Otis is the CEO of Bay Corp. The company has been struggling for the last few years and is in danger ofdefaulting on several of its bank loan covenants. Otis is facing significant pressure from the board of directors toturn the company around. Unless he meets all of the financial goals for the year, he will be out the door withouta golden parachute. To improve the financial appearance of the company, Otis undertakes a scheme to boostthe balance sheet by faking inventory. The analysis of what financial ratio would most likely bring this scheme tolight? Inventory turnover Quick ratio Collection ratio Profit margin

The inventory turnover ratio is a financial term that assesses how efficiently a firm maintains its…

Answered: Otis is the CEO of Bay Corp. The…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Your friend, Diana Wood, recently completed the second year of her business and just received annual financial statements from her accountant. Wood finds the income statement and balance sheet informative but does not understand the statement of cash flows. She says the first section is especially confusing because it contains a lot of additions and subtractions that do not make sense to her. Wood adds, “The income statement tells me the business is more profitable than last year and that’s most important. If I want to know how cash changes, I can look at comparative balance sheets.” Required Write a half-page memorandum to your friend explaining the purpose of the statement of cash flows. Speculate as to why the first section is so confusing and how it might be rectified.
In a huge fraud scandal, CEO and CFO stole $150 million and inflated the company income by$500 million. A general ledger clerk was also implicated in the scheme. It was reported that they siphoned money through unapproved loans and fraudulent stock sales. Money was smuggled out of company disguised as executive bonuses or benefits. The reason cited by the perpetrators was that they needed money to pay off some gambling debts.In addition, they also stated that they worked long and hard hours at the company without being properly compensated or recognized. Upon investigating, the auditors found that the fraud had taken place on two levels. The auditors documented in their report that all the three factors of fraud were present. In addition, the auditors found that the company’s control systems deviated from the COSO framework. You are required to: a. IDENTIFY and EXPLAIN the TWO (2) levels of fraud that the auditors found. b. Making reference to the case, IDENTIFY and EXPLAIN…
e. Of the following, the most significant risk factor relating to the risk of misstatement arising from fraudulent financial reporting for SSC is that: Multiple Choice Company officers serve on the board of directors. The company must refinance a significant portion of its debt. The company operates in the Bisbee, Arizona, area. The company paid no dividend this year. Untitled docume...pdf Untitled docume....pdf docx Presentation se....pdf Untitled docume...pdf 身
Margie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to "make this happen." Margie's boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated. Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie's boss asks her not to make an adjusting entry for shrinkage this period. He assures her that he will get "caught up" on shrinkage in the next period, after the pressure is off to reach this period's earning goal. Margies boss asks her to do this as a personal favor for him. What should Margie…
Athif trading company is a popular distributor in Salala, having operations in the entire Oman. Over these years, the company has gained a very good public opinion and quiet a big number of loyal customers. During the last year, the company has faced a serious liquidity crisis. The management of the company wants to check the liquidity ratios of the last year in order to plan for the current year. You are asked to help the management in computing the liquidity ratios. The Balance Sheet of Athif trading company for the year ending 31-12-2020 Equity and Liabilities OMR Assets OMR Equity Share Capital Capital Reserve 8% Loan on Mortgage Creditors Bank overdraft 40,000 Plant and Machinery 8.000| Land and Buildings 32,000 Furniture & Fixtures 16,000 Stock 12.000 Debtors Investments (Short-term) Cash in hand 24,000 40,000 16,000 12,000 12,000 4,000 12,000 Profit and Loss A/c 12,000 1,20,000 1,20,000 Choose the Current ratio and Quick ratio from the following? O Current ratio is 1.43 and…
Margaret is the manager of a medium-size company. A few years ago, Margaret persuaded the owner to base a part of her compensation on the net income of the company. Each December she estimates year-end financial figures in anticipation of the bonus she will receive. If the bonus is not as high as she would like, she offers several recommendations to the accountant for year-end adjustments. One of her favorite recommendations is for the controller to reduce the estimate of doubtful accounts. What type of internal control(s) might be useful for this company in overseeing the manager's recommendation for accounting changes?
James Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position. Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?
Otis is the CEO of Bay Corp. The company has been struggling for the last few years and is in danger of defaulting on several of its bank loan covenants. Otis is facing significant pressure from the board of directors to turn the company around. Unless he meets all of the financial goals for the year, he will be out the door without a golden parachute. To improve the financial appearance of the company, Otis undertakes a scheme to boost the balance sheet by faking inventory. The analysis of what financial ratio would most likely bring this scheme to light? Inventory turnover Quick ratio Collection ratio Profit margin
You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $750,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $440,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 7% interest…
Anton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year-end adjustments. One of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts. Required 1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet? 2. Do you believe Blair’s recommendation to adjust the allowance for doubtful accounts is within his rights as manager, or do you believe this action is an ethics violation? Justify your response. 3. What type of internal control(s) might be useful for this company in overseeing the manager’s recommendations for accounting changes?
Larry has been the chief financial officer (CFO) of Maxima Auto Service for the past 10 years. The company has reported profits each year it’s been in business. However, this year has been a tough one. Increased competition and the rising costs of labor have reduced the company’s profits. On December 30, Larry informs Robert, the company’s president and Larry’s closest friend for the past 10 years, that it looks like the company will report a net loss (total expenses will be greater than total revenues) of about $50,000 this year. The next day, December 31, while Larry is preparing the year-end reports, Robert stops by Larry’s office to tell him that an additional $75,000 of revenues needs to be reported and that the company can now report a profit. When Larry asks about the source of the $75,000, Robert tells him, “Earlier in the month some customers paid for auto services with cash, and with this cash I bought additional assets for the company. That’s why the $75,000 never showed up…
An accounting scandal at British retailer Tesco in 2014 led to fraud charges being filed against three former employees. At the time of the fraud, Tesco suspended eight managers thought to be involved in a scheme to book revenues early and delay reporting of expenses. Such a practice would lead to overstating profits and making company performance look better than it actually was. Although criminal charges have been filed, the company did not believe that the managers benefited personally. Some managers resigned before the scandal broke feeling "...'compromised' as a financial professional." Others were "too scared to speak out because they're worried about losing their jobs and paying their mortgages." Tesco paid a fine of $162 million and compensation to shareholders as a result of the activities. In the case of Tesco, managers made choices about the timing of revenues and expenses that led to fraud charges. In order to avoid that, perhaps accountants should always assume the…

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