Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
6th Edition
ISBN: 9780134486840
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 7.1FC
Levon Helm was a kind of one-man mortgage broker. He would drive around Tennessee looking for homes that had second mortgages, and if the criteria were favorable, he would offer to buy the second mortgage for “cash on the barrelhead.” Helm bought low and sold high, making sizable profits. Being a small operation, he employed one person, Cindy Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted her so implicitly that he never checked up on the ledgers or the bank reconciliations. At some point, Patterson started “borrowing” from the business and concealing her transactions by booking phony expenses. She intended to pay it back someday, but she got used to the extra cash and couldn’t stop. By the time the scam was discovered, she had drained the company of funds that it owed to many of its creditors. The company went bankrupt, Patterson did some jail time, and Helm lost everything.
Requirements
1. What was the key control weakness in this case?
2. Many small businesses cannot afford to hire enough people for adequate separation of duties. What can they do to compensate for this?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Which of the following scenarios illustrates entrepreneurship?
a) Harry lives on the beach in an old VW bus. He spends his days surfing, and whenever he needs money, he
simply opens his case and plays his guitar beside the boardwalk.
b) Tommy works for the Bureau of Land Management but paints house exteriors on the side for extra money.
He regularly tells his boss to take a hike because he hates his job.
c) Mason is a banker who has been working at the same branch for 30 years. He enjoys swing jazz and World
War I documentaries, as well as the security he is afforded by his position.
d) Jill holds a BS in business and another in landscape architecture. While she works at a coffee shop to make
ends meet, she cannot stop herself from staying up late into the night researching the landscape architecture
industry and making a strategy.
You are a mortgage agent and a client approaches you for income of $75,000 and
willing to buy a home of 950,000 in Brampton. His job is in Brampton so he does not
want to leave the place. In my view his income will not be sufficient to afford the
mortgage of the house he wants. Can you come out with a best alternative for him.
You are supposed to provide links of all the homes you are searching for him, all the
calculations should be on a word file submitted here. He is short of funds and you
may search suitable private lending options for him too. You are supposed to submit a
detailed solution here. His maternal cousin can give him a gift of $10,000 for down
payment but will this gift qualify legally? If cousin can't make gift, who is authorized
to give gift money.
Steven is a mortgage broker who receives referrals from a real estate agent on a
regular basis. The real estate agent has told the Steven that she will be sending him
several clients who may have trouble being approved because of their income.
Steven is concerned that if he cannot get these clients approved the real estate
agent will find another mortgage agent who can. Given this scenario which of the
following statements is correct?
Select one:
a. The mortgage agent should consider each applicant on their own merits
and do the ones he can ethically do
b. The mortgage agent must not do these deals as they are likely fraudulent
c. The mortgage agent must refer this situation to his principal broker since he
knows they are fraudulent
d. The mortgage agent should tell the real estate agent that he cannot do
these deals because he would have to commit fraud
Chapter 7 Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
Ch. 7 - Prob. 1QCCh. 7 - Prob. 2QCCh. 7 - Prob. 3QCCh. 7 - Prob. 4QCCh. 7 - Prob. 5QCCh. 7 - Prob. 6QCCh. 7 - Prob. 7QCCh. 7 - Prob. 9QCCh. 7 - Prob. 10QCCh. 7 - Prob. 11QC
Ch. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - What are the five components of internal control?...Ch. 7 - Prob. 4RQCh. 7 - What is separation of duties?Ch. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - How do businesses control cash receipts by mail?Ch. 7 - Prob. 10RQCh. 7 - Prob. 11RQCh. 7 - Prob. 12RQCh. 7 - Prob. 14RQCh. 7 - Prob. 15RQCh. 7 - Prob. 16RQCh. 7 - Prob. 17RQCh. 7 - Prob. 18RQCh. 7 - Defining internal control Internal controls are...Ch. 7 - Prob. 7.2SECh. 7 - Prob. 7.3SECh. 7 - Prob. 7.4SECh. 7 - Prob. 7.5SECh. 7 - Prob. 7.7SECh. 7 - Prob. 7.8SECh. 7 - Prob. 7.9SECh. 7 - Prob. 7.10SECh. 7 - Prob. 7.11SECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Evaluating internal control over cash payments...Ch. 7 - Understanding internal control, components,...Ch. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.20ECh. 7 - Prob. 7.21ECh. 7 - Prob. 7.23APCh. 7 - Prob. 7.24APCh. 7 - Prob. 7.25APCh. 7 - Prob. 7.26APCh. 7 - Prob. 7.27APCh. 7 - Prob. 7.28APCh. 7 - Prob. 7.29BPCh. 7 - Prob. 7.30BPCh. 7 - Prob. 7.31BPCh. 7 - Prob. 7.32BPCh. 7 - Prob. 7.33BPCh. 7 - Prob. 7.34BPCh. 7 - Prob. 7.2DCCh. 7 - Levon Helm was a kind of one-man mortgage broker....Ch. 7 - Prob. 7.1CA
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Kangs moved into their new home five years ago. Not wanting to wait to furnish the house, they financed their furniture purchases with credit cards and personal loans. They thought they could handle the payments but miscalculated how much the interest charges would be over time. Just when they were wondering what options were available to them, they received a phone call from the bank that holds their mortgage. The pleasant voice on the other end described a home equity line of credit with no closing cosed and a much lower interest rate they are paying on their credit cards. How did the banker know they were looking fora new plan?arrow_forwardYou have a friend, Icahn Betitall, who just started a small business. He ispaying a hefty premium for insurance. Icahn’s insurance agent told himthat he is insuring against the risk of loss on fire, theft, liability, and businessinterruption. Icahn also has policies for life, health, and automobiles. Icahnis planning a trip to Las Vegas. He plans to contact his agent and obtain apolicy on the risk of losing his money at the blackjack table.a. What should you tell Icahn about being able to purchase such a policy?b. What are several methods that Icahn can choose to manage his risk exposurein Las Vegas?arrow_forwardJames Burrow is the loan officer for the National Bank of Dallas.National has a loan of $325,000 outstanding to Regional Delivery Service, a companyspecializing in delivering products of all types on behalf of smaller companies. National’scollateral on the loan consists of 25 small delivery trucks with an average original cost of$24,000.Burrow is concerned about the collectibility of the outstanding loan and whether thetrucks still exist. He therefore engages Samantha Altman, CPA, to count the trucks, usingregistration information held by Burrow. She was engaged because she spends most ofher time auditing used automobile and truck dealerships and has extensive specializedknowledge about used trucks. Burrow requests that Altman issue a report stating thefollowing:1. Which of the 25 trucks is parked in Regional’s parking lot on the night of June 30,2013.2. Whether all of the trucks are owned by Regional Delivery Service.3. The condition of each truck, using the guidelines of poor, good,…arrow_forward
- Your client’s mother had always told her to avoid slacker guys. But she hooked up with one anyway because he was such a charmer. In fact, pretty soon he had charmed her into loaning him $200,000 for a “business venture” that he was con-vinced would make them both rich… When your client finally figured out that Mr. Charmer was not as advertised, she broke up with him. Naturally, he paid her back for the breakup by never paying her back. Can your client deduct the $200,000 that she’ll never see again? If so, as an ordinary loss or a capital loss, and why?arrow_forwardWould Qualifying an Indorsement Be Ethical? Suppose you have taken a promissory note for $3,500 payable in 12 months with interest at 10 percent as payment for some carpentry work you did for a friend. You have some reason to believe the maker of the note is in financial difficulty and may not be able to pay the note when it is due. You discuss with an elderly neighbor the possibility of her buying the note from you as an investment, and she agrees to buy it from you for $3,000. Would it be ethical for you to indorse the note with a qualified indorsement ("without recourse")?arrow_forwardOne of Natalie’s friends, Curtis Lesperance, runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies. He is eager to buy one of Natalie’s fine European mixers, which would enable him to make larger batches of muffins and cookies. However, Curtis cannot afford to pay for the mixer for at least 30 days. He asks Natalie if she would be willing to sell him the mixer on credit. Natalie comes to you for advice. She asks you to address the questions below. Curtis has given me a set of his most recent financial statements. What calculations should I do with the data from these statements, and what questions should I ask him after I have analyzed the statements? How will this information help me decide if I should extend credit to Curtis? Is there an alternative other than extending credit to Curtis for 30 days? I am thinking seriously about being able to have my customers use credit cards. What are some of the advantages and disadvantages of letting my…arrow_forward
- Raj Turner is a loan officer in a small community bank. One of his more affluent customers has submitted a loan application for $25,000 to buy a valuable oil painting. The loan will be secured by the painting. To his knowledge, this is the first time a customer has asked to use art as collateral. His bank does not have experience in valuing art, and he wonders whether its use as collateral is consistent with bank loan policy. What steps should Raj take to determine whether this loan should be made?arrow_forwardPatrick works for McGill’s Computer Repair, owned and operated by Frank McGill. As a computer technician, Patrick has grown accustomed to friends and family members asking for assistance with their personal computers. In an effort to increase his income, Patrick started a personal computer repair business that he operates out of his home on a part-time basis, working evenings and weekends. Because Patrick is doing this “on the side” for friends and family, he does not want to charge as much as McGill’s charges its customers. When Frank McGill assigned Patrick the task of developing the budget for his department, Patrick increased the amount budgeted for computer parts. When the budget was approved, Patrick purchased as many parts as the budget allowed, even when they were not needed. He then took the extra parts home to use in his personal business in an effort to keep his costs down and profits up. So far, no one at McGill’s has asked about the parts expense because Patrick has not…arrow_forwardLawyer Lemon, a Jacksonville lawyer, specializes in what he calls credit management law. Thatis, he aids clients with bad credit ratings to improve their status with the major purveyors ofcredit information. If a client's credit rating improves, then the client can get loans that he orshe previously could not have gotten. Lemon's business is a little thin, so he decides toadvertise his services. The text of his ad reads as follows:"Has Bad Credit Got You Down? Come and see Lou Lemon, Attorney at Law, to get a goodcredit ratingFast, faster, fastest credit lawyer in town. Results Guaranteed!Call Lou Lemon today at (904) 343-2929."Which of the following is most correct?O A. If Lemon eliminates the first line of his ad, then the ad will be PROPER.C B. If Lemon eliminates the second line of his ad, then the ad will be PROPER.C. Lou MAY use the ad in brochures, but not on the radio or t.v.D. If Lemon uses the ad as written, he will be SUBJECT TO DISCIPLINE.arrow_forward
- Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information. 1. 2. 3. 4. 5. Five used vans would cost a total of $75,000 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $48,000. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000, Maintenance $3,300, Repairs $4,000, Insurance $4,200, and…arrow_forwardLon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information. 1. Five used vans would cost a total of $75,551 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to use straight-line depreciation. 2. Ten drivers would have to be employed at a total payroll expense of $48,300. 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,200, Maintenance $3,300, Repairs $3,800, Insurance…arrow_forwardSuppose that you decide to start a landscape business. You use an old pickup truck that you've fully paid for. You store the truck and other equipment in your parents' barn, and you store trees and shrubs on their land. Your parents will not charge you for the use of these facilities for the first two years, but beginning in the third year they will charge a reasonable rent. Your mother helps you by answering phone calls and providing customers with information. She doesn't charge you for this service, but she plans on doing it for only your first two years in business. Instructions Answer ONE of the following sets of questions: 1. In pricing your services, should you include charges for the truck, the barn, the land, and your mother's services when calculating your product cost? Provide your reasoning. 2. In recording costs in the books, should you include charges for the truck, the barn, the land, and/or your mother's services? Describe the accounting rules that support your answer.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Difference Between PRIMARY Mortgage Market & SECONDARY Mortgage Market in Real Estate?; Author: US Realty Training;https://www.youtube.com/watch?v=GlXPmOALI2g;License: Standard Youtube License