David Sheridan was a well-respected CPA in his mid-fifties. After spending 10 years at a national accounting firm, he was hired by Global, Inc., a multinational corporation headquartered in the United States. He patiently worked his way up to the top of Global’s accounting department, and in the early 1990s, took over as chief financial officer for the company. As the Internet began to explode, management at Global, Inc. decided to radically change the nature of its business to one of e-commerce. Two years after the transition, Internet commerce began to slow down, and Global was in dire need of cash in order to continue operations. Management turned to the accounting department. Global, Inc. needed to borrow a substantial amount of money but couldn’t afford to increase the amount of liabilities on the balance sheet for fear of the stock price dropping and banks becoming nervous and demanding repayment of existing loans. David discovered a way that would allow the company to raise the needed cash to continue operations without having to report the long-term notes payable on the balance sheet. Under an obscure rule, companies can set up separate legal organizations that do not have to be reported on the parent company’s financial statements, if a third party contributes just 3 percent of the start-up capital. David called a friend, Brian Johnson, and asked him to participate in a business venture with Global. Brian agreed, and created a special purpose entity with Global named BrianCo. For his participation, Brian was awarded a substantial amount of valuable Global stock. Brian went to a bank and used the stock as collateral to borrow a large sum of money for BrianCo. Then, Global sold some of its poor or underperforming assets to BrianCo for the cash that Brian borrowed. In the end, Global got rid of bad assets, received the proceeds of the longterm note payable, and did not have to show the liability on the balance sheet. Only the top executives and the accountants that worked closely with David knew of the scheme, and they planned to use this method only until the e-commerce portion of Global became profitable again. Required: a. How did David’s scheme affect the overall appearance of Global’s financial statements? Why was this important to investors and creditors? b. Review the AICPA’s Articles of Professional Conduct (see Chapter 4) and comment on any of the standards that have been violated. c. Name the features of the fraud triangle and explain how they materialize in this case.
> The following information pertains to Ming Corp. at January 1, 2018: Common stock, $10 par, 50,000 shares authorized, 3,000 shares issued and outstanding………………………………………..$30,000 Paidin capital in excess of par, common stock……………………………
> No well Inc. had the following stock issued and outstanding at January 1, 2018: 1. 150,000 shares of no-par common stock. 2. 30,000 shares of $50 par, 4 percent, cumulative preferred stock. (Dividends are in arrears for one year, 2017.) On March 8, 2018,
> Cascade Company was started on January 1, 2018, when it acquired $60,000 cash from the owners. During 2018, the company earned cash revenues of $35,000 and incurred cash expenses of $18,100. The company also paid cash distributions of $4,000. Required:
> Sea Coast Plumbing Company (SCPC) is a national company that provides residential plumbing services. SCPC is considering making a substantial investment in Rake land Distributors, Inc. (RDI). RDI sells plumbing supplies throughout the United States. Re
> Cal Cagle was working to establish a business enterprise with four of his wealthy friends. Each of the five individuals would receive a 20 percent ownership interest in the company. A primary goal of establishing the enterprise was to minimize the amount
> Louise Stinson, the chief financial officer of Bostonian Corporation, was on her way to the president’s office. She was carrying the latest round of bad news. There would be no executive bonuses this year. Corporate profits were down. Indeed, if the late
> Show the effect of each of the following independent accounting events on the financial statements using a horizontal statements model like the following one. Use + for increase, − for decrease, and NA for not affected. The first event
> Mott Company has a line of credit with Bay Bank. Mott can borrow up to $400,000 at any time over the course of the 2018 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid d
> Elite Boat Sales uses a line of credit to help finance its inventory purchases. Elite Boat Sales sells boats and equipment and uses the line of credit to build inventory for its peak sales months, which tend to be clustered in the summer months. Account
> The following transactions apply to Pecan Co. for 2018, its first year of operations: 1. Received $100,000 cash in exchange for issuance of common stock. 2. Secured a $300,000 five-year installment loan from State Bank. The interest rate is 5 percent and
> On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $100,000 face value, four-year term note that had an 8 percent annual interest rate. The note is to be repaid by making annual cash payments of $30,192 that include both interest an
