Homework Help for Accounting

Adjusting entries is

Your team is the Executive Committee at St. Everywhere Health System. The system consists of five (5) hospitals totaling 1,775 beds, thirty (30) affiliated physician practices including 240 physicians of a variety of specialties, two (2) long-term care facilities, and ten (10) urgent care clinics.

Overall, these divisions of the health system generate the following proportions of revenues for the system:

Hospital - 50%

Physicians - 30%

Long-term care - 15%

Urgent care - 5%

You are considering adopting a unified policy on bad debts. Currently each division has its own bad debt policy where the division considers a patient account to be a bad debt and recognizes bad debt expense when an account gets to a certain age. The bad debt policies for each division are:

Hospital - 180 days

Physicians - 120 days

Long-term care - 90 days

Urgent care - 60 days

Your team is considering a change to make bad debts recognized across all divisions at 120 days. Your team must make a recommendation to the Finance Committee of the Board next week. Your assignment is to develop that recommendation and include the following items:

Arguments for and against the proposed change;

Estimated impacts to the income statement and cash flows;

Your team's recommendation with rationale.

A.) Read the case study and evaluate what you would do next.

B.) Given the knowledge gained from these case studies, what are the key elements to

applying professional skepticism?

Case Study B — Journal Entries Reveal a Puzzling Pattern

For several years, I’ve been a senior audit manager on a subsidiary of a foreign entity. We conduct the annual audit, with no review of quarterly financial information.

One year, a few months before we started fieldwork, the client hired a new controller and made some other personnel changes to the finance team. When we began our work, we found more small errors than usual, specifically in revenue and accounts receivable.

We attributed the errors to the change in personnel and were not overly concerned, but we modified our procedures for testing revenue and looked for journal entries made to revenue with offsets to unusual accounts.

We soon noticed a trend: entries to revenue often had an offset to atypical accounts. The pattern was puzzling because the entries both increased and decreased revenue during the course of the year, so it was difficult to understand any potential reasoning.

As the reporting deadline approached, the partner and I sat down with the controller to ask for an explanation.

In response to our questions, the controller produced a spreadsheet and showed us that all the topside entries netted out to a minimal effect on the final full-year results. He indicated that the entries were made with the agreement of the CEO.

Since we were performing an annual audit of the financial statements on which these entries had little effect, the controller evidently felt our questions were satisfied.

“But what was the purpose of the entries?” our partner asked. “We need to understand why these topside entries have been made,” he persisted.

There was a long, uncomfortable pause. Finally, the controller sighed and said, “Well, you may not like the answer. Let me ask the CEO to join us.”

They explained that they tried to make the quarterly results approximate the budgeted amounts, solely for the purpose of reporting to the foreign parent. This was intended to avoid having to explain unfavorable quarterly variances, a normal part of this company’s business cycle. The CEO added that his team fully understood their business, and they were confident that the full-year results would approximate the budget.

Yakima Wheat Company acquired harvesting equipment for $90,000with an expected useful life of 5 years and a $10,000 expectedresidual value. Yakima Wheat used straight-line depreciation.During its fourth year of service, cash expenditures related to theequipment were as follows:

 1. Oiling and greasing, $200.

 2. Replacing belts and hoses, $450.

 3. Major overhaul during the final week of the year, includingthe replacement of an engine. The useful life of the equipment wasextended from 5 to 7 years. The cost was $27,000. The residualvalue is now expected to be $11,000, instead of $10,000.

 Indicate in words how each of the three items would affect theincome statement and the balance sheet in the fourth year. Preparea tabulation that compares the ...

Harriet Knox, Ralph Patton, and Marcia Diamond work for a familyphysician, Dr. Gwen Conrad, who is in private practice. Dr. Conradis knowledgeable about office management practices and hassegregated the cash receipt duties as follows. Knox opens the mailand prepares a triplicate list of money received. She sends onecopy of the list to Patton, the cashier, who deposits the receiptsdaily in the bank. Diamond, the recordkeeper, receives a copy ofthe list and posts payments to patients' accounts. About once amonth the office clerks have an expensive lunch they pay for asfollows. First, Patton endorses a patient's check in Dr. Conrad'sname and cashes it at the bank. Knox then destroys the remittanceadvice accompanying the check. Finally, Diamond posts payment tothe customer's account as a miscellaneous credit. The three justifytheir actions by their relatively low pay and knowledge that Dr.Conrad will likely never miss the money.

Required

Who is the best person in Dr. Conrad's office to reconcile thebank statement?

Would a bank reconciliation uncover this office fraud?

