We have had Paige & Gentry as our auditors for many years, haven’t we, Jane? They have been here since I became president two years ago.” “Yes, Bob, I have been the CFO for seven years, and they were here before I came. Why do you ask?” “Well, they were really tough on us during the recent discussions when we were finalizing our year-end audited statements—not at all like I was used to at my last company. When we asked for a little latitude, our auditors were usually pretty obliging. Frankly, I’m a little worried.” “Why, Bob, we had nothing to hide?” “That’s true, Jane, but let’s look ahead. We’re going to have difficulty making our forecast this year, and our bonuses are on the line. Remember, we renegotiated our salary/bonus package to give us a chance at higher incentives, and we have to be careful.” “Looking ahead, we’ve got a problem with obsolete inventory that’s sure to come to require discussion for a second year in a row. We’ve got the warranty problem with the electrical harness on the mid-range machine, which is going to cost us a bundle, but we want to spread the impact over the next three years when the customers dis- cover the problem and we have to fix it up. And don’t forget the contaminated waste spill we just had—how much is that going to cost to clean up, if we ever get caught?” “These are potentially big ticket items. Bill Paige, the guy who is in charge of our audit, is not going to let these go by. He said the inventory problem was almost material this year, and we had to argue really hard. You are a qualified accountant; how can we handle this?” “Well, Bob, we could have some informal discussions with other auditors—maybe even the ones at your old company—to see how they would handle issues like these. The word will get around to Bill, and he may be more accommodating in the future and will probably shave his proposed audit fee for next year when he meets with our Audit Committee next month. If you really wanted to play hardball, we could talk the Audit Committee into calling for tenders from new auditors. After all this time, it’s logical to check out the market anyway. We would have advance discussions during which we would sound them out on how they would assess materiality in our company’s case. Our audit fee in getting pretty large—almost $50,000 this year—so some big firms will be really interested.” “Jane, let’s play hardball. Get a list of audit firms together for the tender process, and I will approach the Audit Committee. Be sure to list some small firms, including Webster & Co., the firm auditing my old company.” Questions 1. Who are the major stakeholders involved in this situation? 2. What are the ethical issues involved? 3. Is this situation unethical? Why and why not? 4. What should Jane do if Webster & Co. looks like the choice the Audit Committee will make and recommend to the board of directors?
> The following notes receivable are held by the Rodriguez Company on January 1, 20X1. On January 2, 20X1, Rodriguez discounted all of these notes at First National Bank at a discount rate of 10 percent. Compute the net proceeds the firm received from disc
> Ferrier Company received the notes listed below in 20X1. Compute the interest to be paid and the maturity value of each note. Show all computations. Analyze: Assuming all notes are paid when due, what would be the balance in Notes Receivable on July 31?
> Give the general journal entry to record each of the following transactions: 1. On June 3, 20X1, Huddleston Company issued a 120-day, 9 percent note for $36,000 to purchase new office equipment. 2. Huddleston Company paid the June 3 note when it became d
> The notes listed below were issued by Louisiana Company during 20X1: 1. A $30,000 note at 10 percent for 90 days, issued on June 15. 2. A $60,000 note at 6 percent for 30 days, issued on August 21. 3. An $80,000 note at 7.5 percent for 6 months, issued o
> Interactive Planning Software uses the direct charge-off method to account for uncollectible accounts expenses as they occur. Selected transactions for 20X1 and 20X2 follow. The accounts involved are Accounts Receivable, Notes Receivable, and Uncollectib
> The balances of selected accounts of Greece Sportswear Company on December 31, 20X1, are given below. Credit sales totaled $9,620,000. The returns and allowances on these sales were $55,000. Accounts Receivable $905,0000 Allowance for Doubtful Accounts 1
> The schedule of accounts receivable by age shown below was prepared for the Custom Windows Shop at the end of the firm’s fiscal year on July 31, 20X1: INSTRUCTIONS 1. Compute the estimated uncollectible accounts at the end of the year u
> Lord Taylor Plumbing Company provides plumbing installations for both business and individual customers. The company records sales for the two types of customers in separate Sales accounts. The company’s experience has been that each ty
> For each of the unrelated situations below, identify the accounting principle or concept violated (if a violation exists) and explain the nature of the violation. If you believe that the treatment is in accordance with GAAP, state this as your position a
> Country Cooking Prepared Meals is a retail shop owned by Beatrice Wilson. She wants to expand her business and has submitted the following balance sheet to her bank as part of the business loan application. INSTRUCTIONS 1. Identify any errors in the bala
> What major safeguards should be built into a system of internal control for purchases of goods?