> The following selected transactions were taken from the books of Ripley Company for 2018: 1. On February 1, 2018, borrowed $70,000 cash from the local bank. The note had a 6 percent interest rate and was due on June 1, 2018. 2. Cash sales for the year am
> a. Give an example of a contingent liability that is probable and reasonably estimable. How would this type of liability be shown in the accounting records? b. Give an example of a contingent liability that is reasonably possible or probable but not reas
> The following transactions apply to Walnut Enterprises for 2018, its first year of operations: 1. Received $50,000 cash from the issue of a short-term note with a 6 percent interest rate and a one year maturity. The note was made on April 1, 2018. 2. Rec
> On January 1, 2018, Reese Incorporated issued bonds with a face value of $120,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7 per
> Required: Use the following information to prepare a multistep income statement and a classified balance sheet for Eller Equipment Company for 2018. $ 72,000 Beginning retained earnings Warranties payable (short term) Gain on sale of equipment Opera
> Jim Baku and Scott Hanson are thinking about opening a new restaurant. Baku has extensive marketing experience but does not know that much about food preparation. However, Hanson is an excellent chef. Both will work in the business, but Baku will provide
> During 2018 and 2019, Kale Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31. 2018 Mar. 1 Issued $200,000 of 8 year, 6 percent bonds for $194,000. The semiannual cash payment for interest i
> Pine Land Co. was formed when it acquired cash from the issue of common stock. The company then issued bonds at a premium on January 1, 2018. Interest is payable annually on December 31 of each year, beginning December 31, 2018. On January 2, 2018, Pine
> Malco Enterprises issued $10,000 of common stock when the company was started. In addition, Malco borrowed $36,000 from a local bank on July 1, 2018. The note had a 6 percent annual interest rate and a one-year term to maturity. Malco Enterprises recogni
> The following transactions pertain to Accounting Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year. 2018 1. Acquired $80,000 cash from the issue of common stock. 2. Purchased
> Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine Company estimated that the machine would have a life of four years and a $25,000 salvage value. Delta Machine Company uses the straight-line me
> Banger Co. purchased delivery equipment for $56,000 on January 1, 2018. Banger estimated that the delivery equipment would have a life of five years and a $6,000 salvage value. Banger uses the straight-line method to compute the depreciation expense. At
> Sabel Co. purchased assembly equipment for $500,000 on January 1, 2018. Sabel’s financial condition immediately prior to the purchase is shown in the following horizontal statements model. The equipment is expected to have a useful li
> Becker Office Service purchased a new computer system on January 1, 2018, for $40,000. It is expected to have a five-year useful life and a $5,000 salvage value. Becker Office Service expects to use the computer system more extensively in the early years
> Bensen Company began operations when it acquired $60,000 cash from the issue of common stock on January 1, 2018. The cash acquired was immediately used to purchase equipment for $50,000 that had a $10,000 salvage value and an expected useful life of four
> Three different companies each purchased trucks on January 1, 2018, for $50,000. Each truck was expected to last four years or 200,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 66,000 miles in 2018, 42,000 miles in 201
> Using either Skechers USA, Inc.’s most current Form 10-K or the company’s annual report, answer the following questions. To obtain the Form 10-K use either the EDGAR system following the instructions in Appendix A or the company’s website. The company’s
> Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, 2018: Purchase price……………………………………$ 70,000 Delivery cost……………………………………….$ 3,000 Installation charge………………………………$ 1,000 Estimated life…………………
> Companies in the coal mining business use a lot of property, plant, and equipment. Not only is there the significant investment they must make in the equipment used to extract and process the coal, but they must also purchase the rights to the coal reser
> Mitre Company acquired Midwest Transportation Co. for $1,400,000. The fair market values of the assets acquired were as follows. No liabilities were assumed. Equipment……………………………………………$510,000 Land………………………………………………………150,000 Building………………………………………………
> Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities: Jan. 1, 2018 Purchased for $1,500,000 a silver mine estimated to contain 100,000
> Tower Company owned a service truck that was purchases at the beginning of 2018 for $31,000. It had an estimated life of three years and an estimated salvage value of $4,000. Tower company uses straight-line depreciation. Its financial condition as of Ja
> Morris Inc. recorded the following transactions over the life of a piece of equipment purchased in 2018: Jan. 1, 2018 Purchased equipment for $90,000 cash. The equipment was estimated to have a five year life and $5,000 salvage value and was
