Jennifer Sims was hired as the new store manager for Bargain Hunter. The store used four cash registers, and 10 cashiers worked various shifts in the store. Store operations include the following procedures: • At the start of each shift, a cashier counts the beginning cash balance in the drawer, which is supposed to be $600. • At the end of each shift, the cashier does the following: 1. Counts the ending cash balance in the drawer and adds to it any amounts dropped in the safe. The Challenges of Accounting: Standards, Internal Control, Audits, Fraud, and Ethics 2. Completes the shift cash form that reconciles the cash received to the total register sales tape 3. Reports any difference between the cash on hand and the cash that should be on hand based on receipts As a manager, Jennifer was responsible for preparing the cash drawers for each shift. She decided to test the honesty of the cashiers, so she added an additional $25 to the beginning balance of one cash drawer. Jennifer planned to look at the shift cash form to see whether the cashier reported the extra $25 that was part of the beginning balance or just reported the $600 expected balance, taking the $25 for personal use. Jennifer also tested her assistant manager. She gave him the bank deposit bag containing $5,246.24, but included a deposit ticket that was exactly $50 less, listing $5,196.24 as the deposit amount. Jennifer wanted to see whether the assistant manager would report the extra $50 in the deposit bag. Jennifer planned to never let her employees or even her assistant manager know that she had tested them; instead, she would just say that she made a simple mistake in counting the cash if they questioned her. Requirement 1. Should Jennifer distrust her employees? Is it ethical for a manager to test employees without their knowledge? Should Jennifer ever inform the employees that they had been tested? Was it ethical for Jennifer to test an assistant manager?
> Peter’s Hardware maintains the following policies/procedures with regard to internal control. Indicate by letter which of the following control activities applies to each of the following policies/procedures: a. Proper authorization b. Adequate document
> Which of the following is not a limitation of internal control? a. Rationalization b. Tired employees c. Poorly designed controls d. Collusion
> You are the controller for Pro Clean Services, a company that provides janitorial services to large commercial customers. The company has been very successful during its first two years of operations, but in order to expand its customer base, the company
> What are the implications of the fact that every internal control structure has inherent limitations? That is, how does the knowledge that no internal control structure is perfect help management run the organization more effectively?
> Consider the FIFO, LIFO, and average cost inventory costing methods. Answer the following questions assuming inventory costs are increasing: 1. Which method of inventory costing will produce the lowest cost of goods sold? 2. Which method of inventory co
> Plavix Corporation’s bonds payable carry a stated interest rate of 7 percent, and the market rate of interest at the time of issuance is 8 percent. Plavix Corporation’s bonds will be sold at a. par value. b. a discount. c. maturity value. d. a premium.
> Will interest expense be greater than, less than, or equal to the interest payment made on bonds when the bonds are sold at a. par? b. a premium? c. a discount?
> On January 1, Titan Trucking purchased a used Kenworth truck at a cost of $48,000. Titan Trucking expects the truck to remain useful for four years (800,000 miles) and to have a residual value of $8,000. Titan Trucking expects the truck to be driven 160,
> A copy machine cost $36,000 when new and has accumulated depreciation of $34,000. Suppose Sun Graphics and Designs Center junks this machine, receiving nothing in return. What is the result of the disposal transaction? a. Loss of $36,000 b. Gain of $34,0
> What makes a repair “extraordinary” (as opposed to ordinary)? Give an example of an extraordinary and an ordinary repair. What is the financial statement effect of recording a repair as an extraordinary repair instead of an ordinary repair?
> Lori’s Music School created a $200 petty cash fund on May 1. During the month, the fund custodian authorized and signed petty cash tickets as follows: Requirements 1. Record the journal entry to create the petty cash fund. 2. Assuming that the cash
> Amy Macintosh, an attorney, uses the direct write-off method to account for uncollectible receivables. On September 30, Macintosh’s accounts receivable were $16,500. During October, she earned service revenue of $21,000 on account and collected $19,000 f
> Which method of estimating uncollectible receivables focuses on net credit sales? a. Aging approach b. Net realizable value approach c. Percent-of-sales approach d. All of the above
> Under which method, percent of sales or aging, would the balance in Allowance for Doubtful Accounts, just before the adjusting entry, affect the amount of the adjusting entry? Why?
