RedPack Beer Company is a privately-held micro brewery located in Raleigh, North Carolina. Bank loan covenants require that RedPack submit audited financial statements annually to the bank. Specifically, the bank covenants contain revenue and liquidity measures that RedPack must satisfy to not be in technical default. The accounting firm of Thacker & Joyner, CPAs, has served as RedPack’s auditor for the past six years. One of the major audit areas involves the testing of revenues and the related accounts receivable balances. Revenues reached approximately $3 million and accounts receivable reached approximately $172,000 in 2017. In 2018 the unaudited revenues are reported to be $3,299,698 with net income before tax of $463,529 and accounts receivable of $197,982. You are a second year associate on the RedPack engagement. Mary Niles, an experienced senior, asked you to evaluate the adequacy of the allowance for bad debts account. Specifically, Mary wants you to evaluate the allowance for bad debts using RedPack’s methodology and assess whether management’s overall level of bad debt reserve is appropriate. The following schedules are included for your review: Schedule A -- Revenue Cycle Lead Schedule Schedule B -- Analysis of Allowance for Bad Debts Schedule C -- Accounts Receivable Aged Trial Balance Schedule D -- Excerpts of RedPack’s Allowance for Bad Debts Procedures and Policies Inherent risk has been set as high and control risk as moderate for the valuation of the allowance for bad debts based on the challenging but improving regional and national economic conditions and favorable control procedures associated with the allowance for bad debts. The audit plan establishes performance materiality of $2,500 as acceptable for the allowance for bad debts. The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. RedPack Beer Company is a fictitious company. All characters and names represented are fictitious; any similarity to existing companies or persons is purely coincidental. REQUIRED You want to be thoroughly prepared for the meeting with the audit manager. Perform the following procedures to be certain you have all necessary information to discuss the accounting estimate. [1] Research professional standards and list the requirements related to evaluating client accounting estimates. [2] Following your analysis of the information in Schedules A-D, assume that you met with RedPack’s Credit Manager, Katie Henson, to ask her a number of questions related to specific customer accounts in the Accounts Receivable Aged Trial Balance. A transcript of your interview notes is provided as Schedule E. Use that information to address the following: [a] Based on your reading of the transcript, do you agree with the specific reserves established by the credit manager for Distinct Beer Distributor, Eagle Beverage Group, and Golden Holdings? If yes why? If no what do you believe the specific reserves should be and why? [b] Based on your reading of the transcript discussion, would you have any concerns with other aspects related to the reporting of revenues and accounts receivable? Explain your answer. [c] Based on the information you have, develop an estimate of the account balance for the allowance for bad debts and compare your expectation to the client’s estimate summarized in Schedule B for the allowance for bad debts. Does the amount you estimated agree with the client’s estimate in Schedule B? If it does not agree, by how much does it differ and is that difference material? [d] Determine the adjusting journal entry(ies) needed, if any, to adjust management’s estimate of the reserve to your audited estimate and post your entries in the Adjustments column in Schedule A. [e] Based on your reading of the professional standards in requirement 1 above, what additional procedures would you need to perform to conclude on the adequacy of the allowance for bad debt? PROFESSIONAL JUDGMENT QUESTIONS It is recommended that you read the Professional Judgment Introduction found at the beginning of this book prior to responding to the following questions. [3] Read the interview transcript and review the Professional Judgement Introduction. Based on your review of the transcript, to what extent do you observe any of the tendencies that might create bias in regards to your professional judgment about the reasonableness of the allowance for doubtful accounts? [4] Read the interview transcript and review the Professional Judgement Introduction. Based on this review, how would you modify your questions to improve your interview of Katie if you could re-conduct the interview?
> (a) Construct scatter diagrams of the data sets (b) Calculate r for the data set (i). (c) Guess the value of r for the data set (ii) and then calculate r.
