Managerial Accounting

Auditing

Cost Accounting

Intermediate Accounting

9) Misappropriation of assets is normally perpetrated by: A) members of the board of directors. B) employees at lower levels of the organization. C) management of the company. D) the internal auditors. Answer: B Terms: Misappropriation of assets normally perpetrated by Diﬀ: Easy Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 10) Determine from the following the factor that would most likely elevate the auditor's concern about the risk of ﬁnancial statement fraud. A) company cannot borrow debt capital without restrictive covenants B) company ﬁnds it diﬀicult to sell equity capital for expansion C) company has a signiﬁcant portion of liquid assets on its balance sheet D) company reports substantial net income but ever decreasing cash ﬂow from operations Answer: D Terms: Most likely elevate auditor's concern about risk of ﬁnancial statement fraud Diﬀ: Moderate Objective: LO 11 - 1 AACSB: Analytic skills 11) Deﬁne fraud and distinguish between the two main categories of fraud. Answer: In the context of ﬁnancial statement auditing, fraud is deﬁned as an intentional misstatement of the ﬁnancial statements. The two main categories of fraud are fraudulent ﬁnancial reporting and misappropriation of assets. Fraudulent ﬁnancial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users of the ﬁnancial statement. Misappropriation of assets involve theft of an entity's assets. Terms: Fraud and main categories Diﬀ: Easy Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 12) In the context of ﬁnancial statement auditing, fraud is deﬁned as an intentional misstatement of a material fact regarding balances, transactions or presentation of the ﬁnancial statements. A) True B) False Answer: A Terms: Fraud in ﬁnancial statement auditing Diﬀ: Easy Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 4 Copyright © 2012 Pearson Education 13) The two main categories of fraud are fraudulent ﬁnancial reporting and misappropriation of assets. A) True B) False Answer: A Terms: Categories of fraud; Fraudulent ﬁnancial reporting and misappropriation of assets Diﬀ: Easy Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 14) "Cookie jar reserves" are often created by companies whenever their earnings are high to create reserves for future periods when earnings need to be "boosted" upward. A) True B) False Answer: A Terms: Cookie jar reserves Diﬀ: Easy Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 15) Misappropriation of assets is normally perpetrated at the lowest levels of the organization hierarchy. A) True B) False Answer: A Terms: Misappropriation of assets Diﬀ: Moderate Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 16) Fraudulent ﬁnancial reporting usually involves manipulation of amounts rather than disclosures. A) True B) False Answer: A Terms: Fraudulent ﬁnancial reporting Diﬀ: Moderate Objective: LO 11 - 1 AACSB: Reﬂective thinking skills 5 Copyright © 2012 Pearson Education

ACCT | 431 | Auditing | assessment | 9) Misappropriation of assets 

Chapter 20 Short-Term Business Decisions Short Exercises (5 min.) S 20-1 Req. 1 a. The price of the new printer is relevant . b. The price you paid for the old printer is irrelevant. c. The trade-in value of the old printer is relevant . d. Paper costs are irrelevant. e. The difference between the ink cartridges’ cost is relevant . 1424 Chapter 20 Short-Term Business Decisions (10 min.) S 20-2 Req. 1 Mount Snow should emphasize a cost-plus approach to pricing because it has been able to differentiate its ski resort from others in the area. Because of its good reputation, managers will have some control over pricing. Of course, they still need to consider whether the cost-plus price is within the range customers are willing to pay. Req. 2 Using a cost-plus pricing approach, the cost-plus price would be calculated as follows: Fixed costs $35,000,000 Plus: Total variable costs (700,000 × $12 per person) 8,400,000 Total Costs $43,400,000 Plus: Desired profit ($109,375,000 × 16%) 17,500,000 Target revenue $60,900,000 Divided by number of skiers / snowboarders 700,000 Price per lift ticket $ 87 Given Mount Snow’s favorable reputation, they should be able to charge $87 per day without affecting their volume. Accounting 9/e Solutions Manual 1425 (10 min.) S 20-3 Req. 1 If Mount Snow is a price-taker, projected income is as follows: Revenue at market price (700,000 × $80)……………….. $56,000,000 Less: Total costs (from S 20-2)………………………….. 43,400,000 Operating income…………………………………………… $12,600,000 Mount Snow’s projected operating income (profit) as a percent of assets amounts to 11.52 % ($12,600,000 ÷ $109,375,000) rather than the desired 16%. Will investors be happy with this profit level? No, because the expected profit level does not meet the investors’ target return on assets . Req. 2 If Mount Snow is able to reduce its fixed costs to $32,900,000, its new target variable cost per skier/snowboarder is $8.00 . Revenue at market price ($80 × 700,000 units) $56,000,000 Less: Desired profit ($109,375,000 × 16%) 17,500,000 Target full cost $38,500,000 Less: Reduced level of fixed costs 32,900,000 Target total variable costs $ 5,600,000 Divided by number of skiers / snowboarders ÷ 700,000 Target variable cost per skiers / snowboarders $ 8.00 1426 Chapter 20 Short-Term Business Decisions (5-10 min.) S 20-4 Req. 1 Deela Fashions Analysis of Dropping the Accessories Department Expected decrease in revenues $(100,000) Expected decrease in expenses: Expected variable expenses $ 92,000 Expected fixed expenses 26,000 Expected decrease in total expenses 118,000 Expected increase in operating income $ 18,000 Deela Fashions should drop the Accessories Department because relevant expenses are greater than the revenues which will result in an increase in operating income if the department is dropped. Accounting 9/e Solutions Manual 1427

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