Fraud investigators found that 70 percent of the nearly $160 million in sales booked by an Asian subsidiary of a European company between September 2006 and June 2007 were fictitious. In an effort to earn rich bonuses tied to sales targets, the Asian subsidiary’s managers used highly sophisticated schemes to fool auditors. One especially egregious method involved funneling bank loans through third parties to make it look as though customers had paid, when in fact they hadn’t.

In a lawsuit filed by the company’s auditors, it was alleged that former executives “deliberately” provided “false or incomplete information” to the auditors and conspired to obstruct the firm’s audits. To fool the auditors, the subsidiary used two types of schemes. The first involved factoring unpaid receivables to banks to obtain cash up front. Side letters that were concealed from the auditors gave the banks the right to take the money back if they couldn’t collect from the company’s customers. Hence, the factoring agreements amounted to little more than loans.

The second, more creative, scheme was used after the auditors questioned why the company wasn’t collecting more of its overdue bills from customers. It turns out that the subsidiary told many customers to transfer their contracts to third parties. The third parties then took out bank loans, for which the company provided collateral, and then “paid” the overdue bills to the company using the borrowed money. The result was that the company was paying itself. When the contracts were later canceled, the company paid “penalties” to the customers and the third parties to compensate them “for the inconvenience of dealing with the auditors.”

The investigators also found that the bulk of the company’s sales came from contracts signed at the end of quarters, so managers could meet ambitious quarterly sales targets and receive multimillion-dollar bonuses. For example, 90 percent of the revenue recorded by the subsidiary in the second quarter of 2007 was booked in several deals signed in the final nine days of the quarter. But the company was forced to subsequently cancel 70 percent of those contracts because the customers—most of them tiny startups—didn’t have the means to pay.

List revenue-related fraud symptoms and schemes used in this case. Briefly discuss how actively searching and understanding revenue-related fraud symptoms could have led to discovering the fraud by the company’s auditors.

1. Assume that Nissan spends an average of 1.875 million yen to manufacture a car in Japan, plus $2,600 to market and distribute the car in the United States. Furthermore, Nissan adds 10% margin to price the car. The exchange rate is $1 = ¥100

a. Assuming that the exchange rate at the end of the year is expected to be $1 = ¥80, what will be the impact of the exchange rate on the dollar cost the auto?

b. If Nissan had wanted to sell the car at the same price at which they were selling earlier, by how much would it have to cut costs, given the exchange rate in part a above.

c. If the same car were manufactured in the United States at a cost of $19,000 and 40 percent of parts were imported from Japan, what impact would the different exchange rates have on the dollar cost?

d. Suggest some strategies that can be used by Nissan to counter strong yen.

e. Suggest some strategies that can be used by Nissan in a weak yen environment.

2.

a. Company Ziyu. is a U.S. based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Kang Co. is a U.S. based MNC that has the same level of net cash flows in these currencies as Ziyu Co. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk? Why?

b. Stephanie Olive Co. is a U.S. based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Deepika Co. is a U.S. based MNC that has the same exposure as Stephanie Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk? Why?

3. Which of the following operations benefits from appreciation of the firm’s local currency?

A) Borrowing in a foreign currency and converting the funds to the local currency prior to the appreciation.

B) Receiving earnings dividends from foreign subsidiaries.

C) Purchasing supplies locally rather than overseas.

D) Exporting to foreign countries.

4. Which of the following operations benefits from depreciation of the firm’s local currency?

A) Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation.

B) Purchasing foreign supplies.

C) Investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency.

D) Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation AND purchasing foreign supplies.

5. Chaoyi Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the DK is $.10. Chaoyi Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Chaoyi Co. will:

A) Benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.

B) Benefit, because the dollar value of its DK position exceeds the dollar value of its SF position.

C) Be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position.

D) Be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.

6. Generally, MNCs with less foreign costs than foreign revenue will be _______ affected by a _______ foreign currency.

A) Favorably; stronger

B) Not; stronger

C) Favorably; weaker

D) Not; weaker

7. When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are _______.

A) Favorably; favorably affected but by a smaller degree

B) Favorably; favorably affected by a higher degree

C) Unfavorably; favorably affected

D) Favorably; unfavorably affected

8. A firm produces goods for which substitute goods are produced in all countries. Appreciation of the firm’s local currency should:

A) Increase local sales as it reduces foreign competition in local markets.