> The income statement shown below was prepared by Karen Carter, owner of Karen’s Beauty Supplies. The business is a sole proprietorship that sells skin and hair care products. An accountant who looked at the income statement told Carter
> The accounting treatment or statement presentation of various items is discussed below. The items pertain to unrelated businesses. INSTRUCTION Indicate in each case whether the item has been handled in accordance with generally accepted accounting princi
> Read each of the following statements carefully and indicate whether each is true or false. 1. The FASB and IASB have placed little emphasis on cash flows in their conceptual framework. 2. Providing useful information to investors is one of the major con
> The data below concerns adjustments to be made at Mendocino Creek Wine Company. INSTRUCTIONS 1. Record the adjusting entries in the general journal as of December 31, 20X1. Use 25 as the first journal page number. Include descriptions. 2. Record reversin
> Obtain all data that is necessary from the worksheet prepared for Whatnots. Then follow the instructions to complete this problem. INSTRUCTIONS 1. Record adjusting entries in the general journal as of December 31, 20X1. Use 29 as the first journal page n
> Obtain all data necessary from the worksheet prepared for Gamer’s Paradise. Then follow the instructions to complete this problem. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 20X1. The company does not classify i
> Hog Wild is a retail firm that sells motorcycles, parts, and accessories. The adjusted trial balance data given below is from the firm’s worksheet for the year ended December 31, 20X1. INSTRUCTIONS 1. Prepare a classified income stateme
> ComputerGeeks.com is a retail store that sells computers, laptops, supplies, and other electronic devices. The adjusted trial balance data given below is from the firm’s worksheet for the year ended December 31, 20X1. INSTRUCTIONS 1. Pr
> Gamer’s Paradise is a retail store that sells computer games, owned by Matt Huffman. On December 31, 20X1, the firm’s general ledger contained the accounts and balances below. All account balances are normal. Cash $36,465 Accounts Receivable 2,669 Prepa
> Whatnots is a retail seller of cards, novelty items, and business products. On December 31, 20X1, the firm’s general ledger contained the following accounts and balances. INSTRUCTIONS 1. Prepare the Trial Balance section of a 10-column worksheet. The wor
> A business has purchased some new equipment for use in its operations, not for resale to customers. The terms of the invoice are n/30. Should this transaction be entered in the purchases journal? If not, where should it be recorded?