> On March 1, The Party Place creates a petty cash fund with a balance of $325. During March, Sue Bemis, the fund custodian, signs the following petty cash tickets: On March 31, prior to replenishment, the fund contains these tickets plus cash of $23.
> Identify each of the following as an internal control objective (O), an internal control activity (A), or a limitation of internal control (L). _______ 1. Separation of duties _______ 2. Collusion _______ 3. Proper authorization _______ 4. Report financ
> Darice Goodrich receives cash from customers as part of her job duties. Her other duty is to post the receipts to customer accounts receivable. Based on these duties, her company has (a) weak a. disbursement schemes. b. fraud triangle. c. ethics. d. sepa
> Kelly Straton, a trusted employee of Simpson Supply Company, found himself in a difficult financial situation. His son’s college tuition had to be paid in full by the end of the month. The family had experienced some unexpected expenses, and the money wa
> What part of the fraud triangle is most closely associated with the control activities component of internal control? That is, if control activities are improved, which corner of the fraud triangle is most affected? Why?
> Score More Sports uses the (perpetual) LIFO inventory method. Score More Sports started December with 10 helmets that cost $54 each. On December 19, Score More Sports bought 15 helmets at $52 each. On December 28, Score More Sports sold 12 helmets. 1. Th
> Which interest rate on a bond determines the amount of the semi-annual interest payment? a. Effective rate b. Market rate c. Stated rate d. None of the above
> Internal controls are designed to safeguard assets, encourage employees to follow company policies, promote operational effciency, and ensure accurate records. Which objective is most important? What must the internal controls accomplish for the business
> What do we know about the relationship between the market rate of interest and the stated interest rate for a particular bond when the bond is sold at a. par? b. a premium? c. a discount?
> Jody Martin just slept through the class in which Professor Ibanez explained the concept of depreciation. Because the next test is scheduled for Wednesday, Jody Martin telephones Hanna Svensen to get her notes from the lecture. Hanna Svensen’s notes are
> Which depreciation method is generally preferable for income tax purposes? Why? a. Double-declining-balance because it gives higher depreciation deductions in earlier years b. Straight-line because it is simplest c. Double-declining-balance because it gi
> Which depreciation method would be most appropriate for each of the following assets? a. This machine is used as a backup to the other machines in the production process. As a result, there are some years where it sees a lot of action and others where i
> Match the term with its definition by placing the corresponding letter in the space provided: ______ Example: Amounts owed to a business by another business or individual ______ 1. A contra-account, related to accounts receivable, that holds the estimat
> Uncollectible accounts are the same as a. notes receivable. b. bad debts. c. both a and b. d. none of the above.
> Why is the percent of sales method called the “income statement approach” while the aging method is called the “balance sheet approach”?
> Elm Street Motors maintains a petty cash fund of $200. On December 31, the fund holds $12 cash, and petty cash tickets for office supplies totaling $121 and delivery expense totaling $55. Requirements 1. Make the journal entry to replenish the petty ca
> Look at each of the following employees of Anthony’s Restaurant. Which of the elements of the fraud triangle apply? Perceived pressure (P) Perceived opportunity (O) Rationalization (R) _______ 1. As the bartender puts $20 in tips in her pocket, she thi
> Which of the following is not a control activity? a. Proper authorization b. Security measures c. Risk assessment d. Mandatory vacations
> Internal control is a. the act of stealing a business’s assets. b. the process that helps a business achieve its objectives, such as operating efficiently and effectively. c. the reconciliation of the bank’s cash balance to the book’s cash balance. d. th
> Assume you were recently hired as a staff accountant for Advanced Energy Solutions, Inc. You report to Tina, the director of financial reporting, who in turn reports to the CFO. One of your first assignments is to prepare the adjusting entries for the en
> What is the control environment? Discuss how the control environment had a strong influence over a situation with which you are personally familiar (e.g., a place where you work, your family, your living group in college, a classroom, etc.).