B) Increase the firm’s exports denominated in the local currency.

C) Increase the returns earned on the firm’s foreign bank deposits.

D) Increase the firm’s cash outflow required to pay for imported supplies denominated in a foreign currency.

E) None of these.

9. A firm produces goods for which substitute goods are produced in all countries. Depreciation of the firm’s local currency should:

A) Decrease local sales as foreign competition in local markets is reduced.

B) Decrease the firm’s exports denominated in the local currency.

C) Decrease the returns earned on the firm’s foreign bank deposits.

D) Decrease the firm’s cash outflow required to pay for imported supplies denominated in a foreign currency.

E) None of these.

10. If a U.S. firm’s cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a _______ overall impact of the Swiss franc’s depreciation against the dollar on _______.

A) Positive; interest expenses

B) Positive; gross profit

C) Negative; gross profit

D) Negative; interest expenses

11. Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What the net inflow or outflow is as measured in U.S. dollars?

12. Xiling Co. is a U.S. company with sales to Canada amount¬ing to C$8 million. Its cost of materials attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above, the dollar value of Whitewater’s “earnings before interest and taxes” would _______ if the Canadian dollar appreciates; the dollar value of Whitewater’s cash flows would _______ if the Canadian dollar appreciates.

A) Increase; increase

B) Decrease; increase

C) Decrease; decrease

D) Increase; decrease

E) Increase; be unaffected

12. Yichen Peng (a U.S. firm) has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million, while its peso denomin¬ated expenses amount to MXP41 million. If it shifts its material orders from its Mexican suppliers to U.S. suppliers, it could reduce peso denominated expenses by MXP12 million and increase dollar denominated expenses by $800,000. This strategy would _______ the Yichen’s exposure to changes in the peso’s movements against the U.S. dollar. Regardless of whether the firm shifts expenses, it is likely to perform better when the peso is valued _______ relative to the dollar.

A) Reduce; high

B) Reduce; low

C) Increase; low

D) Increase; high

13. Maura Watts Co. is a U.S. manufacturing firm that produces goods in the U.S. and sells all products to retail stores in the U.K.; the goods are denominated in pounds. It finances a small portion of its business with pound denominated loans from British banks. Which of the following is true? (Assume that the amount of products to be sold is guaranteed by contracts.)

A) The dollar value of sales is higher if the pound depre¬ciates against the dollar.

B) The dollar value of sales is unaffected by the pound’s exchange rate.

C) Both of these are true.

D) Neither of these is true.

14. Aashka Co. has some expenses and revenue in euros. If its expenses are more sensitive to exchange rate movements than revenue, it could reduce economic exposure by _______. If its revenues are more sensitive than expenses, it could reduce economic exposure by _______.

A) Decreasing foreign revenues; decreasing foreign expenses

B) Decreasing foreign revenues; increasing foreign expenses

C) Increasing foreign revenues; decreasing foreign revenues

D) Decreasing foreign expenses; increasing foreign revenues

15. If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:

A) Cash inflows exceed cash outflows in each foreign currency.

B) Cash outflows exceed cash inflows in each foreign currency.

C) Cash inflows match cash outflows in each foreign currency.

D) None of these.

The following payroll liability accounts are included in the ledger of Harmon Company on January 1, 2017. FICA Taxes Payable $760 Federal Income Taxes Payable 1,210 State Income Taxes Payable 105 Federal Unemployment Taxes Payable 285 State Unemployment Taxes Payable 1,930 Union Dues Payable 855 U.S. Savings Bonds Payable 360 In January, the following transactions occurred. Jan. 10 Sent check for $855 to union treasurer for union dues. 12 Remitted check for $1,970.00 to the Federal Reserve bank for FICA taxes and federal income taxes withheld. 15 Purchased U.S. Savings Bonds for employees by writing check for $360. 17 Paid state income taxes withheld from employees. 20 Paid federal and state unemployment taxes. 31 Completed monthly payroll register, which shows salaries and wages $54,000, FICA taxes withheld $4,131, federal income taxes payable $2,135, state income taxes payable $490, union dues payable $405, United Fund contributions payable $1,960, and net pay $44,879. 31 Prepared payroll checks for the net pay and distributed checks to employees. At January 31, the company also makes the following accrued adjustments pertaining to employee compensation. 1. Employer payroll taxes: FICA taxes 7.65%, federal unemployment taxes 0.8%, and state unemployment taxes 5.4%. 2. Vacation pay: 6% of gross earnings.

