Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 19E
To determine
Recognize and comment the ethical principle that are violated by the controller and CFO (chief financial officer).
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ESB. ACCOUNTING CONNECTION Careful scrutiny of accounting records and financial
statements can lead to the discovery of fraud or embezzlement. Each of the situations
that follow may indicate a breakdown in internal control. Indicate the nature of the pos-
sible fraud or embezzlement in each of these situations.
1. Wages expense for a branch office was 30 percent higher in 2014 than in 2013, even
though the office was authorized to employ only the same four employees and raises
were only 5 percent in 2014.
2. Sales returns and allowances increased from 5 percent to 20 percent of sales in the
first two months of 2014, after record sales in 2013 resulted in large bonuses for
the sales staff.
3. Gross margin decreased from 40 percent of net sales in 2013 to 20 percent in 2014,
even though there was no change in pricing. Ending inventory was 50 percent less
at the end of 2014 than it was at the beginning of the year. There is no immediate
explanation for the decrease in inventory.
4. A…
Item A. Fraud
Facts:
Susan Green has worked for ABC Company (“ABC”) as the executive secretary in the administrative department for over 10 years. Her apparent integrity and dedication to her work has earned her the reputation of being an outstanding employee and has resulted in increased responsibilities. Her present responsibilities include making arrangements for outside feasibility studies, maintaining client files, working with outside marketing consultants, initiating the payment process, and notifying the accounting department of all openings or closings of vendor accounts.
During Susan’s first five years of employment, ABC subcontracted all of its feasibility and marketing studies through Adams and Co. This relationship was subsequently terminated because Adams and Co. merged with a larger, more expensive consulting group. After termination of Adams and Co., Susan and her supervisor selected a new firm to conduct ABC’s market research. However, Susan never informed the…
Subject: Accounting Information System
ETHICS, FRAUD, AND INTERNAL CONTROL
Stated Problem:
EXPENSE ACCOUNT FRAUD
While auditing the financial statements of Petty Cor-poration, the certified public accounting firm of TrueBlue and Smith discovered that its client’s legal expenses account was abnormally high. Further investigation of the records indicated the following:•Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.•Swindle, Fox, and Kreip were not Petty Corporation's attorneys.
A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk.
Boghas’s other duties included performing the end-of-month bank reconciliation.
Subsequent investigation revealed that Swindle,Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.…
Chapter 10 Solutions
Survey Of Accounting
Ch. 10 - 1. What are some differences between financial and...Ch. 10 - 2. What does the value-added principle mean as it...Ch. 10 - 4. How does product costing used in financial...Ch. 10 - 5. What does the statement costs can be assets or...Ch. 10 - 6. Why are the salaries of production workers...Ch. 10 - 7. How do product costs affect the financial...Ch. 10 - 8. What is an indirect cost? Provide examples of...Ch. 10 - 9. How does a product cost differ from a selling,...Ch. 10 - 10. Why is cost classification important to...Ch. 10 - 11. What is cost allocation? Give an example of a...
Ch. 10 - 13. What are some of the common ethical conflicts...Ch. 10 - 14. What costs should be considered in determining...Ch. 10 - 15. What is a just-in-time (JIT) inventory system?...Ch. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Prob. 18QCh. 10 - Prob. 19QCh. 10 - Prob. 1ECh. 10 - Exercise 1-2A Identifying product versus selling,...Ch. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Exercise 1-6A Identifying product versus SGA costs...Ch. 10 - LO 1-3 Exercise 1-7A Recording product versus SGA...Ch. 10 - Prob. 8ECh. 10 - LO 1-4 Exercise 1-9A Upstream, midstream, and...Ch. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Cost of goods manufactured and sold The following...Ch. 10 - Prob. 15ECh. 10 - Exercise 1-14A Using JIT to minimize waste and...Ch. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Problem 1-19A Characteristics of financial versus...Ch. 10 - Prob. 22PCh. 10 - Problem 1-21A Effect of product versus period...Ch. 10 - Problem 1-22A Product versus SGA costs The...Ch. 10 - Prob. 25PCh. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 1ATCCh. 10 - Prob. 2ATCCh. 10 - Prob. 3ATCCh. 10 - Prob. 4ATCCh. 10 - Ethical Dilemma Product cost versus selling and...
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- Chapter 20/21 Errors, Frauds & Unlawful acts[1] and Related parties You are the audit supervisor of Maple & Co and are currently planning the audit of an existing client, Sycamore Science Co (Sycamore), whose year-end was 30 April 2015. Sycamore is a pharmaceutical company, which manufactures and supplies a wide range of medical supplies. The draft financial statements show revenue of $35.6 million and profit before tax of $5.9 million. Sycamore’s previous finance director left the company in December 2014 after it was discovered that he had been claiming fraudulent expenses from the company for a significant period of time. A new finance director was appointed in January 2015 who was previously a financial controller of a bank, and she has expressed surprise that Maple & Co had not uncovered the fraud during last year’s audit. During the year Sycamore has spent $1.8 million on developing several new products. These projects are at different stages of development and…arrow_forward3. Mini Case 3 XYZ Restaurants Corp. has recently completed its annual external audit of financial records. The outside auditing firm employed to conduct this audit has presented the results to the company president and asked for her approval and signature on the document. However, the president is unsure of the results and is unwilling to attest to the results of the audit. In last month’s corporate board meeting, members openly demanded the resignation of the president on the grounds that she is holding up company progress through her actions. The board has also determined that, in its opinion, her signature is not needed on these documents Question How should the president respond?arrow_forwardCase study 1: While auditing the financial statements of Petty Corporation, the certified public accounting firm of Trueblue and Smith discovered that its client’s legal expense account was abnormally high. Further investigation of the records indicated the following: • Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip. • Swindle, Fox, and Kreip were not Petty Corporation attorneys. • A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk. • Boghas’s other duties included performing the end-of-month bank reconciliation. • Subsequent investigation revealed that Swindle, Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees. Required: a. What control procedures could Petty Corporation have employed to prevent this…arrow_forward
- Internal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following questions: What weaknesses in internal control contributed to this fraud? Why would it take so long to discover such a fraud? What control procedures should be changed to prevent such fraud?arrow_forwardInternal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following question: What control procedures should be changed to prevent such fraud?arrow_forward25. An audit firm has been asked by a client to attend a meeting between the client and its prospective investors in order to discuss the company’s financial performance in the last year. According to the Code of Professional Ethics for Accountants, what type of threat to objectivity will be created if the auditor attends this meeting? a. Advocacy threat b. Self review threat c. Self-interest threat d. Intimidation threatarrow_forward
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