent, payable semiannually on October 1 and April 1.
3. On October 1, the semiannual interest was received.
4. From October 1 through December 1, payments were made totaling $17,200 to a lawn service.
5. On December 31, an accrual was made for interest.
6. Also, on December 31, a reading of the financial press indicated that XYZ bonds had a fair value of $1,745,500, exclusive of accrued interest.
7. The books were closed.

Required:

1. Record the transactions on the books of the Cemetery Perpetual Care Fund.
2. Prepare a separate Statement of Revenues, Expenditures, and Changes in Fund Balances for the Cemetery Perpetual Care Fund for the Year Ended December 31, 2017.
3. Prepare the Balance Sheet for the Cemetery Perpetual Care Fund for the year ended December 31, 2017.

Journalize these transactions using the perpetual inventory method

a) January 1 purchase inventory for $400 with credit term of 2/15 net 30

b) January 12 paid for the January 1 purchase in full

c) February 1 sold 10 units costing $21 to a customer for $360 on account . This sale has credit term of 1/15 net 40

d) February 9 customer returned three units from his February 1 order because he did not like the color of the goods

e) February 18 customer paid for the February 1 order ( less returns) in full

f) May 5 purchased inventory for $250 with credit terms of 2/10 net 30

g) May 6 paid special freight cost of $30 and I made this inventory purchase in cash

h) May.14 found that 50% of the goods purchased on May 5 or defective. Danner returned these goods

i) June 1 paid for a May 5 purchase (less returns) in full

j). October 1 sold $160 of goods to customer for $220 with a credit term of 1/20 net 40

k) October 14 received cash for payment in full for the October for sale