1. If payment is received in advance, what journal entry, if any, should USFS have made...
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1. If payment is received in advance, what journal entry, if any, should USFS have made to record this transaction (assume $10,000,000 payment received in advance for the next two year's promotional services)? What journal entry might USFS have made instead? Question 2: If payment is made after services have been performed, what journal entry, if any, should USFS have made assuming services have not yet been performed? What journal entry might USFS have made instead? Question 3: How did these fraudulent activities go undetected for so long? (Clue: Who was involved, structure of the company, oversight, etc.) Question 4: How did these individuals think they could get away with this given the magnitude of the fraud? Do you think they intentionally tried to defraud the company of $800 million? What do you think might have happened? US Foodservice Case Study Situation: In 2004, US Foodservice (USFS) was found to have overstated its earnings by approximately $800 million during at least the fiscal years of 2001-2002. After investigation, it was determined that a number of senior executives had committed various acts of criminal and civil fraud. Please review the related articles for additional information which will help you answer the questions that follow. Background: USFS is a food distributor, purchasing food products from manufacturers and distributing them to restaurants and other food outlets. Food Manufacture (e.g., Heinz) Foodservice) Distributor (e.g., US (e.g., Chili's) Food Retalfeodet Retailer USFS generated profit two ways: 1. Purchases products and resells them at a higher price (e.g.. buy at $1.00, sell at $1.50, generating a $0.50 profit); and 2. Receives fees from the manufacturers called "rebates" in exchange for promotional and other services provided. For example, Heinz may pay USFS $5 million for USFS to promote or feature Heinz' products to restaurants. USFS therefore would record revenue when they perform such services (note that technically, certain rebates are treated as reductions of expenses, but for simplicity we are assuming they are treated as revenues for this case). While not always the case, we will assume the rebates involve cash payments from the manufacturer to USFS, sometimes in advance, sometimes after the services are performed. This was the area in which the fraud occurred. 1. If payment is received in advance, what journal entry, if any, should USFS have made to record this transaction (assume $10,000,000 payment received in advance for the next two year's promotional services)? What journal entry might USFS have made instead? Question 2: If payment is made after services have been performed, what journal entry, if any, should USFS have made assuming services have not yet been performed? What journal entry might USFS have made instead? Question 3: How did these fraudulent activities go undetected for so long? (Clue: Who was involved, structure of the company, oversight, etc.) Question 4: How did these individuals think they could get away with this given the magnitude of the fraud? Do you think they intentionally tried to defraud the company of $800 million? What do you think might have happened? US Foodservice Case Study Situation: In 2004, US Foodservice (USFS) was found to have overstated its earnings by approximately $800 million during at least the fiscal years of 2001-2002. After investigation, it was determined that a number of senior executives had committed various acts of criminal and civil fraud. Please review the related articles for additional information which will help you answer the questions that follow. Background: USFS is a food distributor, purchasing food products from manufacturers and distributing them to restaurants and other food outlets. Food Manufacture (e.g., Heinz) Foodservice) Distributor (e.g., US (e.g., Chili's) Food Retalfeodet Retailer USFS generated profit two ways: 1. Purchases products and resells them at a higher price (e.g.. buy at $1.00, sell at $1.50, generating a $0.50 profit); and 2. Receives fees from the manufacturers called "rebates" in exchange for promotional and other services provided. For example, Heinz may pay USFS $5 million for USFS to promote or feature Heinz' products to restaurants. USFS therefore would record revenue when they perform such services (note that technically, certain rebates are treated as reductions of expenses, but for simplicity we are assuming they are treated as revenues for this case). While not always the case, we will assume the rebates involve cash payments from the manufacturer to USFS, sometimes in advance, sometimes after the services are performed. This was the area in which the fraud occurred.
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Answer 1 USFS should have made a journal entry to record the 10 million payment received in advance for the next two years promotional services The en... View the full answer
Related Book For
Income Tax Fundamentals 2015
ISBN: 9781305177772
33rd edition
Authors: Gerald E. Whittenburg, Martha Altus-Buller, Steven Gill
Posted Date:
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