Journalize the January transactions. (Round answers to 2 decimal places, e.g. 15.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Question 1

Mr. Chai sells various types of toys throughout Malaysia. Three of the accounts in the ledger of Mr. Chai indicated the following;

Balances at 1 January 2020:

(i)        Insurance paid in advance RM562

(ii)       Wages outstanding RM306

(iii)      Rent receivable, received in advance RM36

During 2020, Mr. Chai:

(i)           Paid for insurance RM1,019, by bank standing order

(ii)       Paid RM15,000 wages, in cash

(iii)      Received RM2,600 rent, by cheque, from the tenant

At 31 December 2020:

(i)           Insurance prepaid was RM345

(ii)       Wages accrued amounted to RM419

(iii)      Rent receivable in arrears was RM105

Required;

(a)       Prepare the prepaid insurance, accrued wages and rent receivable accounts for the year ended 31 December 2020.

(b)       Prepare the income statement extract showing clearly the amounts of insurance expense, wages expense and rent revenue for the year ended 31 December 2020.

(c)        Explain the effects on the financial statements of accounting for:

               (i)           the expenses accrued at year-end

               (ii)       the income received in advance at year end

(d)       Explain the purposes of accounting for:

              (i)           the expenses accrued at year end

              (ii)       the income received in advance at year end

(Total: 20 marks)

A comparative statement of financial position for Nathalina Industries Inc. follows:
NATHALINA INDUSTRIES INC.
Statement of Financial Position
December 31, 2020
    December 31

Assets 2020 2019
Cash $ 21,000  $ 34,000 
Accounts receivable   114,000  54,000 
Inventory 220,000  189,000 
Land 71,000  110,000 
Equipment 240,000  200,000 
Accumulated depreciation—equipment   (69,000) (42,000)
Total $597,000     $545,000 
Liabilities and Shareholders' Equity        
Accounts payable. 52,000. 59,000

Long term liabilities 25,000 0

Bonds payable 125,000  200,000 
Common shares    204,000  164,000 
Retained earnings   191,000  122,000 
Total $597,000  $545,000 

Additional information:
1. Net income for the fiscal year ending December 31, 2020, was $129,000.
2. Cash dividends were declared and paid in the year.
3. Bonds payable amounting to $75,000 were paid off.
4. Additional issuance of common shares for cash occurred in the year.
5. Land was sold for cash at a gain of $5,000. This gain on sale of the land is listed on the income statement.
6. Equipment was purchased during the year. It was purchased with $25,000 Long term liabilities and the remaining was paid with cash.
7. Depreciation Expense during 2020 was $27,000.

Required: Prepare a statement of cash flows for 2020 using the indirect method.

On May 1, 2018, Delta Airlines buys 100 SkyFlight Food Service, Inc. bonds for $1,015 each. Delta classifies this investment as available for sale. This is the first available for sale investment Delta has recorded and the only item that affects comprehensive income during this time period. During 2018, SkyFlight pays all bondholders $42 interest per bond. At the end of 2018, the bonds of Skyflight are trading for $1,020 each. During 2019, Skyflight pays all bondholders interest of $75 per bond. At the end of 2019, the bonds of Skyflight are trading for $1,014 per bond. On May 1, 2020, Delta Airlines sells all of its Skyflight bonds for $1,010 per bond. No interest was paid by Skyflight in 2020. Net income before anything to do with Skyflight (even the interest is not included) for Delta was $20 million in 2018, $16 million in 2019 and $18 million in 2020 after taxes. The tax rate is 20% for all years.

Requirements:

a. Show all the needed journal entries for the Skyflight stock from purchase to sale.

b. Show the statement of comprehensive income for 2018, 2019 and 2020.

c. If accumulated other comprehensive income is $500,000 at the beginning of 2018, what is the accumulated other comprehensive income at the end of 2018, 2019 and 2020

Garda World Security Corporation has the following shares, taken from the equity section of its balance sheet dated December 31, 2020.