> Breakfast cereals from three leading manufacturers can be classified either above average or below average in sugar content. Data for ten cereals from each manufacturer are given below: (a) Complete the marginal totals. (b) Calculate the relative freque
> Refer to the alligator data of the Data Bank. Using the data on x3 and x4 for male and female alligators from Lake Apopka: (a) Make a scatter diagram of the pairs of concentrations for the male alligators. Calculate the sample correlation coefficient.
> For the data set (a) Construct a scatter diagram. (b) Guess the sign and value of the correlation coefficient. (c) Calculate the correlation coefficient.
> If the value of r is small, can we conclude that there is not a strong relationship between the two variables?
> A new study is widely reported to show that dog owners benefit by being more agreeable and extroverted than cat owners. Comment in light of facts that, on average, dogs cost more to maintain and that dog owners have larger incomes than cat owners.
> In each of the following instances, would you expect a positive, negative, or zero correlation? (a) Number of salespersons and total dollar sales for real estate firms. (b) Total payroll and percent of wins of national league baseball teams. (c) The amou
> What is wrong with this statement of purpose? PURPOSE: Determine whether or not, over the course of the semester, the campus bus reaches your stop at the scheduled time. Give an improved statement of purpose.
> Would you expect a positive, negative, or nearly zero correlation for each of the following7 Give reasons for your answers. (a) The physical fitness of a dog and the physical fitness of the owner. (b) For each person, the number of songs downloaded fro
> With reference to the quit-smoking experiment: (a) Suppose the placebo trials were ignored and you were only told that 120 of 216 were abstinent after using the medicated patches. Would this now appear to be stronger evidence in favor of the patches? (
> With reference to the quit-smoking experiment, suppose two new subjects are available. Explain how you would assign one subject to receive the placebo and one to receive the medicated patch.
> Nausea from air sickness affects some travelers. A drug company, wanting to establish the effectiveness of its motion sickness pill, randomly gives either its pill or a look-alike sugar pill (placebo) to 200 passengers. (a) Complete the marginal totals.
> A sample of persons will each be asked to give the number of their close friends. The responses are to be grouped into the following classes: 0, 1-3, 3-5, 6 or more. Left endpoint is included. Explain where difficulties might arise.
> The number of goals your favorite ice hockey team scores are to be collected for each game. These game totals are to be grouped into the classes 0- 1, 2- 3, 4- 5, 7 or more. Both endpoints are included. Explain where a difficulty might arise.
> Data from one campus dorm on the number of burglaries are collected each week of the semester. These data are to be grouped into the classes 0-1, 2-3, 3-5, 6 or more. Both endpoints included. Explain where a difficulty might arise.
> Of the $207 million raised by a major university's fund drive, $11 7 million came from individuals and bequests, $24 million from industry and business, and $66 million from foundations and associations. Present this information in the form of a pie char
> At the last minute, 6 tickets have become available for a big football game. Use Table 1, Appendix B, to select the recipients from among 89 interested students.
> Eighty customers at a bakery named their favorite pie. The responses are as follows: (a) Calculate the frequency for each pie. (b) Construct a pie chart.
> The number of automobile accidents reported per month helps to identify intersections that require improvement. The number of crashes per month reported at an intersection near a university campus in Madison, Wisconsin, are Present these data in a freque
> A student at the University of Wisconsin surveyed 40 students in her dorm concerning their participation in extracurricular activities during the past week. The data on number of activities are Present these data in a frequency table and in a relative fr
> Recorded here are the blood types of 40 persons who have volunteered to donate blood at a plasma center. Summarize the data in a frequency table. Include calculations of the relative frequencies.
> The city of Madison regularly checks the water quality at swimming beaches located on area lakes. The concentration of fecal coliforms, in number of colony forming units (CFU) per 100 ml of water, was measured on fifteen days during the summer at one bea
> A campus area merchant recorded the number of bad checks received per month, for five months 4 5 4 7 6 Display the data in a dot diagram.