> Fun Depot is a retail store that sells toys, games, and bicycles. On December 31, 20X1, the firm’s general ledger contained the following accounts and balances. INSTRUCTIONS 1. Prepare the Trial Balance section of a 10-column worksheet. The worksheet cov
> On September 30, 20X1, after one month of operation, the general ledger of Cross Country Travels contained the accounts and balances shown below. INSTRUCTIONS 1. Prepare a partial worksheet with the following sections: Trial Balance, Adjustments, and Adj
> On June 1, 20X1, William Tsang established his own consulting firm. Selected transactions for the first few days of June follow. 1. Record the transactions on page 1 of the general journal. Omit descriptions. Assume that the firm initially records prepai
> Based on the information below, record the adjusting journal entries that must be made for D. Johnson Products, LLC, on December 31, 20X1. The company has a December 31 fiscal year-end. Use 18 as the page number for the general journal. a.–b. Merchandise
> The following information is for Union Express Delivery Service’s workers’ compensation insurance premiums. On January 15, 20X1, the company estimated its premium for workers’ compensation insurance f
> 1. Complete Form 940, the Employer’s Annual Federal Unemployment Tax Return. Assume that all wages have been paid and that all quarterly payments have been submitted to the state as required. The payroll information for 20X1 appears bel
> Certain transactions and procedures relating to federal and state unemployment taxes are given below for Latest Greatest, a retail store owned by John Marion. The firm’s address is 4560 LBJ Freeway, Dallas, TX 75232-6002. The firmâ
> 1. On October 15, the firm made a deposit through EFTPS for the federal income tax withheld and the FICA tax (both employees’ withholding and employer’s matching portion). Based on your computations in Problem 11.2B, record the issuance of the check in g
> A payroll summary for Today’s Teen owned by Nikki Davis, for the quarter ending September 30, 20X1, appears below. The business made the following electronic deposits of payroll taxes: a. August 15 for July taxes. b. September 15 for Au
> The payroll register of Auto Detailers showed total employee earnings of $6,000 for the week ended April 8. INSTRUCTIONS 1. Compute the employer’s payroll taxes for the period. The tax rates are as follows: Social security 6.2 percent Medicare 1.45 FUTA
> What do the following credit terms mean? a. n/30 b. 2/10, n/30 c. n/10 EOM d. n/20 e. 1/10, n/20 f. 3/5, n/30 g. n/15 EOM
> Daily Operations pays its employees monthly. Payments made by the company on November 30, 20X1, follow. Cumulative amounts paid to the persons named prior to the November 30 payroll are also given. 1. Dave Orlando, president, gross monthly salary of $18,
> Barbara Merino operates Merino Consulting Services. She has four employees and pays them on an hourly basis. During the week ended November 12, 20X1, her employees worked the number of hours shown below. Information about their hourly rates, marital stat
> The four employees for ACWorks are paid on an hourly basis. During the week of December 25–31, 20X1, these employees worked the hours indicated. Information about their hourly rates, marital status, withholding allowances, and cumulativ
> Alan Johnson works for CAT Commercial Builders, Inc. His pay rate is $14.00 per hour and he receives overtime pay at one and one-half times his regular hourly rate for any hours worked beyond 40 in a week. During the pay period ended December 31, 20X1, A
> The following transactions took place at Grow-Right Garden Center during June 20X1. Grow Right Garden Center uses a perpetual inventory system. Grow-Right Garden Center operates in a state with no sales tax. Record the transactions in a general journal.
> On December 1, 20X1, Sofia Sartori, the accountant for Classic Appliances, downloaded the company’s November 30, 20X1, bank statement from the bank’s website. The balance shown on the bank statement was $30,734. The November 30, 20X1, balance in the Cash
> During the bank reconciliation process at Awesome Dudes Moving Corporation on March 2, 20X1, the following errors were discovered in the firm’s records. a. The checkbook and the cash payments journal indicated that Check 1301 dated February 18 was issued
> On July 31, 20X1, the balance in Northwest Appliances’s checkbook and Cash account was $9,318.59. The balance shown on the bank statement on the same date was $10,442.03. NOTES a. The following checks were issued but have not yet been paid by the bank: C
> On October 7, 20X1, Peter Chen, Attorney-at-Law, received his September bank statement from First Texas National Bank. Enclosed with the bank statement was a debit memorandum for $118 that covered an NSF check issued by Annette Cole, a credit customer. T
> Contemporary Appliance Center is a retail store that sells a variety of household appliances. The firm operates in a state with no sales tax. Transactions involving purchases and cash payments for the firm during December 20X1 and the general ledger acco
> Why is the use of a Purchases Returns and Allowances account preferred to crediting these transactions to Purchases?