> Trinkle Company made several purchases of long-term assets in 2018. The details of each purchase are presented here. New Office Equipment 1. List price: $60,000; terms: 2/10, n/30; paid within the discount period. 2. Transportation-in: $1,500. 3. Install
> Identify each of the following independent transactions as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event affects assets, liabilities, stockholders’ equity, net income, and c
> Northwest Sales had the following transactions in 2018: 1. Acquired $200,000 cash from the issue of common stock. 2. Purchased $900,000 of merchandise for cash in 2018. 3. Sold merchandise that cost $710,000 for $1,200,000 during the year under the follo
> The following information comes from the accounts of James Company: Required: a. There were $190,000 of sales on account during the accounting period. Write-offs of uncollectible accounts were $1,450. What was the amount of cash collected from accounts
> Use the Target Corporation’s Form 10-K to answer the following questions related to Target’s 2015 fiscal year (year ended January 30, 2016). Target’s Form 10-K is available on the company’s website or through the SEC’s EDGAR database. Appendix A provides
> Use the following information to prepare a multistep income statement and a classified balance sheet for Chun Equipment Co. for 2018. Salaries expense $ 41,200 $ 2,100 Interest receivable (short term) Beginning retained earnings Operating expenses C
> The following transactions apply to Hooper Co. for 2018, its first year of operations: 1. Issued $60,000 of common stock for cash. 2. Provided $90,000 of services on account. 3. Collected $78,000 cash from accounts receivable. 4. Loaned $20,000 to Mosby
> Sage Inc. experienced the following transactions for 2018, its first year of operations: 1. Issued common stock for $50,000 cash. 2. Purchased $140,000 of merchandise on account. 3. Sold merchandise that cost $110,000 for $250,000 on account. 4. Collecte
> During the first year of operation, 2018, McGinnis Appliance recognized $275,000 of service revenue on account. At the end of 2018, the accounts receivable balance was $55,300. Even though this is his first year in business, the owner believes he will co
> The following information is available for Quality Book Sales's sales on account and accounts receivable: Accounts Receivable Balance, January 1, 2018………………………………$ 78,500 Allowance for Doubtful Accounts, January 1, 2018……………………………….4,710 Sales on Accoun
> The Brick Company had cash sales of $280,000 for 2018, its first year of operation. On April 2, the company purchased 210 units of inventory at $390 per unit. On September 1, an additional 160 units were purchased for $425 per unit. The company had 110 u
> The accounting records of Wall’s China Shop reflected the following balances as of January 1, 2018: Cash……………………………………………………………….$80,100 Beginning inventory……………33,000 (220 units @ $150) Common stock…………………………………………………50,000 Retained earnings……………………………
> The following trial balance was prepared for Tile, Etc., Inc. on December 31, 2017, after the closing entries were posted: Account Title Cash………………………………………………………………….$110,000 Accounts Receivable…………………………………………….125,000
> The following transactions apply to Jova Company for 2018, the first year of operation: 1. Issued $10,000 of common stock for cash. 2. Recognized $210,000 of service revenue earned on account. 3. Collected $162,000 from accounts receivable. 4. Paid opera
> You have probably heard it is unwise to bite the hand that feeds you. Independent auditors are chosen by, paid by, and can be fired by the companies they audit. What keeps the auditor independent? In other words, what stops an auditor from blindly follow
> Sam Sharp is an accountant with a shady past. Suffice it to say that he owes some very unsavory characters a lot of money. Despite his past, Sam works hard at keeping up a strong professional image. He is a manager at Flowers and Associates, a fast-growi
> The following information is available for Pyle Garage for March 2018: The following is a list of checks and deposits recorded on the books of Pyle Garage for March 2018: Other Information 1. Check no. 1462 was outstanding from February. 2. A credit
> Determine whether the following items included in Wong Company’s January 2018 bank reconciliation will require adjustments on Wong’s books and indicate the amount of any necessary adjustment. a. Service charges of $50 for the month of January were listed
> The following data apply to Pro Beauty Supply Inc. for May 2018: 1. Balance per the bank on May 31, $9,150. 2. Deposits in transit not recorded by the bank, $1,510. 3. Bank error; check written by Best Beauty Supply was charged to Pro Beauty Supply’s acc
> Rick Hall owns a card shop, Hall’s Cards. The following cash information is available for the month of August 2018: As of August 31, the bank statement shows a balance of $16,140. The August 31 unadjusted balance in the Cash account of Hall’s Cards is $
> Following is a bank reconciliation for Zocar Enterprises for June 30, 2018. When reviewing the bank reconciliation, Zocar’s auditor was unable to locate any reference to the NSF check on the bank statement. Furthermore, the clerk who
> Connie Stevens is a partner of a regional accounting firm. Stevens was hired by a client to audit the company’s books. After extensive work, Stevens determined that she was unable to perform the appropriate audit procedures. Required: a. Name the type o