> Before microwave ovens are sold, the manufacturer must check to ensure that the radiation coming through the door is below a specified safe limit. The amounts of radiation leakage (mW/cm2) with the door closed from 25 ovens are as follows (courtesy of Jo
> A person with asthma took measurements by blowing into a peak-flow meter on seven consecutive days. 429 425 471 422 432 444 454 Display the data in a dot diagram.
> A sample of 50 departing airline passengers at the main check-in counter produced the following number of bags checked through to final destinations. (a) Make a relative frequency line diagram. (b) Comment on the pattern. (c) What proportion of passenger
> A major West Coast power company surveyed 50 customers who were asked to respond to the statement, "People should rely mainly on themselves to solve problems caused by power outages" with one of the following responses. 1. Definitely agree. 2. Somewhat
> Twelve bicycles are available for use at the student union. Use Table 1, to select 4 of them for you and three of your friends to ride today.
> A survey of 451 men revealed that 144 men, or 3 1.9%, wait until Valentine's day or the day before to purchase flowers. Identify a statistical population and the sample.
> It was 9:30 A.M. on a Monday morning when the call came through. “Hi Dr. Mitchell, do you have a minute?” “Sure,” the professor replied. “I am one of your former students, but if you don’t mind, I would prefer to remain anonymous. I think it is best for
> Nathan recently interviewed with one of the accounting firms in the city where he wants to live. The firm agreed to cover the expense of a rental car that he used to travel from his university to the firm’s office. The rental car agency required that Nat
> Brent Dorsey graduated six months ago with a master’s degree in accounting. Immediately after graduation, Brent began working with a large accounting firm in Portland, Oregon. He is now on his second audit engagement—a company called Northwest Steel Prod
> Banking regulators announced in early 2015 a greater focus on evaluating ethical culture as part of their regulatory examination of a bank’s health. In a February 2015 speech, Thomas Baxter, Executive Vice President and General Counsel
> On November 15, 2004, the Securities and Exchange Commission (SEC) filed an enforcement action in the Northern Illinois U.S. District Court against Hollinger Inc., a Toronto-based company, and its former Chairman and CEO, Conrad Black, and the company’s
> Murchison Technologies, Inc. recently developed a patient-billing software system that it markets to physicians and dentists. Jim Archer and Janice Johnson founded the company in Austin, Texas five years ago after working at IBM for more than 15 years. J
> Scott glanced up at the clock on his office wall. It read 2:30 P.M. He had scheduled a 3:00 P.M. meeting with George “Hang-ten” Baldwin, chief executive officer of Surfer Dude Duds, Inc. Surfer Dude specialized in selling clothing and accessories popular
> Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland t
> Auto Parts, Inc. (“the Company”) manufactures automobile subassemblies marketed primarily to the large U.S. automakers. The publicly held Company’s unaudited financial statements for the year ended December 31, 2018, reflect total assets of $56 million,
> The information below relates to the audit of EyeMax Corporation, a client with a calendar year-end. EyeMax has debt agreements associated with publicly traded bonds that require audited financial statements. The company is currently, and historically ha
> The Runners Shop (TRS) was a family-owned business founded 17 years ago by Robert and Andrea Johnson. In July of 2018, TRS found itself experiencing a severe cash shortage that forced it to file for bankruptcy protection. Prior to shutting down its opera
> Southeast Shoe Distributor (SSD) is a closely-owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and resells men’s, women’s, and childrenâ€&#
> Southeast Shoe Distributor (SSD) is a closely owned business founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and resells men’s, women’s, and children’s sho
> Southeast Shoe Distributor (SSD) is a closely owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men’s, women’s, and childrenâ€
> After being in business for only two years, Your 1040 Return.com has quickly become a leading provider of online income tax preparation and filing services for individual taxpayers. Steven Chicago founded the company after a business idea came to him whi
> Southeast Shoe Distributor (SSD) is a closely owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men’s, women’s, and childrenâ€
> Southeast Shoe Distributor (SSD) is a closely owned business that was founded ten years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men’s, women’s, and childrenâ€
> Your audit firm, Garrett and Schulzke LLP, is engaged to perform the annual audit of Hooplah, Inc., for the year ending December 31, 2017. Hooplah is a privately-held company that sells electronics components to companies that manufacture various applian
> The Financial Accounting Standard Board’s Accounting Standards Codification Topic 820, Fair Value Measurement, (ASC 820) provides a framework for measuring or estimating the fair value of certain assets and liabilities. It provides a hierarchy with three
> Confirmations of accounts receivable play an important role in the accumulation of sufficient, appropriate audit evidence. One of the principal strengths of confirmations is that they provide evidence obtained directly from third-parties. Auditing Standa
> You couldn’t be more excited about being on your first financial statement audit as you launch into your new professional accounting career. Having recently graduated with a Master of Accountancy degree, you are thrilled to be employing all the skills ac
> Henrico Retail, Inc. is a first year audit client. The audit partner obtained the following description of the sales system after recently meeting with client personnel at the corporate office. DESCRIPTION OF THE SALES SYSTEM Henrico’s sales system is IT
> Wally’s Billboard & Sign Supply, Inc. was founded four years ago by Walter Johnson. The company specializes in providing locations for sign and billboard advertising and has recently begun to enter the sign design market. After working several years in t
> Burlingham Bees, an independent, minor league baseball team, competes in the Northwest Coast League. The team finished in second place in 2018 with a record of 94-50. The Bees’ 2018 cumulative season attendance of 534,784 spectators set
> Asher Farms, Inc. is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products.Asher Farms sells ice pack, chill pack and frozen chicken, in whole, cut-up and bone
> Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, comme
> Analytical procedures can be powerful tools in conducting an audit. They help the auditor understand a client’s business and are useful in identifying potential risks and problem areas requiring greater substantive audit attention. If f
> Anne Aylor, Inc. (Anne Aylor) is a leading national specialty retailer of high-quality women’s apparel, shoes, and accessories sold primarily under the “Anne Aylor” brand name. Anne Aylor is a highly
> Town and Country Hardware (T&CH) is a closely owned business founded six years ago by Caleb and Jasmine Wright. T&CH has retail hardware stores located at three lake communities along the Virginia and North Carolina border. T&CH sells products for home i
> In a management review control (MRC), members of management review key information and evaluate its reasonableness by comparing it to expected values. Some examples include comparing budget to actual, reviewing impairment analyses, and reviewing estimate
> On January 24, 2008, Société Générale, France’s second largest bank announced the largest trading loss in history, a staggering 4.9 billion Euro ($7.2 billion U.S.), which it blamed on a single rogue trader. The trader, Jérôme Kerviel, worked at what Soc
> Large public companies in the U.S. are required by law to engage an auditor to perform an “integrated audit” involving both a traditional financial statement audit and an audit of internal control over financial reporting. PCAOB Audit Standard No. 2201,
> You are the new information technology (IT) audit specialist at the accounting firm of Townsend and Townsend, LLP. One of the audit partners, Harold Mobley, asked you to evaluate the effectiveness of general and application IT-related controls for a pote
> St. James Clothiers is a high-end clothing store located in a small Tennessee town. St. James has only one store, which is located in the shopping district by the town square. St. James enjoys the reputation of being the place to buy nice clothing in the
> An entrepreneur by the name of Francisco Fernandez recently entered into a new venture involving ownership and operation of a small, 26-room motel and café. The motel is located in a remote area of southern Utah. The area is popular for tourists, who com
> Apple Inc. (Apple) is a worldwide provider of innovative technology products and services. Apple’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, ma
> Tina is an audit manager with a national public accounting firm and one of her clients is Simply Steam, Co. Simply Steam provides industrial and domestic carpet steam-cleaning services. This is the first time Simply Steam has been audited. Thus, Tina doe
> John C. Koss started his first company, J.C. Koss Hospital Television Rental Company, in 1953, based in Milwaukee, Wisconsin, but John had greater ambitions. Eventually he partnered with Martin Lange, an engineer, and by 1958 the two had founded Koss Ele
