Detecting Accounting Fraud Analysis And Ethics Global Edition 1st Global Edition Cecil W. Jackson - Solutions

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If the same trend of sales and growth rate continues in the year 2006, what financial problems are likely to be faced by the corporation?Star Semiconductor Corporation Limited (SSCL) is a reputed manufacturer of semiconductors and related products. The balance sheet and income statement for the
The managing director and the director (finance) of a chain of multiplex commercial complex, established under the name and style M/s Wave Multiplex Commercial Complex (WMCC), are having a difference of opinion regarding the treatment of the first year’s operating losses of the complex.The
Prepare the balance sheet of Ranjan’s Café as on 15 August 2004. You can consider the events described in the case.
Prepare the balance sheet as on 16 December 2004.
What are the equities of Mr and Mrs Sharma and Mrs Aggarwal?
As Mr Thakur, be prepared to describe to Mr Gupta what the finance controller’s function will be in the proposed venture, SCPP.Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the company since he passed out his MBA from IIM,
What overall financial advise would you give to Mr Gupta? What are the financial pitfalls which the venture could face?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the company since he passed out his MBA from IIM, Lucknow about
How much compensation should each of the three promoters receive by way of salary?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the company since he passed out his MBA from IIM, Lucknow about two decades back and is currently
What would be a fair method of dividing the ownership in the venture?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the company since he passed out his MBA from IIM, Lucknow about two decades back and is currently earning Rs 12.00
If you were Mr Thakur, would you join the proposed venture? If yes, then why?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the company since he passed out his MBA from IIM, Lucknow about two decades back and is currently earning
What are the strengths and weaknesses of Benazir Rivet Company (BNC) based on the ratio analysis of its financial statements?Benazir Rivet Company (BRC) is one of the largest rivet manufacturing companies having a high market reputation on the quality of the rivets manufactured.As an independent
How does the company compare with the prevailing norms of the rivet industry?Benazir Rivet Company (BRC) is one of the largest rivet manufacturing companies having a high market reputation on the quality of the rivets manufactured.As an independent financial advisor, you have been requested to
As an independent financial advisor, what suggestions would you give to the management to strengthen the company?Benazir Rivet Company (BRC) is one of the largest rivet manufacturing companies having a high market reputation on the quality of the rivets manufactured.As an independent financial
Analyze the problems being faced by the SEC.The managing director of Sporty Equipment Company (SEC) was surprised to observe that there was a decrease in the working capital for 2005 when he reviewed the financial statements for the year. He had planned to acquire new machinery by raising funds
What would you suggest as remedial measures to win over the present problems?The managing director of Sporty Equipment Company (SEC) was surprised to observe that there was a decrease in the working capital for 2005 when he reviewed the financial statements for the year. He had planned to acquire
Prepare a cash flow budget for SACCL for the next four months.Sales for SACCL were as follows in the last four months of 2005:April 2005 Rs 2,60,000 May 2005 3,00,000 June 2005 3,80,000 July 2005 5,00,000 The sales manager has made the following sales projections for the second four months of 2004
How much funds will SACCL have to borrow to maintain its production level and minimum cash balance at the bank?Sales for SACCL were as follows in the last four months of 2005:April 2005 Rs 2,60,000 May 2005 3,00,000 June 2005 3,80,000 July 2005 5,00,000 The sales manager has made the following
What action can you suggest to the management of the SACCL to reduce its requirement to borrow funds?Sales for SACCL were as follows in the last four months of 2005:April 2005 Rs 2,60,000 May 2005 3,00,000 June 2005 3,80,000 July 2005 5,00,000 The sales manager has made the following sales
LDDS suffered from high fixed costs coupled with a lack of technical knowledge and expertise in optimizing the configuration of circuits, which resulted in high line costs.True/False
WorldCom overstated its sales by holding its books open at the close of a reporting period.True/False
LDDS continued to publicly report increasing profits and sales in the financial statements, which allowed it to acquire more companies with no limit to the growth of its stock price.True/False
WorldCom overstated its earnings by improper accounting for multiple element contracts.True/False
If a company overstates merger reserves at the time of acquiring another company, it can release the surplus reserves into earnings in a later period without decreasing net income at the time of the creation of the reserve.True/False
Ebbers and Grubman had no knowledge of the technicalities of the Internet, the Internet traffic, or the workings of the telecom industry, which led them to overestimate the demand for the Internet capacity.True/False
WorldCom prepared its financial statements to meet the expectations of securities analysts despite needing to report actual earnings and accurate financial results.True/False
If the notes to the financial statements indicate that a company is capitalizing costs that other companies in the same industry recognize as expenses, it is a signal that the company is capitalizing questionable costs.True/False
Special charges in the income statement that write off previously capitalized costs are always a sign that a company has become conservative in recognizing earnings and that the quality of its earnings is increasing.True/False
If a parent company discovers that the assets of an acquired company are worth less than it believed at the time of the acquisition, it is appropriate to increase goodwill because this means that the excess of the purchase price over the net asset value of the acquired company was greater than what
The opportunity for the creation of WorldCom was the court-ordered breakup of ________________, which was then forced to lease long-distance phone lines.