*All shares were issued during 2018.

During its first three years of operations, Garda World Security Corporation declared and paid total dividends as shown in the last column of the following schedule.

Required:
Part A
1. Calculate the total dividends paid in each year to the preferred and to the common shareholders.

Total Dividend 2018$ 170,000

2019 $410,000

2020 $570,000

2. Calculate the dividends paid per share to both the preferred and the common shares in 2020. (Round the final answers to 2 decimal places.)

Part B
1. Calculate the total dividends paid in each year to the preferred shares and to the common shareholders assuming preferred shares are cumulative.

Total for three years$1,150,000

Total Dividend 2018$ 170,000

2019 $410,000

2020 $570,000

2. Calculate the dividends paid per share to both the preferred and the common shares in 2020 assuming preferred shares are cumulative. (Round the final answers to 2 decimal places.)

Grape Inc. had the following balance sheet at December 31, 2019:

Grape INC. BALANCE SHEET DECEMBER 31, 2019

Cash $ 31,000

Accounts payable $ 61,000 x

Accounts receivable 56,800 x

Notes payable (long-term) 76,000

Investments 86,000 x

Common stock 200,000

Plant assets (net) 138,500

Retained earnings 41,300

Land 66,000

Total assets and Total Liabilities and Stockholders' Equity $378,300 $378,300

During 2020, the following occurred:

1. Grape liquidated its available-for-sale investment portfolio at a gain of $15,000. x

2. A tract of land was purchased for $61,000 cash. x

3. An additional $15,200 in common stock was issued at par. x

4. Dividends totaling $41,000 were declared and paid to stockholders. x

5. Net income for 2020 was $46,000x, including $8,000x in depreciation expense.

6. Land was purchased through the issuance of $195,000x in additional notes payable.

7. At December 31, 2020, Cash was $68,000x, Accounts Receivable was $84,000x, and Accounts Payable was $72,000x

Instructions (a) Prepare the balance sheet as it would appear at December 31, 2020 (b) Prepare a statement of cash flows for the year 2020 for Grape. . Prepare all in good form.

Sha Corporation produces milk on its farms located in Zamboanga. At December 31, 2019, the herd of cows are as follows:

4,000 cows (3 years old), all purchased in prior years

2,000 heifers (2 years old), all purchased in prior years

1,000 heifers (1 year old) purchased on December 31, 2011

The unit vales less estimated point of sale costs were as follows:

      1 year old animal at December 31, 2019 ₱35,000

      2 year old animal at December 31, 2019                    45,000

      3 year old animal at December 31, 2019 54,000

      1 year old animal at December 31, 2020                    38,000

      2 year old animal at December 31, 2020                    47,500

      3 year old animal at December 31, 2020                    57,000

      4 year old animal at December 31, 2020                    60,000

Required:

1. Compute for the change in fair value less estimated point of sale cost of the biological assets dues to;
   1. Price change
   2. Physical change
2. Prepare schedule showing the reconciliation of beginning balances to ending balances of biological assets and the changes during the period due to price purchase and change in fair value
3. Give the journal entries for 2020 to reflect the foregoing.

Kailee’s Cookery Pty Ltd sells ovens and access to online cooking classes. On 1 May 2020, Kailee’s Cookery Pty Ltd signs an agreement with Chef School to provide 15 weekly online cooking classes and five ovens. The contract price amounted to $66,000 (GST inclusive), on credit terms n/30 for the ovens and n/60 for the cooking classes. This amount also includes one free service of the oven to be performed six months after the delivery of the ovens to Chef School.

The stand-alone price for the 15 weekly online cooking classes is $33,000 (GST inclusive). The cooking classes will start on 18 May 2020.

The stand-alone price of the ovens is $55,000 (GST inclusive). The six-month service fee for the ovens is usually $1,100 (GST inclusive).

The ovens were delivered on 18 May 2020.

Chef School paid the full amount on 20 May 2020 for the ovens.

By 30 June 2020, 7 online cooking classes were delivered. Chef School has yet to make any payment for the online cooking classes.

Required:

With reference to AASB 15 Revenue from Contracts with Customers, apply the five-step process for revenue recognition in regards to the contract with Chef School. List each of the five steps and show any calculations