> Score More Sports uses the average cost inventory method. Score More Sports started December with 10 helmets that cost $54 each. On December 19, Score More Sports bought 15 helmets at $52 each. On December 28, Score More Sports sold 12 helmets. Prepare a
> Ling Company issued a $280,000, 4 percent mortgage on January 1, 2016, to purchase a building. Payments of $8,055 are made semi-annually. Complete the following amortization schedule (partial) for Ling Company. Round to the nearest dollar.
> What is the term used to describe an unsecured bond? a. Mortgage bond b. Debenture bond c. Serial bond d. Callable bond
> What is the distinguishing feature of the following types of bonds? a. Convertible b. Callable c. Secured d. Unsecured e. Serial f. Term
> Noxon, Inc., repaired a piece of equipment at a cost of $3,000, which Noxon, Inc., paid in cash. Noxon, Inc., erroneously capitalized this cost as part of the cost of the equipment. Requirements 1. Journalize both the incorrect entry the accountant mad
> An airplane costs $75 million and is expected to fly 750 million miles during its 12-year life. Residual value is expected to be zero because the plane was used when acquired. If the plane travels 45 million miles the first year, how much depreciation ex
> Are useful life and physical life the same thing relative to fixed assets? Provide some examples that illustrate your answer.
> Prepare the current assets section of the balance sheet as of May 31, 2016, for Spices and More, Inc., using the following information:
> Sam Olson is the manager of a Stop and Go convenience store. He has been employed by the company for 14 years, the last 4 years as a store manager. Sam applied for a promotion to regional manager, who oversees all 30 store locations, but was once again d
> After performing a bank reconciliation, journal entries are required for a. all items on the book side of the reconciliation. b. all items on the bank side of the reconciliation. c. all items on the reconciliation. d. no items from the reconciliation be
> How is Allowance for Doubtful Accounts reported on the financial statements? Why is it important for companies to report net realizable value of Accounts Receivable on the balance sheet?
> Lynn’s Music School created a $250 petty cash fund on August 1. During the month, the fund custodian authorized and signed petty cash tickets as follows: Requirements 1. Record the journal entry to create the petty cash fund. 2. Assuming that the ca
> Explain why separation of duties is often described as the cornerstone of internal control for safeguarding assets. Describe what can happen if the same person has custody of an asset and also accounts for the asset.
> Separation of duties refers to separating all of these functions except which of the following? a. Keeping accounting records b. Hiring personnel c. Authorizing transactions d. Maintaining custody of assets
> Do you think the risk factors for management fraud are the same as the risk factors for employee fraud? Why or why not?
> On January 1, 2016, you borrowed $15,000 on a five-year, 9 percent note payable. At December 31, 2016, you should record a journal entry that includes which of the following? a. Note Payable of $15,000 b. Nothing; the note has already been recorded c. I
> If a company with a 12/31 year-end were to borrow money in the form of a four-month note on 11/1, what accounts would be debited on 3/1 when it pays the note off?
> For each of the following long-term assets, identify the type of expense that will be incurred to allocate the asset’s cost as depreciation expense (DR), depletion expense (DL), amortization expense (A), or none of these (NA). ______ 1. Franchises _____
> Northwest Airways bought four used Boeing 737 airplanes. Each plane had a selling price of $40 million, but Northwest bought the combination for $144 million. How much is Northwest Airways’ cost of each plane? a. $144 million b. $36 million c. $160 milli
> Panco Corporation purchased Apex Unlimited for $12 million. The fair market value of Apex Unlimited’s net assets at the time was $9 million, so Panco Corporation recorded $3 million of goodwill. Included in the purchase was a patent valued at $1.5 millio
> If a company were to purchase a piece of land with a building on it that it demolishes to make room for its new building, in which account would the cost of demolition be recorded (Land, Building, Demolition Expense, or something else)? Why?
> Score More Sports uses the LIFO inventory method. Score More Sports started December with 10 helmets that cost $54 each. On December 19, Score More Sports bought 15 helmets at $52 each. On December 28, Score More Sports sold 12 helmets. Prepare a perpetu
> Classify each of the following items as one of the following: Addition to the book balance (+ Book) Subtraction from the book balance (− Book) Addition to the bank balance (+ Bank) Subtraction from the bank balance (- Bank) ______ 1. Outstanding checks
> The document that identifies and explains all differences between the company’s record of cash and the bank’s record of that cash is the a. bank reconciliation. b. electronic fund transfer. c. bank collection. d. bank statement
> Bob and Larry were finishing the financial statements for their business when they saw the net income for the year was not going to be as large as they had hoped. Concerned that the bank would question the lower reported net income, Bob suggested that th
> After preparing a bank reconciliation, which reconciling items will require journal entries? Why?
> Record the following petty cash transactions of Wilson Supply in the journal; explanations are not required.
> Identify each of the following as an example of a perceived pressure (P), perceived opportunity (O), or rationalization (R) in the fraud triangle: _______ 1. Job dissatisfaction _______ 2. Greed _______ 3. “It’s for a good purpose.” _______ 4. Weak inte
> On what element of the fraud triangle do most organizations usually focus their fraud prevention efforts? a. Rationalization b. Perceived opportunity c. Perceived pressure d. All three
> Ali Jamison is the controller at Williams Supply Company, a publicly traded distributor of automotive supplies. It is the end of the third quarter, and Ali is working under a deadline to get the quarterly financial statements prepared before the board o
> Is there a distinction between personal and professional ethics? What are the implications for the study of ethics in the college classroom?
> Cunnington Furniture doesn’t expect prices to change dramatically and wants to use a method that averages price changes. 1. Which inventory method would best meet Cunnington Furniture’s goal? 2. What if Cunnington Furniture wanted to expense out the new
> Phatboy Motorcycles, Inc., a motorcycle manufacturer, included the following note in its annual report: Notes to Consolidated Financial Statements Commitments and Contingencies The Company self-insures its product liability losses in the United States u
> Bike World, Inc., wholesales a line of custom road bikes. Bike World’s inventory, as of November 30, 2016, consisted of 22 mountain bikes costing $1,650 each. Bike World’s trial balance as of November 30 appears as follows: Requirements 1. Using
> On August 31, 2016, Freemont Co., purchased $18,000 of inventory with a one-year, 8 percent note payable. Journalize the following for the company: 1. Accrual of interest expense on December 31, 2016 2. Payment of the note plus interest on August 31, 20
> Known liabilities of uncertain amounts should be a. ignored; record them when they are paid. b. estimated and accrued when they occur. c. described in the notes to the financial statements. d. reported on the income statement.
> Provide an example of a known liability, an estimated liability, and a contingent liability.
> A client of yours notified you that she just closed a deal to purchase an existing business. It’s a pretty hefty purchase. As part of the purchase of the business, she received the land, the building, all the equipment, and the entire merchandise invento
> You’ve made an appointment to take your year-end financial statements down to the bank. You know that your banker is usually concerned about two things, your net income and the amount of cash you have. You are a little concerned because you know that you
> Identify each of the following assets as a fixed asset (F) or an intangible asset (I): ______ 1. Franchises ______ 2. Vehicles ______ 3. Buildings ______ 4. Furniture ______ 5. Patents ______ 6. Copyrights ______ 7. Trademarks ______ 8. Land improvement
> Which cost is not recorded as part of the cost of a building? a. Construction materials, labor, and overhead b. Annual building maintenance c. Earthmoving for the building’s foundation d. Real estate commission paid to buy the building
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Notes to the Consolidated Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on h
> This case addresses the long-term assets of Columbia Sportswear. The majority of these assets consist of property and equipment and intangible assets. In the text, you learned how most long-term tangible assets used in business are capitalized and deprec
> Northern Electric owed Estimated Warranty Payable of $1,700 at the end of 2015. During 2016, Northern Electric made sales of $180,000 and expects product warranties to cost the company 3 percent of the sales. During 2016, Northern Electric paid $4,300 fo
> What is management fraud? What is employee fraud? Give some examples of each.
> Luca Hanson owns Luca’s Limousine, which operates a fleet of limousines and shuttle buses. Upon reviewing the most recent financial statements, he became confused over the recent decline in net income. He called his accountant and asked for an explanatio
> When a company makes an expenditure, it can either capitalize or expense the cost, depending on the nature of the expenditure. What does it mean to capitalize an expenditure? What determines whether an expenditure can be capitalized?
> This problem continues our accounting for Fitness Equipment Doctor, Inc., from Chapter 7. During 2016, Fitness Equipment Doctor made the following purchases: • On March 3, Fitness Equipment Doctor, Inc., purchased equipment for $3,600 cash. The equipmen
> Let’s look at Dick’s Sporting Goods (Dicks) some more. Think about Dick’s. What assets did Dick’s need to operate? Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the
> This exercise continues our accounting for Sensations Salon, Inc., from previous chapters. In this exercise, we will account for the annual depreciation expense for Sensations Salon, Inc. In the Continuing Exercise in Chapter 2, we learned that Sensation
> Refer to the preceding Small Business Analysis case. Prepare an e-mail to the owner of Hastings & Associates, Inc., explaining the situation with the returned check and the charge that the bank applied to your account for processing the returned check. A
> You’re pretty excited about your cash balance at the end of the month because this was the month you were going to take the big bonus from the business and make a down payment on a new house. You were waiting on a big check to come in from a client who h
> For each of the following, indicate whether the item is an adjustment to the bank balance or the book balance: ______ 1. Bank service charge ______ 2. Deposit in transit ______ 3. Bank collection of amount due from customer ______ 4. Interest revenue on
> The document that identifies and explains all differences between the company’s record of cash and the bank’s record of that cash is the a. bank reconciliation. b. electronic fund transfer. c. bank collection. d. bank statement
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on how to access the report on
> What is the difference between a current liability for an uncertain amount and a contingent liability? Give an example of each and demonstrate how they differ in respect of the difference that you identified in the first part of this question.
> This case will address the accounts receivable reflected on Columbia Sportswear’s Balance sheet. We will once again refer to the annual report for Columbia Sportswear located in Appendix A in order to answer some questions related to Columbia Sportswear’
> Susan Casey is the controller of Casey’s Collectibles. The business uses the accrual method of accounting and recognizes sales revenue in the period in which the sale is made. As a result, the Accounts Receivable balance at year end was $86,370, which wa
> Which duties should be segregated in the purchasing process? Why? That is, what could go wrong if two or more of those duties are not segregated?
> In this problem, we continue our accounting for Fitness Equipment Doctor, Inc., from Chapter 5. Refer to the Continuing Problem in Chapters 4 and 5. Assume that all 15 of the treadmills Fitness Equipment Doctor, Inc., sold in July were sold on account fo
> Let’s continue our examination of Dick’s Sporting Goods (Dick’s). Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the Annual Report). Now answer the following question
> In this exercise, we continue our accounting for Sensations Salon, Inc., from Chapter 5. Refer to the Continuing Exercise from Chapter 5. On June 15, Sensations Salon, Inc., sold 7 bottles of shampoo to Chelsie Hobart for $196 on account. On July 18, Sen
> Record the following petty cash transactions of Wilson Supply in the journal; explanations are not required.
> You’ve been asked by your boss to write a brief description of the control activities that should be a part of the development of a strong internal control system in your office. You know that the office is small in terms of personnel, which does create
> You’re having a tough time figuring out why your actual cash is always coming up less than the amount the general ledger says should be there. You would hate to think that any of your employees would be stealing from you because they have all been with y