WorldCom’s Bankruptcy Examiner alleged that WorldCom’s ________________ was the fuel that kept its acquisition engine running.
After all the acquisitions, many companies had been added to WorldCom’s collection without any ________________. There was little liaison between the companies, and much of the work was ________________.
When a company overstates reserves at the time of acquisition, in later periods, it can release the ________________ reserves back into earnings.
Adjustments that increase ________________ in a later period, with respect to an earlier acquisition, are further signs that a company may be creating false reserves.
Investors should be wary of large ________________ - ________________ charges in the income statement around the acquisition period because these are often signals that the company could be creating false reserves.
The misallocation of expenses as assets is known as the improper ________________ of expenses.
WorldCom was a collection of out-of-focus ________________ of companies in which Ebbers was controlling every minute detail without any plan for all the acquisitions.
After WorldCom acquired UUNet, it had broadband and networks all over the world and had become a ________________ provider of Internet access and data transmission.
As a result of acquiring MCI, WorldCom had two billing systems, so employees would switch existing customers to the other system and get ________________ commission for the new account.
WorldCom is presented in this textbook as an illustration of overstating earnings by:(a) Holding books open after the close of a reporting period.(b) Misuse of multiple element contracts.(c) Improper use of merger reserves and improper capitalization of expenses.(d) Understatement of reserves for
Which of the following is not a signal of overstatement of earnings by improper use of merger reserves?(a) When goodwill on acquisition relates to a company that does not have or is unlikely to have a supernormal return on assets.(b) When the sales-to-PPE ratio decreases after an acquisition.(c)
WorldCom passed journal entries after the close of each quarter:(a) To reduce line costs incurred.(b) To overstate the property, plant, and equipment.(c) Without any supporting documents and explanation.(d) All of the above.
WorldCom gave Arthur Andersen misleading special “MonRevs” to:(a) Conceal the top-side journal-entry adjustments.(b) Close any gaps between targeted and projected actual earnings.(c) Spread the irregular amount over a number of months and over a number of asset accounts.(d) All of the above.
Which of the following reserve accounts was not examined by WorldCom’s Bankruptcy Examiner?(a) Bad debt reserves.(b) Tax reserves.(c) Legal reserves.(d) Cooperative advertising reserves.
If a company overstates the reserves of a company that it acquires and increases goodwill by a corresponding amount in the period of the acquisition in order to release the reserves in a later period, which of the following will occur?(a) A decrease in the amount of the group’s operating income
Arthur Andersen, as the external auditor to WorldCom,(a) Had restricted access to the accounting records.(b) Was oblivious of the top-side transfers from expenses to assets.(c) Was not conscientious in conducting the full audit of WorldCom’s books.(d) All of the above.
WorldCom improperly accounted for its line cost expense by:(a) Allocating line-cost expense to PPE in its first recording of the line-cost transactions.(b) Initially properly debiting the line-cost expense to an expense account and later transferring the expense to PPE.(c) Misclassifying part of
Early in 2002, WorldCom suffered a decline in business as a result of:(a) The decline of acquisitions to falsify profits.(b) The fall of stock price.(c) Ebber’s loans, which were eating cash.(d) All of the above.
With which of the following gatekeepers did WorldCom’s Bankruptcy Examiner find fault?(a) The board of directors.(b) The investment banking company.(c) Both (a) and (b).(d) None of the above.
Signal #1 for the scheme of improper use of acquisition or merger reserves is a parent company allocating large amounts to goodwill when acquiring other companies. Explain why this could be a signal of “improper use of acquisition or merger reserves.”