What are some procedures to detect this type of fraud?

Suggest additional internal controls that Dr. Conrad couldimplement.

Mary is 66 years old and has operated a small business since1992. She retired from business and the net value of her assets is$1.5m. In selling his business on 3 March 2015 he sold one activeasset (A) that was purchased in July 1988 and made a capital gainof $50,000 from the disposal of that asset. Another active asset(B) that was purchased in October 2005 was sold and a capital gainof $60,000 was made on its disposal. Mary also sold a rentalproperty that he purchased in 2001 and made a capital gain of$70,000 on its disposal. Given that Mary made these disposals inthe current year and that she has no capital losses or othercapital gains, what is his net capital gain in the current year,assuming that she wishes to take advantage of the small businessconcessions including the retirement exemption ($500,000 balanceavailable) and minimise her assessable income?

A statewide property tax levy freeze:

would allow property tax revenue to grow as rapidly as thegrowth in assessed value.

would require that all local jurisdictions in the state have thesame property tax rate.

would cause property tax rates to rise when assessed valueincreases.

would limit local expenditure growth to that financed bynon-property tax revenue.

Pilsbury Co. bought machines on January 1, 2013. The companysigned a note to pay $32,000 for the machines on December 31, 2014.The market interest rate is 10%. Record the journal entries forthis transaction. Round to the nearest dollar.

John Ford starts a firm Bestafer andBob Strong is the venture capitalist. The situation is asfollows: John Ford, CEO of Bestafer, Inc., sought toraise $5 million in a private placement of equity in his earlystage dairy products company. Ford conservativelyprojected net income of $4 million in year 5, and knew thatcomparable but more mature companies traded at a price earningsratio of 20x. The venture capitalist, Bob Strong, has a50% target rate of return. Ford has 1,000,000shares. (There is expected to be no debt or availablecash at the investment horizon.)

But now: Bob Strong ofKennebunk Capital liked Ford's plan, but thought it naive in onerespect: to recruit a senior management team, he feltFord would have to grant generous stock options in addition to thesalaries projected in his business plan. From pastexperience, he felt management should have the ability to own atleast a 15% share of the company by the end of year 5 (att=5). That is, management will be rewarded with stockoptions that Strong feels will result in these managers (notincluding Ford) owning 15% of all shares as oft=5. (Those shares will not be issued at t=0)

Given these beliefs, how many sharesshould Strong insist on today if his target rate of return is50%? (The assumption here is that a wise venturecapitalist will anticipate this 15% management pool at the time ofthe financing.) Assume that $5 million must be investednow.

(Understanding the entity and its environment)You have just been assigned as in-charge accountant on HipStar,Inc. a new audit client in the recording industry. HipStar is anemerging growth company that finds new recording artists, recordstheir music, and distributes the music directly to consumersexclusively over the Internet. The company does not produce CDs ortapes and does not distribute the artist's music throughtraditional distribution channels. In order to better understandHipStar, you have set out to understand the following:

1. Industry conditions

2. The regulatory environment

3. Other external factors affecting the business

4. The entity's business operations

5. The entity's investing activities and financingactivities

6. The entity's financial reporting activities

7. The entity's objectives, strategies, and related businessrisks

8. How the entity measures and reviews its financialperformance.

Required

For each of these eight categories (1)describe the knowledge and understanding you want to obtain aboutHipStar to develop a knowledgeable perspective about the entity and(2) identify how this knowledge might assist in assessing the riskof material misstatement. Use the following format:

If the previous period's financial statements are unaudited, andsufficient appropriate evidence is unavailable, then the currentauditor's report will be:

A：unqualified on the basis that the comparatives are unaudited andno opinion is expressed on them.

B：qualified on the basis that the comparatives are unaudited and anopinion is expressed on them.

C：qualified on the basis that the comparatives are unaudited and noopinion is expressed on them.

There are 4 methods to analyze capital budgets. Which are theyand what are their main characteristics?

Pro forma financial information is hypothetical or a projectedamount. Used improperly pro forma financial information can be anegative contribution to financial reporting. Used properly it canbe beneficial to financial reporting. Take a side - useful orharmful. State your opinion and clearly explain why.

Many organizations are involved with international convergenceactivities, including the IASB, EU, and IFAC.

Required:

a. Compare and contrast these three organizations in terms oftheir standard-setting procedures.

b. At what types and sizes of enterprises are their standardsprimarily directed?

c. Briefly critique the following statement: “Acceptance ofinternational accounting standards (accounting principles,disclosures, and auditing), as far as it has come and is likely tocome in the near future, is significantly centered incompanies.”