> For each of the following fraudulent acts, describe one or more internal control procedures that could have prevented (or helped prevent) the problems. a. Everyone in the office has noticed what a dedicated employee Carley Trap is. She never misses work,
> The following trial balance pertains to Benji’s Grocery as of January 1, 2018: Account Title Beginning………………â
> The following income statements were drawn from the annual reports of Toner Sales Company: *All dollar amounts are reported in thousands. The president’s message in the company’s annual report stated that the company
> Putting “yum” on people’s faces around the world is the mission of Yum! Brands, Inc. Yum! was spun off from PepsiCo in 1997. A spin-off occurs when a company separates its operations into two or more distinct companies. The company was originally compo
> Complete the following requirements using the most recent financial statements available on the McDonald’s Corporation’s website. Obtain the statements on the Internet by following the steps given. (The formatting of the company’s website may have change
> At the beginning of 2018, the Redd Company had the following balances in its accounts: Cash…………………â€&b
> Blooming Flower Company was started in 2018 when it acquired $60,000 cash from the issue of common stock. The following data summarize the company’s first three years’ operating activities. Assume that all transaction
> The following account titles and balances were taken from the adjusted trial balance of King Co. for 2018. The company uses the periodic inventory system. Account Title………………………………………………………………….Balance Sales returns and allowances………………………………………………..$
> The following events were completed by Dana’s Imports in September 2018: Sept. 1 Acquired $50,000 cash from the issue of common stock. 1 Purchased $28,000 of merchandise on account with terms 2/10, n/30. 5 Paid $600 cash for freight to
> For each of the following events, determine the amount of freight paid by The Box Company. Also indicate whether the freight cost would be classified as a product or period (selling and administrative) cost. a. Purchased inventory with freight costs of $
> Indicate whether each of the following costs is a product cost or a period (selling and administrative) cost: a. Goods purchased for resale. b. Salaries of salespersons. c. Advertising costs. d. Transportation-out. e. Interest on a note payable. f. Salar
> Alcorn Service Company was formed on January 1, 2018. Events Affecting the 2018 Accounting Period 1. Acquired $20,000 cash from the issue of common stock. 2. Purchased $800 of supplies on account. 3. Purchased land that cost $14,000 cash. 4. Paid $800 ca
> Fill in the blanks (indicated by the alphabetic letters in parentheses) in the following financial statements. Assume the company started operations January 1, 2018, and all transactions involve cash. For the Years 2018 2019 2020 Income Statements
> The following accounts and balances were drawn from the records of Barker Company at December 31, 2018: Required: Use the accounts and balances from Barker Company to construct an income statement, statement of changes in stockholders’
> Waddell Company had the following balances in its accounting records as of December 31, 2018: The following accounting events apply to Waddell Company’s 2018 fiscal year: Jan. 1 Acquired $20,000 cash from the issue of common stock. Fe
> Complete the requirements below using the most current annual reports or the Forms 10-K for Lowe’s, a company that sells home-building supplies, and Dominion Resources, one of the nation’s leading generators of energy. To obtain the Forms 10-K, use eithe
> The following selected accounts and account balances were taken from the records of Nowell Company. Except as otherwise indicated, all balances are as of December 31, 2018, before the closing entries were recorded. Required: a. Prepare the income state
> Each of the following independent events requires a year-end adjusting entry. Show how each event and its related adjusting entry affect the accounting equation. Assume a December 31 closing date. The first event is recorded as an example. a. Paid $4,8
> The following events pertain to Super Cleaning Company: 1. Acquired $10,000 cash from the issue of common stock. 2. Provided $15,000 of services on account. 3. Provided services for $5,000 cash. 4. Received $2,800 cash in advance for services to be perfo
> Maben Company was started on January 1, 2018, and experienced the following events during its first year of operation: 1. Acquired $30,000 cash from the issue of common stock. 2. Borrowed $40,000 cash from National Bank. 3. Earned cash revenues of $48,00
> Prat Corp. started the 2018 accounting period with $30,000 of assets (all cash), $12,000 of liabilities, and $13,000 of common stock. During the year, the Retained Earnings account increased by $7,550. The bookkeeper reported that Pratt paid cash expense
> Mark’s Consulting experienced the following transactions for 2018, its first year of operations, and 2019. Assume that all transactions involve the receipt or payment of cash. Transactions for 2018 1. Acquired $20,000 by issuing common stock. 2. Received