Signal #4 for the scheme of improper use of merger reserves is the occurrence of large, one-time charges in the income statement around the time of the acquisition period.Compare the use of one-time charges in the income statement to the use of large amounts of goodwill for the improper use of
When Company A acquires Company B, does the fact that Company A paid more for Company B than its net asset value mean that “goodwill” has been acquired?Explain.
Why is a decreasing sales-to-PPE ratio a signal of possible overstatement of assets?
Explain why the overstatement of a reserve for accumulated depreciation of an acquired company at the time of acquisition would cause an overstatement of goodwill.
How was WorldCom able to continue to acquire so many companies and overstate goodwill by so much?
Action Co. has agreed to pay $$45,000$ to acquire 100 percent of the shares of Sub Co.Action Co. believes that the fair value of Sub Co.’s assets, liabilities, and reserves at the date of acquisition are as follows:Action Co. believes that based on Sub Co.’s future earnings potential, it is
At the time of Big Company’s acquisition of Small Company, Big Company believed that Small Company’s reserve for doubtful debts was correctly stated at $$30,000.$ Big Company purposely overstated the reserves at the time of acquisition by $$20,000$ by specifically stating that it believed
Extracts for Zeddy Company’s quarterly income statements and balance sheets for quarters 1–4 are as follows:Calculate selling and administrative expenses as a percentage of sales for quarters 1–4 and comment on the results. Q1 Q2 Q3 60 Q4 $ $ $ $ Sales 200,000 150,000 100,000 75,000 Selling &
Extracts from Zee’s quarterly income statements and balance sheets for the four quarters of year 1 are as follows:Requireda. Calculate the sales/PPE ratio for quarters 1–4.b. Calculate the sales/total assets ratio for quarters 1–4.c. Comment on the above ratios. Q1 Q2 Q3 Q4 $ $ $ Millions
One of the signals of the understatement of expenses is the increase in expenses as a percentage of sales.True/False
An increase in current liabilities as a percentage of current assets or of sales is a sign of an understatement of expenses.True/False
Unusually long periods for depreciation of assets is a sign of fictitious reporting in Livent’s case.True/False
One of the methods that Rite Aid used to reduce its cost of goods sold was to pass journal entries that decreased cost of goods sold and decreased accounts payable by a corresponding amount.True/False
One must be alert enough to note the aggressive capitalization of costs when a company writes off costs that were formerly capitalized.True/False
If a company capitalizes costs that other companies in the industry do not, it could be an alert that the company may be aggressive in capitalizing expenses.True/False
AHERF’s failure to increase its reserve for bad debts caused it to understate its expenses and overstate its income.True/False
Lockheed’s accounting tale is the classic case of misstating earnings by failing to write off an impaired asset.True/False
The decline of a company’s asset-turnover ratio is an indication that assets are impaired.True/False
There is a possibility that a company will be aggressive in trying to overstate the value of assets when it has a policy to write-off assets that is slower than those of other companies in the industry.True/False
The SEC’s enforcement action against Livent alleged that senior company officials had a special computer program designed that would enable accounting personnel to __________ the accounting system without leaving a paper or transaction trail.
At the end of each quarter, Livent simply ____________ certain expenses and the related liabilities from the general ledger.
In order to defer expenses, Livent moved expenses from one asset account to another where the __________ could be delayed.
According to the SEC, one of the methods that Rite Aid used to understate its cost of goods sold was to recognize vendor __________ on sales that had not yet occurred.
Rite Aid failed to write down its inventory amount for the full amount of the __________ that it suffered.
Livent also transferred __________ costs for shows, such as those for construction of theaters, to fixed asset accounts.
In the case of AHERF, the misstated reports went beyond annual financial statements and included municipal securities disclosure reports known as Nationally Recognized Municipal ____________ Information Repositories.
Instead of writing off its uncollectible amounts immediately, AHERF decided to write off its uncollectible accounts receivable in __________ installments.
Lockheed had an accounting policy in which it capitalized TriStar’s development costs with the intention of writing them off as the planes were __________.
Livent arranged for outside associates to purchase approximately $381,000 of tickets on personal __________ and make future ticket purchases using personal __________.
