Finance Problems

$39.00

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Question 1.1. (TCO A) What is the relationship
between U. S. AND International Auditing Standards?

Question 2.2. (TCO B) Alan, a CPA is
participating in an audit engagement of ABC Company. He has performed the audit
and has determined that an unqualified opinion is to be issued but he would
like to expand on the rationale for the unqualified opinion. Please describe
the five situations in which an explanatory paragraph would be necessary in an
unqualified opinion.

Question 3.3. (TCO C) Kent, CPA is a staff
auditor participating in the audit engagement of Fort, Inc. Based upon each of the circumstances below,
indicate whether or not Kent’s actions impair his independence. Explain your response for each situation:

•????????Kent’s friend, an employee of
another local accounting firm, prepares Fort’s Tax return.

•????????Kent’s sibling is the director of
Internal Auditing for Fort, Inc..

Question 4.4. (TCO D) You are a CPA, you worked 2 years for a CPA
firm doing audits and now you have just completed your first year in your own
CPA firm. Your Physician audit client, whom you just issued an Unqualified
Opinion, has just determined that his accountant has been stealing about
$300,000 per year from their Physician Medical Practice which you failed to
detect during your audit. You had warned
the Managing Partner that they did not have adequate Internal controls – are
you liable? Explain your defense and
possible legal liability.

Question 5.5. (TCO F) Sarbanes Oxley requires that per Section 404
that Internal Controls within a publicly held company are to be reviewed,
evaluated and tested at year end to insure that adequate controls are in place.
Explain and describe two of the three major methods to obtain and document
their understanding of a company’s controls.

Question 1.1. (TCO E) What is COSO? Describe the 5 elements of COSO’s Internal
Control-Integrated Framework. Provide an
example of each of those components and explain why they are important in
providing “Reliable Financial Reporting” for a company. Please provide a complete answer for full
points.

Question 2.2. (TCO G) Conducting an audit in
accordance with Generally Accepted Auditing Standards requires that the audit
is properly planned, performing preliminary upfront analytical procedures,
assessing the clients business risk and making sure that the auditors
understand the client’s business and industry.

(a)
Identify and describe at least three aspects of proper audit planning
and why they are important.

(b) Define what an analytical procedure is
and give at least three procedures that
should be performed and their purpose.
For example, comparison of last year’s Allowance for Doubtful Accounts
to this year’s Allowance for Doubtful accounts – the amount has decreased by
25%, while sales have increased by 10% from last year. How might this affect how you look at
Accounts Receivables and the related Allowance for Doubtful Accounts? Would you increase or decrease your audit
procedures?

(c) Why does an auditor need to understand
the client’s business and their industry?
Provide an industry and what risks may that industry pose to our client.

Question 3.3. (TCO H) Audit Risk consists of
inherent risk, control risk, and detection risk.

(a) Please completely define each of the
above.

(b) Indicate whether each of the statements
below is true or false and explain your position:

(1)
The risk that material misstatement will not be prevented or detected on
a timely basis by internal controls can be reduced to zero by having effective
controls in place.

(2)
Detection Risk is a function of the efficiency of an auditing procedure.

(3) Cash is more susceptible to theft than
an inventory of coal because it has greater inherent risk?

(4)
The Inherent risk of the theft of an inventory of cellphones at a mall
store is greater than the misappropriation of cash at a COSTCO Store?

Question 4.4. (TCO I) Accounts Receivable
– For each of the following, please explain if an auditor’s review of the
client’s sales cutoff would detect these problems:

(a) Would excessive goods returned for
credit be detected by a sales cut-off test – why or why not?

(b) Would unrecorded sales discounts be
detected by a sales cut-off test – why or why not?

(c) Lapping of year-end accounts receivable
be detected by a sales cut-off test – why or why not?

(d) Inflated sales for the year – could it
be detected by a sales-cut-off test – why or why not?

Question 5.5. (TCO J) One of the major problems
in a computer system is that incompatible functions may be performed by the
same individual. Identify from the below
choices the control compensating for inadequate segregation of duties in a computer
system. Explain why you have selected
your response.

(a) Echo Checks

(b) A check digit system

(c) Computer-Generated hash
totals

(d) A computer access log

Question 6.6. (TCO K) You are the Senior
Auditor for WWZ Co. and you have completed the testing of all the
accounts. However, prior to issuing your
report, what are at least five other procedures or reviews that must be performed prior to
issuing your report? Explain your
responses

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finance problems

$16.00

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Problem1. Using present value techniques to evaluate alternative investment opportunities.
Fast Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Fast recently acquired approximately $6 million of cash capital from its owners, and its president. Don Keenon, is trying to identify the most profitable way to invest these funds.
Clarence Roy, the company’s operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $720,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $280,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $100,000. Operating the vans will require additional working capital of $40,000, which will be recovered at the end of the fourth year.
In contrast, Patricia Lipa, the company’s chief accountant, believes that the funds should be used to purchase large trucks to deliver the packages between the depots in the two cities. The conversion process would produce continuing improvement in operating savings with reductions in cash outflows as the following.
Year 1 Year 2 Year 3 Year 4
$160,000 $320,000 $400,000 $440,000
The large trucks are expected to cost $800,000 and to have a four-year useful life and a $80,000 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount to $16,000. Fast Delivery’s management has established a 16 percent desired rate of return.
Required
a. Determine the net present value of the two investment alternatives.
b. Calculate the present value index for each alternative.
c. Indicate which investment alternative you would recommend. Explain your choice.

Problem 2Using the payback period and unadjusted rate of return to evaluate alternative investment opportunities.
Louis Gallo owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involved purchasing a machine that would enable Mr. Gallo to offer frozen yogurt to customers. The machine would cost $8,100 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $5.940 and $900, respectively.
Alternatively, Mr. Gallo could purchase for $10,080 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,280 and $2,430 respectively.
Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.
Required
a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative.
b. Indicate which investment alternative you would recommend. Explain your choice.

Problem 3Using net present value and internal rate of return to evaluate investment opportunities.
Veronica Tanner, the present of Tanner Enterprises, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $100,000 and for Project B are $40,000. The annual expected cash inflows are $31,487 for Project A and $13,169 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Tanner Enterprise’s cost of capital is 8 percent.
Required
a. Compare the net present value of each project. Which project should be adopted based on the net present value approach?
b. Compute the approximate internal rate of return on each project. Which one should be adopted based on the internal rate of return approach?
c. Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?

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