> Identify the financial statements on which each of the following items (titles, date descriptions, and accounts) appears by placing a check mark in the appropriate column. If an item appears on more than one statement, place a check mark in every applica
> The following unrelated events are typical of those experienced by business entities: 1. Acquire cash by issuing common stock. 2. Pay cash for operating expenses. 3. Agree to represent a client in an IRS audit and to receive payment when the audit is com
> Match the terms (identified as a through r) with the definitions and phrases (marked 1 through 16). For example the term “a. Assets” matches with definition “15. Equal to liabilities plus stockholder
> The following business scenarios are independent from one another: 1. Bob Wilder starts a business by transferring $10,000 from his personal checking account into a checking account for his business, Wilder Co. 2. A business that Sam Pace owns earns $4,6
> The following three companies issued the following bonds: 1. Lot, Inc. issued $100,000 of 8 percent, five-year bonds at 102¼ on January 1, 2018. Interest is payable annually on December 31. 2. Max, Inc. issued $100,000 of 8 percent, five-year bonds at 98
> Beverly Moore is struggling to pass her introductory accounting course. Beverly is intelligent but she likes to party. Studying is a low priority for Beverly. When one of her friends tells her that she is going to have trouble in business if she doesn’t
> CIA Review, Inc. provides review courses twice each year for students studying to take the CIA exam. The cost of textbooks is included in the registration fee. Text material requires constant updating and is useful for only one course. To minimize printi
> Kenta Manufacturing Company obtains its raw materials from a variety of suppliers. Kenta’s strategy is to obtain the best price by letting the suppliers know that it buys from the lowest bidder. Approximately four years ago, unexpected increases in deman
> Antioch Company makes eBook readers. The company had the following amounts at the beginning of 2018: Cash, $660,000; Raw Materials Inventory, $51,000; Work in Process Inventory, $18,000; Finished Goods Inventory, $43,000; Common Stock, $583,000; and Reta
> Wang Company began operations on January 1, 2018, by issuing common stock for $70,000 cash. During 2018, Wang received $88,000 cash from revenue and incurred costs that required $65,000 of cash payments. Required: Prepare a GAAP-based income statement a
> Power-To-Spare, Inc. makes a smart phone case that includes a battery that extends the operating life of an I Phone. The manufacturing costs per unit include $15 direct materials, $17 direct labor, and $8 manufacturing overhead. These costs are based on
> The following transactions pertain to 2018, the first-year operations of Gibson Company. All inventory was started and completed during 2018. Assume that all transactions are cash transactions. 1. Acquired $12,000 cash by issuing common stock. 2. Paid $4
> Sinclair Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, assume that all transactions are cash transactions and that financial statement d
> Stuart Manufacturing Company was started on January 1, 2018, when it acquired $89,000 cash by issuing common stock. Stuart immediately purchased office furniture and manufacturing equipment costing $32,000 and $40,000, respectively. The office furniture
> Vernon Company invented a new process for manufacturing ice cream. The ingredients are mixed in high-tech machinery that forms the product into small round beads. Like a bag of balls, the ice cream beads are surrounded by air pockets in packages. This de
> Use the Target Corporation’s Form 10-K to answer the following questions related to Target’s 2015 fiscal year (year ended January 30, 2016). Target’s Form 10-K is available on the company’s website or through the SEC’s EDGAR database. Appendix A provides
> Ted Cowan is a model employee. He has not missed a day of work in the last five years. He even forfeits his vacation time to make sure that things run smoothly. Ted literally does the work of two people. He started out working as the purchasing agent in
> Campbell Manufacturing Company (CMC) was started when it acquired $80,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $75,000. CM
> Use the following table to indicate whether the information is more representative of managerial versus financial accounting. The first item is shown as an example. Financial Managerial Accounting Information Item Accounting Estimates of future reve
> Use the financial statements for Allendale Company from Problem 9-17 to calculate the following ratios for 2019 and 2018: a. Working capital. b. Current ratio. c. Quick ratio. d. Receivables turnover (beginning receivables at January 1, 2018, were $47,00
> The following financial statements apply to Karl Company: Required: Calculate the following ratios for 2018 and 2019. When data limitations prohibit computing averages, use year-end balances in your calculations. Round computations to two decimal poin
> Otis Company’s income statement information follows: The average number of shares outstanding was 9,600 for 2018 and 8,000 for 2017. Required: Compute the following ratios for Otis for 2018 and 2017 and round the computation to two d