Which of the following methods of overstating earnings was not identified in the SEC’s Enforcement Action against Livent?(a) Understating expenses via the release of cookie-jar reserves.(b) Understatement of expenses by removing invoices from accounting records.(c) Improper deferral of
In what ways did Livent understate the expenses in the financial statements?(a) It erased expense invoices from the accounting system.(b) It deferred expenses by transferring costs from a current theatrical show to other shows to defer amortizing the assets.(c) It transferred production costs to
Which of the following methods of fictitious accounting were used by Rite Aid to understate its cost of goods sold?(a) Overstatement of ending inventory values.(b) Adjusting gross profit entries to reduce cost of goods sold.(c) Improper recognition of vendor rebates.(d) All of the above.
To test for the lack of accrual in Livent’s case,(a) It is compulsory to check which regular vendor is not on the accounts payable list.(b) Choose a known vendor and trace the vendor to the list of accounts payable that supports the amount listed on the balance sheet.(c) Reconciliation is needed
Which of the following methods of fictitious accounting was not identified by the SEC in its Enforcement Action against Rite Aid?(a) Understatement of bad debt expense.(b) Failure to write off capitalization costs such as costs of title searches.(c) Reversal of accounts payable amounts for
Allegheny (AHERF) is presented in this chapter mainly as an example of understating expenses via:(a) Improper capitalization of expenses.(b) Understatement of cost of goods sold.(c) Understatement of reserves for bad debts.(d) Understatement of expenses by improper use of restructuring reserves.
Which of the following would not be a signal that a company may have understated its reserve for doubtful debts?(a) Accounts receivable increases as a percentage of sales.(b) The reserve for bad debts decreases as a percentage of accounts receivable.(c) The net amount for accounts receivable
Lockheed is presented in this chapter mainly as an example of:(a) Failure to record asset impairments.(b) Overstatement of sales.(c) Understatement of reserve for bad debts.(d) Improper use of cookie-jar reserves.
In the first quarter of the fiscal year, Brace Company discovers that an asset is impaired and the asset will need to be written down by $$4$ million. Which of the following statements is correct?(a) Brace Company can write down the asset by $$4$ million when it prepares its annual financial
If the value of a company’s beginning inventory is overstated but its ending inventory is correctly stated, then:(a) Its cost of goods sold expense will be understated.(b) Its gross margin will be understated.(c) Its gross margin will be overstated.(d) None of the above.
Describe and compare Lockheed’s capitalized development costs and Livent’s capitalized preproduction costs.
How did the development costs at Lockheed and the preproduction costs at Livent differ from preproduction costs related to long-term supply arrangements?
Explain how Livent’s improper deferral of expenses and Rite Aid’s improper recognition of vendor rebates shifted the recognition of expenses from one period to a later period.
Explain why Rite Aid’s failure to write down its ending inventory amount—to agree with values determined by physical inventory counts—caused it to overstate its income.
Explain why sudden unexplained increases in gross margin as a percentage of sales could be an indication that a company is understating its cost of goods sold.
What balance sheet item did AHERF misstate, and what effect did this have on its reported income?
Explain how Lockheed’s treatment of its development costs overstated its reported income.
LivePlay Company has incurred $$300,000$ in scenery production costs for the play Cat Trap. It estimates that Cat Trap will run for three years, beginning January 1, 2012. However, to the company’s surprise, it becomes clear in October 2012 that Cat Trap will run for only one year and close on
Brite Company’s ending inventory values and its cost of goods sold (COGS) amounts for Q1–Q4 are listed below.Requireda. Calculate Brite’s inventory turnover ratio for Q2, Q3, and Q4.b. Calculate Brite’s days’ sales in inventory for Q2, Q3, and Q4. Mar 31 June 30 Sept 30 Q1 Q2 Q3 Dec 31 Q4
Aerial, Inc., an airplane manufacturing company, incurred $$1$ million in development costs during the design and manufacture of a new airplane. Aerial estimates no further development costs, and it estimates that it will need to sell 100 airplanes to break even on this line of aircraft. It
Enron used off-balance-sheet entities to overstate earnings via related-party sales and loans disguised as sales.True/False
Mark-to-market accounting refers to the revaluation of an asset or a liability on an entity’s balance sheet to its market or fair value.True/False

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Detecting Accounting Fraud Analysis And Ethics Global Edition 1st Global Edition Cecil W. Jackson - Solutions

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