> In December 1995, the flamboyant entrepreneur, Michael “Mickey” Monus, formerly president and chief operating officer (COO) of the deep-discount retail chain Phar-Mor, Inc., was sentenced to 19 years and seven months in prison. Monus was convicted for th
> Xerox Corporation (Xerox), once a star in the technology sector of the economy, found itself engulfed in an accounting scandal alleging that it was too aggressive in recognizing equipment revenue.1 The complaint filed by the Securities and Exchange Commi
> Waste Management, Inc.’s Form 10-K filed with the Securities and Exchange Commission (SEC) on March 28, 1997 described the company at that time as a leading international provider of waste management services. According to disclosures i
> One can only imagine the high expectations of investors when the boards of directors of CUC International, Inc. (CUC) and HFS, Inc. (HFS) agreed to merge in May 1997 to form Cendant Corporation. The $14 billion stock merger of HFS and CUC, considered a m
> Enron Corporation entered 2001 as the seventh largest public company in the United States, only to later exit the year as the largest company to ever declare bankruptcy to that point in U.S. history. Investors who lost millions and lawmakers seeking to p
> Don’t ever tell yourself, “that won’t happen to me.” Just ask Cynthia Cooper, former Vice President of Internal Audit at WorldCom. Cynthia Cooper was a typical accounting student as an undergrad at Mississippi State University. Raised in Clinton, Mississ
> The accounting firm of Barnes and Fischer, LLP, is a medium-sized, national CPA firm. The partnership, formed in 1954, now has over 4,000 professionals on the payroll. The firm mainly provides auditing and tax services, but it has recently had success bu
> In what ways can leaders create ethical organizations?
> How do the contemporary theories of leadership relate to earlier foundational theories?
> What are the contingency theories of leadership?
> What are the causes and consequences of abuse of power?
> What power or influence tactics and their contingencies are identified most often?
> How is leadership different from power?
> The authors who suggested that membership in a team makes us smarter found that teams were more rational and quicker at finding solutions to difficult probability problems and reasoning tasks than were individuals. After participation in the study, team
> On the highly functioning teams in which you’ve been a member, what other characteristics might have contributed to success?
> From your experiences in teams, do you agree with the researchers’ findings on the characteristics of smart teams? Why or why not?
> Imagine you are a manager at a national corporation. You have been asked to select employees for a virtual problem-solving team. What types of employees would you include and why?
> Can you think of strategies that can help build trust among virtual team members?
> Recall a time when you felt like you could not trust members on your team. Why did you feel that way? How did that affect the team’s performance?
> What are the relevant points of intellectual and physical abilities to organizational behavior?
> In the cases discussed above, where do you think you would perform better, and why? Justify your answer by taking into account efficiency factors, reward systems, the context, and your individual perceptions.
> What type of group or team are cyclists working for a supervisor for Deliveroo? Justify your answer.
> How should the criterion of “legitimacy” be determined? Explain.
> Is there ever a case in which illegitimate tasks should be tolerated or “rightfully” given? Explain your answer.
> When is work performed by individuals preferred over work performed by teams?
> What are the major job attitudes?
> How do you think employees should respond when given illegitimate tasks? How can an organization monitor the tasks it assigns to employees and ensure that the tasks are legitimate? Explain your answer.
> Do you think it is possible for a reward program to start out rewarding the appropriate behavior at its inception but then begin to reward the wrong thing over time? Why or why not?
> Assuming you could become better at detecting the real emotions of others from facial expressions, do you think it would help your career? Why or why not?
> What are the ethical implications of reading faces for emotional content in the workplace?
> How do you overcome the potential problems of cross-cultural communication?
> What do you think are the best workplace applications for emotion reading technology?
> What type of decision-making framework would you advise the warehouse manager to adopt in order to help him reach an optimal decision? How will your suggestion help?
