a.
Introduction:The operational issue are the problems in a company which has to be removed for improving the operations growth of the company. Control deficiency are the actions taken by the management which controls the working of the employees.
To describe:Whether the action taken will be considered as an operational issue and not an control deficiency or it would constitute a material weakness or significant deficiency in internal control.
b.
Introduction:Financial reporting refers to the disclosing of all the financial information and financial results of the company to its managements and other users. The financial reporting describes the financial performance of a company during the year.
To describe:The change in the risk related to the objective of reliable financial reporting.
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Chapter 3 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- You are working for Heavy Industry Exports Group. Your corporation is going to pay an annual dividend of $8 per share and extra dividend of $2.5 per share in 4 weeks. The company’s stock is currently listed and actively traded on ASX. Equipment. Ltd is a subsidiary of Heavy Industry Exports Group and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $4.5 million now and $ 9.5 million one year from now as a liquidating dividend. Required: A) Heavy Industry Exports Group has an extra cash of A$245,000. The AUD/USA exchange rate in New York is 0.75679. The USD/AUD rate in Sydney is 1.37137. Is there any arbitrage profit possible? Set up an arbitrage scheme with the extra cash. What is the potential gain in AUD dollar, disregarding bid-ask spread? Please answer this question from one of your expert. I need urgent solution.arrow_forwardYou are working for Heavy Industry Exports Group. Your corporation is going to pay an annual dividend of $8 per share and extra dividend of $2.5 per share in 4 weeks. The company’s stock is currently listed and actively traded on ASX. Equipment. Ltd is a subsidiary of Heavy Industry Exports Group and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $4.5 million now and $ 9.5 million one year from now as a liquidating dividend. Required: 1) Calculate the current value of the Equipment Ltd’s equity in total and per share if the firm has 2.5 million shares outstanding. The required rate of return for shareholders is 12%.arrow_forwardRose Apothecary has just purchased 22% (22,000 shares) of Warner Farms, Inc. They paid $15.30/share of stock. 6 months later, Warner Farms issues a cash dividend of $0.18 per share. 4 months later, due to a series of questionable cheeses, Warner Farms is in financial trouble. Warner Farms records a $250,000 loss. Shortly after the loss posted, Rose Apothecary decides to sell their shares. They sell all 22,000 shares for $3 per share. Required: Record the journal entries for all of the above transactions from the perspective of Rose Apothecaryarrow_forward
- Stacy Corporation had income from operations of $7,200,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption, interest revenue of $17,000, and a write-down on buildings of $53,000. The corporation’s tax rate is 30%. Prepare a partial income statement for Stacy beginning with Income from operations. The corporation had 5,000,000 shares of common stock outstanding during 2017.arrow_forwardSwindle Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Swindle has a $3,500,000 bank loan payable with Love Bank. The bank accepted an equity interest in Swindle Company in the form of 300,000 ordinary shares quoted at $12 per share. The par value is $10 per share. The fair value of the bank loan payable on the date of restructuring is $3,200,000. What amount should be recognized as gain from debt extinguishment as a result of the equity swap?arrow_forwardLeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? a. 7.57% b. 7.95% c. 8.35% d. 8.76% e. 9.20%arrow_forward
- Hello! I need help with the following accounting problem: Bramble Inc. obtained significant influence over Kasey Corporation by buying 25% of Kasey's 32,700 outstanding shares of common stock at a total cost of $10 per share on January 1, 2022. On June 15, Kasey declared and paid a cash dividend of $31,600. On December 31, Kasey reported a net income of $116,000 for the year. Prepare all the neccesary journal entries for 2022 for Bramble inc. Thank you!arrow_forwardHominy, Inc., has debt outstanding with a face value of $5 million. The value of the firm if it were entirely financed by equity would be $18.2 million. The company also has 430, 000 shares of stock outstanding that sell at a price of $33 per share. The corporate tax rate is 22 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e. g., 1,234,567.)arrow_forwardHominy, Inc., has debt outstanding with a face value of $5 million. The value of the firm if it were entirely financed by equity would be $18.15 million. The company also has 420,000 shares of stock outstanding that sell at a price of $33 per share. The corporate tax rate is 21 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.) Financial distress costsarrow_forward
- Your client, Heron Corporation, has a deficit in accumulated E & P of $300,000. Starting this year, it expects to generate annual E & P of $150,000 for the next four years and would like to distribute this amount to its shareholders. How should Heron Corporation distribute the $600,000 over the four-year period to provide the least amount of dividend income to its shareholders (all individuals)? In a letter to Martin Morales (Heron’s president), make appropriate suggestions on how this should be done. Also prepare a memo for your firm’s file. Heron Corporation’s address is 12 Nature Trail Way, Daytona Beach, FL 32114.arrow_forwardFCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 14,000 shares outstanding and the price per share is $63. EBIT is expected to remain at $77,000 per year forever. The interest rate on new debt is 7 percent, and there are no taxes. a. Ms. Brown, a shareholder of the firm, owns 250 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Ms. Brown’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 250 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Ms. Brown unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do…arrow_forwardFCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 7,000 shares outstanding and the price per share is $44. EBIT is expected to remain at $30,100 per year forever. The interest rate on new debt is 9 percent, and there are no taxes. a. Melanie, a shareholder of the firm, owns 150 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Melanie's cash flow be under the proposed capital structure of the firm? Assume she keeps all 150 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Melanie unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round…arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning