Question 1
3-28 (Objectives 3-4, 3-5, 3-6, 3-7, 3-8) For the following independent situations, assume that you are the audit partner on the engagement: 1. During your audit of Debold.com, Inc., you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated. 2. Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes. 3. You complete the audit of Johnson Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Johnson. 4. Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes. 5. You are auditing Woodcolt Linen Services for the first time. Woodcolt has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year balance sheet is stated correctly in accordance with GAAP. The client did not authorize you to do test work for any of the previous years. 6. You were engaged to audit the Cutter Steel Company?s financial statements after the close of the corporation?s fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Cutter?s financial statements are presented fairly, including inventory about which you were able to satisfy yourself by the use of alternative audit procedures. For each situation, do the following: a. Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable. b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. Given your answers in parts a and b, state the type of audit report that should be issued. If you have not decided on one level of materiality in pa
Question 2
Case Study Question: How successful was this project? Chad Cromwell, head of university housing, gazed up at the tower at Buxton Hall and smiled as he walked toward the landmark building. Buxton Hall was built in 1927 as a residential complex for over 350 students at Pacifica State University. At the time Buxton was the tallest building on campus, and its tower had a panoramic view of the athletic fields and coastal range. Buxton quickly became a focal point at Pacifica State. Students perched on the tower dominated the campus during the annual spring water fight with their huge slingshots and catapults. The first intranet on the Pacific coast was created at Buxton that linked students' computers and allowed them to share printers. Around the 1970s, some student artists began the tradition of painting their room doors. Whether a Rolling Stones logo or Bugs Bunny on a skateboard, these colorful doors were an artistic legacy that caught the attention of students and faculty. Buxton Hall served as a residence hall for the university for many years, but time was not kind to the stately building. Leaks destroyed plaster in the interior. Wiring and plumbing became outdated and so dangerous that the building was deemed unsafe. Buxton Hall's doors were closed to students and windows boarded up at the end of the 1996 spring quarter. For 10 years Buxton sat silent and over time became a symbol of the general decline of Pacifica State. Now thanks to state bonds and generous contributions, Buxton Hall was about to be reopened after a $20 million renovation. 18 MONTHS AGO Chad and key representatives from university facilities were engaged in the second of a two-day partnering workshop. Also in attendance were managers from Crawford Construction, the chief contractor for the Buxton renovation project, as well as several key subcontractors and architects from the firm of Legacy West. During the first day a consultant ran them through a series of team-building and communication exercises that accentuated the importance of open communication, principle negotiation, and win/win thinking. Today's session began with the ?project from hell? exercise, with each group describing the worst project they had ever worked on. Chad was surprised that the people from Crawford and Legacy West descriptions were very similar to his own. For example, each group talked about how frustrating it was when changes were made without proper consultation or costs were hidden until it was too late to do anything about them. This was followed by a discussion of the best project they had ever worked on. The consultant then asked the groups which of the two they wanted the Buxton project to be. A genuine sense of common purpose emerged, and everyone became actively engaged in spelling out in specific terms how they wanted to work together. The session concluded with all of the participants signing a partnering charter followed by a picnic and a friendly softball game. 12 MONTHS AGO Chad was on his way, with Nick Bolas, to meet Dat Nguyen, the Crawford Project Manager, on the third floor at Buxton tower. Dat had contacted him to discuss a problem with the tile work in one of the communal bathrooms. Dat's people had completed the work, but Nick, who was a Pacifica facilities manager, refused to sign off on it claiming that it was not up to spec. After a 24-hour impasse, the Crawford foreman exercised the escalation clause in partnering agreement and passed the issue up to management's level to be resolved. Dat and Chad inspected the work. While both agreed that the job could have been prettier, it did meet specification and Chad told Nick to sign off on it. Chad met Dat again later in the day at the weekly Buxton status report meeting. The meeting kicked off with a brief review of what had been accomplished during the past week. Discussion centered on the removal of elm trees. Alternative strategies for dealing with the city inspector, who had a reputation of being a stickler for details, were considered. The project was two weeks behind schedule, which is an important issue since it was imperative that the building be ready for students to move in at the 2008 fall term. The project was also on a very tight budget, and the management reserve had to be carefully administered. Renovation of existing buildings was always a bit of a gamble, since you never knew what you would find once you began tearing down walls. Fortunately, only small amounts of asbestos were found, but rot was much more severe than anticipated. The meeting included a partnering assessment. The results of a Web survey filled out by all the principals were distributed. The results revealed a dip in the ratings between the Crawford foremen and university officials regarding timely collaboration and effective problem solving. One of Chad's people said that the primary source of frustration was Crawford foremen failing to respond to e-mail and telephone messages. Dat asked for the names of his people and said he would talk to each of them. The Crawford foremen complained that the university officials were being too nit-picky. ?We don't have the time or money to do A+ work on everything,? argued a foreman. Chad told Dat and his people that he would talk to facilities guys and ask them to focus on what is really important. 6 MONTHS AGO The project status report meeting started on time. Crawford had been able to make up for lost time, and it now looked like the building would open on time. Chad was glad to see that the partnering assessment had been positive and steady over the past month. The big issue was the surge in costs consuming all but $50,000 of management reserve. With six months to go everyone knew that this would not cover all the change orders needed to have the building ready. After all, there was already $24,000 worth of change orders pending. Chad looked across the table and saw nothing but grim faces. Then one of the Crawford foremen proposed postponing treating all of the exterior walls. ?Instead of cleaning and preserving the entire brick building, let's only do the front entrance and the North and South walls that the public sees. We can just refurbish the interior court walls as well as the West side. This would be adequate for at least eight years, in which time money should be available to complete the job.? At first Chad didn't like this idea, but eventually he realized that this was the only way they could have the building ready for the students. Friendly arguments broke out over which exterior segments needed the full treatment and which ones didn't. The whole team ended up touring the outside of the building identifying what kind of work needed to be done. In the end, only 70 percent of exterior brick walls were reconditioned according to plan with a savings of over $250,000. While this boost to the reserve would still make things tight everyone felt that they now had a fighting chance to complete the project on time. As Chad mingled with a glass of champagne, no one talked about the walls that still needed to be refurbished?tonight was a night to celebrate. All of the major participants and their spouses were at the party, and the university was hosting a five-course meal at the top of the tower. During the toasts, jokes were exchanged and stories told about the ghosts in the west wing and the discovery of a dead skunk in the south basement. Everyone talked about how proud they felt about bringing back to life the grand old building. More than one person mentioned that this was much more satisfying than tearing down an old relic and constructing a new building. The president of the university concluded the festivities by thanking everyone for their hard work and proclaiming that Buxton would become a bright, shining icon for Pacifica State.
Question 3
Hi shorthen the question to the following: The user has updated the question: User's response: FACULTY PRACTICE, INC. from book (cases in healthcare FINANCIAL RISK in finance) louis c. gapenski FACULTY PRACTICE, INC., (FPI) is a not-for-profit corporation formed by physicians in the College of iMedicine at Southeastern University. FPI, with over 600 physicians, provides the medical staff for University Hospital. In addition, FPI staffs and administers a network of 25 ambu?latory care clinics and centers at ten locations within 50 miles of the hospital. In 2009, FPI generated over $500 million in revenues from about 40,000 inpatient stays and 750,000 outpatient visits. Over 70 percent of FPI's revenues currently come from inpatient stays, but this percentage has been declining, and by 2014, over half of FPI's revenues are expected to stem from outpatient services. As im?provements are made in technology and third-party payers continue to pressure providers to cut costs, more and more inpatient services will be converted to outpatient and home care. For example, in 1999, 80 percent of FPI's ophthalmological surgeries took place in University Hospital, while in 2009, 80 percent were conducted in outpatient settings. Although FPI has traditionally provided only specialty services, in 2004 it instituted a "personal physician services" program, in which patients can receive both primary and specialty care from College of Medicine physicians. This was the first step in FPI's drive to develop an integrated delivery system, which offers a full range of patient services. Now that the system is in place, FPI is contracting with managed care plans to provide virtually all physician services required locally by plan members. Furthermore, FPI is examining the feasibility of contracting directly with employers, and hence bypassing managed care plans, but no decision has yet been made. Indeed, state insurance industry repre-sentatives expressed opposition to the idea when FPI first announced the possibility of direct contracting. The insurance industry position is that direct contracting with employers to provide a complete healthcare benefit package is an insurance function, which can be undertaken only by licensed insurance plans. As part of its continuing education program, FPI holds monthly "nonclinical grand rounds" for its physicians, in which various staff members and outside specialists conduct seminars on nonclinical top-ics of interest. As part of this series, Chris Johnson, FPIs chief financial officer, has been invited to conduct two sessions on the financial risk inherent in integrated delivery systems. His main concern is that physicians, although very sophisticated in clinical matters, have a very limited understanding of basic financial risk concepts and will not appreciate the financial issues involved in integrated delivery systems without first gaining an understanding of basic financial risk concepts. Thus, he plans to devote the entire first session to basic concepts. In preparation for the seminar, Chris developed the return distribu-tions for the five investments shown in Table 13.1. lb create the table, he first hypothesized that there could be five possible economic states for the coming year, ranging from poor to excellent. Next, he estimated the one-year returns on each investment under each state. The five invest?ments are (1) T-bills, (2) real asset investment Project A, (3) real asset investment Project B, (4) an index fund designed to proxy the returns on the Standard & Poor (S&P) 500 stock index, and (5) an equity invest?ment in FPI itself. T-bills are short-term (one-year or less maturity) U.S. Treasury debt securities; Project A is a proposed sports medicine clinic; and Project B is a Medicaid-funded project for providing family health services to an underserved area. Note that Chris developed the returns for Projects A and B and for FPI as a whole by assessing the impact of each economic state on healthcare utilization and reimbursement patterns. In addition to the returns on these alternative investments, Chris developed the following questions to use as the structure for his presen?tation. See if you can answer his questions. Table 13.1. Based solely on expected returns, which the potential investment appears best? Faculty Practice, Inc. 97 Estimated Return on Investment 1 year S&P 500 Equity in State of the Economy Probability '-Bill Project A Project B Fund FPl Poor 0.10 7.0% -8.0% 18.0% -15.0% 0.0% Below average 0.20 7.0 2.0 23.0 0.0 5.0 Average 0.40 7.0 14.0 7.0 15.0 10.0 ? Above average 0.20 7.0 25.0 -3.0 30.0 15.0 Excellent 0.10 7.0 33.0 2.0 45.0 20.0 7. Now change Table 13.1 by crossing out the state of the economy and probability columns and replacing them with Year 1, Year 2, Year 3, Year 4, and Year 5. In other words, assume that the distributions represent histori?cal returns earned on each asset in each of the last five years. a. Plot four lines on a scatter diagram (regression lines) that show the returns on the S&P 500 Fund (the market) on the x-axis and (1) T-bill returns, (2) Project A returns, (3) Project B returns, and (4) FPl returns on the y-axis. (1) What are these lines called? (2) Estimate the slope coefficient of each line. What is the slope coefficient called, and what Faculty Practice, Inc. is its significance? (If you have a calculator with statistical functions or are using a spread?sheet, use linear regression to find the slope coefficients.) (3) What is the significance of the distance be?tween the plot points and the regression line ? that is, the errors? b. Plot two lines on a different scatter diagram that show the returns on FPI (the company) on the x-axis and (1) Project A returns and (2) Project B returns on the y-axis. (1) What are these lines called? (2) Estimate the slope coefficient of each line. What is the slope coefficient called, and what is its significance? (If you have a calculator with statistical functions or are using a spread?sheet, use linear regression to find the slope coefficients.) c. If you were an individual investor who could buy any of the assets in Table 13.1, which one(s) would you buy? Why? (Hint: To help answer this ques?tion, construct a Security Market Line graph and plot the returns on each asset on the graph. Also, note that FPI is actually a not-for-profit corpora?tion, so it would be impossible to buy an equity interest in the company. For this question, assume that FPI were an investor-owned company.) d. Now assume that you are the chief executive officer of FPI and you have to decide whether to invest in Project A, Project B, or both. Which project(s) would you choose if you could accept both? If you could only accept one of the two, which would you choose? Why? (Hint: To help answer this question, construct a "Corporate Market Line" graph, which plots corporate betas rather than market betas on the x-axis, and plot the returns for each project on the graph.) 8. a. What is the market risk of each project (A and B) relative to the aggregate market risk of FPI? (ForCases in Healthcare Finance for this question, assume that FPI were an investor-owned company) No additional calculations are necessary. b. What is the corporate risk of each project (A and B) relative to the aggregate corporate risk of FPI? 9. a. What is the efficient markets hypothesis (EMH)? b. What impact does this theory have on decisions concerning investments in securities? c. Is the EMH applicable to real asset investments such as the decision of FPI to invest in Project A or Project B? d. What impact does the EMH have on corporate financing decisions? And I am only willing to pay $100.00 since there are less questions to calculate. let me know this is something you can do?,Hi I am sending the table via attachment as is better aligned. Thanks,attachment,Hi, just checking to see the status of the assignment? Thanks,Hello there, just wondering if you were able to finish the assignment. Regards, Norma,Hi, thank you for you timely response. did you also answer the following question? I could not find it in the spreadheet b. Plot two lines on a different scatter diagram that show the returns on FPI (the company) on the x-axis and (1) Project A returns and (2) Project B returns on the y-axis. (1) What are these lines called? (2) Estimate the slope coefficient of each line. What is the slope coefficient called, and what is its significance? (If you have a calculator with statistical functions or are using a spread?sheet, use linear regression to find the slope coefficients.) Is it possible you can change the name of the company to Southeastern Specialty, Inc (SSI)?,Hi, under the potential investments calculations the first two variance dont add up. it appears that there are one number off. Could you please explain? Thanks
Question 4
Big Co. acquired 1,000 shares of voting stock in Little Co. for $100,000 cash. Little Co. currently has 10,000 shares of voting stock issued and outstanding. Little Co.'s shares are trading at $115 per share. Big Co. subsequently receives a dividend of $0.20 per share from Little Co. Big Co. acquired 3,000 shares of voting stock in Small Co. for $300,000 cash. Small Co. currently has 10,000 shares of voting stock issued and outstanding. Big Co. subsequently receives a dividend of $0.10 per share from Small Co. During the year, Small Co. had a net income of $500,000, and sold $100,000 of inventory to Big Co. Small Co. applies a 15% markup on its inventory. At the end of the year, Big Co. has $20,000 remaining in inventory. Big Co. acquired all of the outstanding shares of voting stock in Tiny Co. for $1,000,000 on January 1, 2009. The fair market value of Tiny Co.'s stock at acquisition was $800,000. Prepare a Word document of 3?5 pages that covers the following: Determine and provide the proper accounting method for Big Co.'s investment in each of the 3 companies described above. Provide the reasons for your answer. Prepare the basic journal entries under the proper accounting method to record Big Co.'s investments in Little Co. and Small Co. based on the facts provided. John Smith, CFO of Big Co., has asked for a summary of how to properly account for the acquisition of Tiny Co. from you, his external auditor. Prepare a professional, business-quality memorandum of at least 350 words to John Smith, and include the following in it: Outline the proper accounting for this acquisition. Review the SFAS relating to business combinations on the FASB's Web site to be sure you relate all necessary facts to John Smith. Areas that this memorandum should cover include the following: Which method to use Changes in accounting treatment from prior acquisitions Goodwill Financial statement presentation
Question 5
Hello, I'm an MBA student who needs assistance with answering the following questions from a corporate finance course: Chapter 15 15-3. Firms with relatively high nonfinancial fixed costs are said to have a high degree of what? 15-4 "One type of leverage affects both EBIT and EPS. The other type affects only EPS." Explain this statement. 15-6. Why do public utility companies usually have capital structures that are different from those of retail firms? 15-7. Why is EBIT generally considered to be independent of financial leverage? Why might EBIT actually be influenced by financial leverage at high debt levels? Chapter 19: 19-2. Distinguish between operating leases and financial leases. Would you be ore likely to find an operating lease employed for a fleet of trucks or for a manufacturing plant? 19-3 Would you be more likely to find that lessees are in high or low income tax brackets as compared with lessors? 19-5. One alleged advantage of leasing voiced in the past is that it kept liabilities off the balance sheet thus making it possible for a firm to obtain more leverage than it otherwise could have. This raised the question of whether or not both the lease obligation and the asset involved should be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizing leases and related assets. 19-7. Suppose Congress enacted new tax law changes that would (1) permit equipment to be depreciated over a shorter period, (2) lower corporate tax rates, and (3) reinstate the investment tax credit. Discuss how each of these potential changes would affect the relative volume of leasing versus conventional debt in the U.S. economy. All questions are from chapters 15 & 19 of the following text: "Intermediate Financial Management" (Brigham & Daves (2010) 10 edition) The deadline can be extended to 5pm est. Thank you very much. Your assistance is greatly appreciated.,Wonderful. Thank you for accepting the assignment.,Hello Rachel, I didn't catch the answer to the second part of question 19-2 (Would you be more likely to find an operating lease employed for a fleet of trucks or for a manufacturing plant?): Chapter 19: 19-2. Distinguish between operating leases and financial leases. Would you be more likely to find an operating lease employed for a fleet of trucks or for a manufacturing plant? In Finance Lease all the risks and rewards are transferred to the lessee while in the operating lease it is not transferred. In finance lease, the lease is raised primarily to pay for the assets while in operating lease, it is just to pay for the rental Did I miss something? Thanks.