> 1. Why should managers check the amount spent for overtime? 2. The new controller for CAR Company, a manufacturing firm, has suggested to management that the business change from paying the factory employees in cash to paying them by check. What reasons
> 1. As an owner or manager of a business, what questions would you ask to judge the firm’s performance, control operations, make decisions, and plan for the future? 2. Why is financial information important? 3. Besides earning a profit, what other objecti
> Toshiba, headquartered in Japan, is one of the world’s leading conglomerates, with operations in many fields, including electronics and nuclear energy. On August 10, 2017, PricewaterhouseCoopers Aarata (PwC) finally agreed to sign off on Toshiba’s accoun
> Two accounting students, Joan and Miguel, were studying for their final university accounting exam. “Miguel, what if they ask us whether the accounting profession should speak out about the shortcomings in financial statements?” “Like what, Joan? We know
> Look, Tim, I’ve been told that the competition for the audit of Diamond Health Services is really competitive, and you know what it would mean to the both of us to bring this one in. You would be a sure bet for the Executive Committee, and I would take o
> Ted was the manager and Carl the partner on the audit of Smart Investments Limited, an investment company whose shares were traded on the NASDAQ exchange. They were discussing the issues to be debated at the upcoming Audit Committee meeting to finalize t
> “John, I have questions about that job you want me to do next week—the one where I am supposed to go and be part of that multidisciplinary team to study how the hospitals in Denver ought to be restructured for maximum efficiency and how they should be re
> Jane1 Ashley was a staff accountant at Viccio & Martin, an accounting firm located in Windsor, Ontario. Jane had been a co-op student while in college, and during her first work term with the firm, she had the privilege of being on several audits of vari
> Anne Distagne was the CEO of Linkage Construction Inc., which served as the general contractor for the construction of the air ducts for large shopping malls and other buildings. She prided herself on being able to manage her company effectively and in a
> Arthur sat back in his chair and looked at the other accountants who were working on their laptops. How had he gotten himself into this situation? It began last year when he was hired by Castor Gotlieb LLP, the largest of the midsize accounting firms in
> Following the pattern of many other countries, Canada converted from domestic generally accepted accounting principles to International Financial Reporting Standards (IFRS). The changeover occurred on January 1, 2011. As a result of the con- version to I
> On February 11, 2010, the leaders of the European Union (EU) agreed on a plan to bail out Greece, a country that had joined the EU in 1981 and was admitted to the European Monetary Union (EMU), allowing Greece to adopt the euro as its currency in 2001. G
> Numerous firms, including computer and communication companies, sell products that have multiple deliverables. For example, a telephone company may sell a customer a phone and a two-year unlimited long-distance telephone call package for a lump sum. How
> Parmalat Finanziaria S.p.A. and its subsidiaries manufacture food and drinks world- wide. Parmalat is one of the leading firms in the long-life milk, yogurt, and juices market. The company became the world’s seventh-largest supplier of dairy products and
> Mergers and acquisitions (M&A) are strategies that help companies to grow in size rapidly. However, some incredibly questionable M&A decisions were reported in the mining industry in 2012 and 2013, including the following: • The Canadian gold mining comp
> In mid-2011, Sino-Forest Corporation was a company with timber operations in China, including tree plantation (holding of timber for appreciation and/or harvesting), log and wood products trading, and manufacturing of wood products. Its shares were trade
> I am the assistant controller at a medium-sized, not-for-profit organization. I hired a new accounts-payable clerk three months ago—let’s call her Mary, which is not her real name—and then I fired her last week because she stole $16,583 from us by alteri
> I think I have a problem. I am a professional accountant and work for a not-for-profit organization that operates a summer camp. We have obtained a legal opinion stating that a portion of our camp fees could be considered a charitable donation with respe
> I am a professional accountant and hold the position of financial analyst, capital projects, with the Town of Pinecrest. In my position, I deal with, among others, developers and their lawyers with respect to development agreements, cost-sharing agreemen
> Excuse me, we are both professional accountants, and I need some advice. I have a full-time management position with a company. I was wondering if I would be in violation of our Professional Code of Ethics if I took on the role of an exotic dancer at nig
> I have a question that I need a bit of help on, but I am not sure where to turn, and I hope you may be able to help me out. I am the CFO of a charitable organization, it is a paid position and I am a professional accountant. We are currently presenting o
> I need your advice on an anonymous basis. I am a professional accountant employed by a company that imports bikes from China. Before I get into the issue, I wish to advise you that I really need this job, as I am a single mother of two teenagers, and job
> In July 2008, Virgin Mobile USA began a “Strip2Clothe” advertising campaign. There are millions of homeless teenagers in the United States, and Virgin Mobile’s website said that “someone out there needs clothes more than you.” Virgin Mobile invited teena
> Dear John: I really appreciate your willingness to give me your opinion as a fellow professional accountant on what I should do and on what I should advise the minority owner to do. Given that I was asked to help out Ruby, a family friend, and have found
> Albert Gable is a partner in a CPA firm located in a small midwestern city that has a population of approximately 65,000. Mr. Gable’s practice is primarily in the area of personal financial planning; however, he also performs an annual audit on the city’
> Motivated by several corporate scan- dals in which auditors failed to warn of disaster, professional accounting in the United Kingdom was under investigation for failing to act in the public interest. Then Carillion went bankrupt, and the role, function,
> On April 14, 2010, Russian investigators raided the Moscow offices of Hewlett Packard (HP). They did so at the request of German prosecutors who were examining whether HP had paid bribes totaling $10.9 million (€8 million) in bribes to win a $44.5 millio
> David Bazzetta learned in July 2001 at a corporate audit executive committee meeting in Stuttgart Germany that DaimlerChrysler “business units ‘continued to maintain secret bank accounts to bribe foreign government officials,’ though the company kn[e]w t
> Bribery charges often involve a company making illegal payments to government officials in order to land lucrative con- tracts. For example, in April 2010, German auto manufacturer Daimler AG made a $185 million settlement with the Securities Exchange Co
> Pierre Duhaime “retired” as CEO of SNC-Lavalin on March 26, 2012, a post that he had held since 2009 following over 20 years of employment at the company. He did so, because of his role in approving $56 million in payments in contravention of the company
> Lululemon Athletica, Inc., was founded by Chip Wilson in 1998 to sell yoga-inspired athletic clothing. The company’s target market was women who wanted stylish exercise apparel. In 2012, the Vancouver- based company, whose shares traded on both the Toro
> In 2015, Dr. William Campbell was awarded the Nobel Prize in Medicine for his work in discovering ivermectins while employed with Merck & Co. in the 1970s. The drug prevents onchocerciasis, called river blind- ness. In 1987, the World Health Organization
> Dan Price is the owner of Gravity Payments, a Seattle-based credit card company that he founded in 2004. In 2014, the company processed more than $65 billion of credit card transactions for more than 12,000 small and medium-sized businesses. In April 201
> Telus Corp., the second-largest wireless company in Canada, introduced an “adult content” service to their cell phone customers in 2007. Customers were charged $3 to $4 for downloads, and the company expected to make very large amounts of money based on
> On August 9, 2000, 6.5 million Firestone tires were recalled in the United States.1 One thousand five hundred and ninety- nine ATX, ATXII, and Wilderness AT tires installed on Ford Explorers were to be replaced at company cost due to evident defects, pub
> On January 6, 1992, the “growing controversy over the safety factor led the U.S. Food and Drug Administration to call for a moratorium on breast implants.”1 As January wore on, the crisis deepened until, on January 30, the Toronto Globe and Mail carried
> It was early on a Friday morning in London—7:15 a.m. on February 24, 1995, to be exact—that the phone call came for Peter Baring from Peter Norris. Baring’s family had been in banking since 1763. They enjoyed the patronage of the Queen of England and had
> Bankers Trust (BT) was one of the most powerful and profitable banks in the world in the early 1990s. Under the stewardship of chairman Charles Sanford Jr., it had transformed itself from a staid commercial bank into “a highly-tuned man
> Glen Grossmith is an outstanding family man, a frequent coach for his children’s teams, and a dedicated athlete who enjoys individual and team sports. One day, his boss at UBS Securities Canada Inc., Zoltan Horcsok, asked him to do a favor for a col- lea
> On December 20, 2002, New York’s attorney general, Eliot Spitzer, announced a $1.4 billion settlement ending a multi regulator probe of ten brokerages that alleged that “investors were duped into buying over- hyped sto
> Billionaire Raj Rajaratnam was arrested for insider trading on October 15, 2009, and marched in handcuffs from his New York apartment.1 Up to that point, he had enjoyed fame and fortune for founding the $7 billion Galleon Group of hedge funds and its env
> Jérôme Kerviel joined the French bank, Société Générale (SocGen), in 2000 at the age of twenty-three as part of its systems personnel in its back office. In 2005, he became a junior derivatives trader with an annual limit of €20 million, which is just un
> The discount airline Jetsgo Corporation began operations in June 2002. Within two and a half years, it grew to become Canada’s third-largest airline, moving approximately 17,000 passengers per day on its fleet of twenty-nine airplanes, fifteen of which w
> According to the Royal Ahold company profile, Ahold is a global family of local food retail and foodservice operators that operate under their own brand names. Our operations are located primarily in the United States and Europe. Our retail business cons
> In October 2009, PepsiCo Inc. launched, apologized, and then pulled an iPhone application called “AMP Up Before You Score,” designed to promote its Amp Energy drink. The drink’s target market is males between the ages of eighteen and twenty-four. Release
> Siemens AG is a 160-year-old German engineering and electronics giant. It is one of Europe’s largest conglomerates, with profits in 2007 of €3.9 billion on revenue of €72.4 billion, up €6 billion from its 2006 revenue. It has over 475,000 employees and o
> On March 19, 2003, the SEC filed accounting fraud charges in the Northern District of Alabama against HealthSouth Corporation and its CEO, Richard Scrushy. Scrushy was also charged with knowingly miscertifying the accuracy and completeness of the company
> Dennis Kozlowski was a dominant, larger-than-life CEO of Tyco International, Ltd, a multi-billion-dollar company whose shares are still traded on the New York Stock Exchange (Symbol: TYC). His stature was huge, and his appetite for excess knew no bounds.
> On June 20, 2005, “John Rigas, the 80-year old founder of Adelphia Communications Corp., was … sentenced to 15 years in prison and his son Timothy, the ex-finance chief, got 20 years for looting the com- pany and lying about its finances.”1 These were th
> By the late 1990s, Nortel Networks Corporation, headquartered in Brampton, Ontario, Canada, was one of the giants of the telecommunications industry. Seventy- five percent of North America’s Internet traffic was carried by Nortel equipment,1 which was ma
> Satyam Computer Services Ltd was founded in 1987 by B. Ramalinga Raju. By 2009, it was India’s fourth-largest information technology company with 53,000 employees, operating in sixty-six countries. It provided a variety of services, including computer sy
> Employee stock options allow company executives to buy shares of their company at a specified price during a specified time period. They are given to executives as a form of noncash compensation. The option or “strike price” is normally equal to the mark
> Pierre Garvey, the CEO of Revel Information Technology, sat back in his chair and looked at his assistants. He frowned. “My son has been diagnosed with MLD,” he said. They all looked at him with shock. “Its proper name is metachromatic leuko dystrophy, a
> Walt Pavlo joined MCI in the spring of 1992. At that time, MCI was a growth company in the booming long-distance tele- communications industry that had 15% of the long-distance market, with revenues of $11 billion. In the 1990s, the major telecommunicati
> On November 17, 2005, Conrad Black and three other executives1 of Hollinger Inter- national, Inc., were charged with eleven counts of fraud with regard to payments allegedly disguised as “noncompete fees” or, in one case, a “management agreement breakup
> Tiger Woods, once probably the world’s greatest golfer, lost his number one ranking in October 2010, the same year that his marriage to Elin Nordegren blew up when she chased him out of the house and broke the windows of his vehicle with a 9 iron. His po
