Auditing Paper, ZZZZ Best Company

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1)An introduction covering the background information of the case (1-

2 paragraphs).

(2) Key issues of the case (about two pages).  Here you would identify and discuss the various accounting fraudulent activities that occurred at ZZZZ Best Company, Inc.  I would like you to discuss why ZZZZ Best’s auditors were unable to prevent them from engaging in fraudulent activities. From an auditing standpoint, what audit procedures should Ernst and  Whinney  have  conducted  to  detect  the  fraudulent  accounting  by  ZZZZ  Best’s  management?  One

way  you  can  approach  this  analysis  is  to  identify  the  fraudulent  accounting  actions  that  occurred  at  ZZZZ  Best,  and  discuss  the  audit  procedures  that  should  have  been  followed  to  detect  the  fraud.  You  will  find  some  discussion  of  the  omitted  audit  procedures  in  the  case.  However,  you  should  provide  additional  insights  based  on  our  class  discussions  and  from  other  sources  such  as  your  textbook  and  auditing standards.

(3) Conclusion (1-2 paragraphs) Include  a  cover  page  with  your  name  on  it.  The  report  should  not  exceed  three  pages(double-spaced  with  sufficient  margins), excluding the  cover  page.

It  should  be  formatted  using  Times  New Roman 12-point font.

Your name should appear on the cover page only

Case Analysis of ZZZZ Company

Auditing Paper ZZZZ Company

Introduction

Barry Minkow founded ZZZZ Best as a carpet-cleaning and restoration firm that acted as a Ponzi scheme. After the company declaring that it would go public in December 1986, many questions were raised regarding its value and source of revenue. The public aspect of ZZZZ Best made its value to reach over $300 million. In less than seven months into its IPO, the company file for bankruptcy, and the process saw auctioning off its assets at about $ 64,000 (Knapp, 2010). Minkow had started the company in his parent’s garage while in high school. The beginning of the company occurred when he was 15 years old. At first, the company had several complaints from the customers. It also experienced many supplier collection requests.

The above factor resulted in losses. However, Minkow wanted to make his company profitable, and this made him create a profitable illusion for credibility. The move influenced criminal acts. Among them included fraud, theft, check kiting, and insurance scams (Knapp, 2010). The criminal acts supported payments made to suppliers and operations. The situation led to the establishment of a fictitious insurance company and appraisal businesses. It became one of the most massive credit card schemes that reached close to $ 70,000 in fraudulent charges. Comment by Microsoft Office 用户: Incomplete sentence Comment by Microsoft Office 用户: Minkow engaged in more than just credit card schemes.

Key Issues regarding the Case

Minkow and Tom Padgett (Business associate) established a fictitious company. The primary purpose of the business was to defraud banks and other financial institutions. The company forged several documents that credited ZZZZ Best for tremendous restoration work. They also used Interstate Appraisal Services to verify their claims. Fraudulent financial statements that Minkow produced ensured that bankers and investors established an interest in the company. The situation influenced the continuation of a Ponzi scheme. The company experienced problems in its cash flow and had to purchase KeyServ for $ 25 million to conclude the Ponzi scheme. However, the deal broke down when KeyServ developed a campaign against ZZZZ Best Company, which declined the company’s stock price sharply. The era facilitated the commencement of several investigations and lenders began to call their loans. Comment by Microsoft Office 用户: This acquisition was not mentioned in the case.

Minkow had misled several accountants and financial experts with his Ponzi scheme that contained detailed financial statements and believable ghost projects. This made the company to launch an IPO through the Securities and Exchange Commission (SEC). ZZZZ Best Company had to compile a prospectus with audited financial statements. Opinions had to come from its accounting firms Ernst and Whinney to avoid existing material misstatement (Knapp, 2010). The involved CPAs were exposed to false appraisal documents in the performance of its audit. Minkow and associates had to rent a building and establish a bogus job site for customers to fake a real refurbishing customer site for the CPA FIRM. Comment by Microsoft Office 用户: Ernst and Young didn’t exist at the time of this case.

Minkow could have made a clear path of planning for his company, and this would have enabled his firm to grow to the direction he wanted. Sometimes, it becomes significant to avoid short cuts in business. At a tender age, he would have started by learning about the environment and how it influenced business growth. He would have gone miles to even acquire knowledge about restoration insurance and other business development initiatives. This would have prepared him for a future that lacked any criminal act. Minkow could have focused on finding the best financial advisers and asking them about how possible he could acquire loans and credit to grow his ZZZZ Best Company. When it comes to growing a company, it is crucial to focus on customers and the nature of the work. It is not always easy to acquire the needed customers at the early developmental phases of a business (Aizenman & Yi , 2012). One has to pick some many odd jobs before landing a major project. Patience is the best virtue in business. Comment by Microsoft Office 用户: confusing Comment by Microsoft Office 用户: off topic. Please focus on the auditing issues.

Concerning the audit procedures to detect the fraud in the case, the audit firms should have started by focusing on the financial statements of the company since the beginning in connection to its job site. It becomes difficult for one to false statements that involve several job sites. The audit firms needed to concentrate knowledge on the exposures and identify the symptoms associated with the occurrences. The same would have occurred via behavior indicators and symptoms. It is essential to comprehend risks before focusing on the symptoms. Symptoms involve lies told without any evidence in place. It is easy to create fake paperwork that denotes real jobs, just as Minkow did with his company. The checks had signatures and showed valid transactions despite them being fake. It is essential to look at receipts regarding the checks and the approved purchases. Invoices to packing slips make it possible to identify fraudulent activities in a case such as Minkow. Comment by Microsoft Office 用户: confusing Comment by Microsoft Office 用户: not sure what this is trying to say. Where the analysis on what specifically the auditors should have done?

Conclusion

It is important to note that Minkow was a clever lad out of the situation. He was able to play the auditors and the members of the SEC. Banks and other credit institutions were also incompetent to march his wits. However, he did not have enough proof to substantiate his operations in the market. As a restoration insurance firm, it is crucial to have information about job sites and sources of funds. However, Minkow lacked the above which influenced his business to be considered fraudulent. If Ernst & Young had thought of checking into statements, invoices, and the nature of the job sites, they would have known if they were dealing with a reliable and valid business. However, it assumed that its client was doing well with fraudulent statements and invoices.

Overall: It’s not clear what the auditing issues were. There were limited analyses. Needed more discussion regarding what they could’ve done differently or how auditors could have caught the fraud by conducting certain procedures.

Awkward phrasing detracted from the writing. Please consider visiting the writing center in the future. You may benefit from visiting the writing center to get some help (http://www.temple.edu/writingctr/). I would like to see some evidence that you visited the writing center (they can send me an email confirmation).

References

Aizenman, J., & Yi , S. (2012). Aizenman, J., & Sun, Y. (2012). The financial crisis and sizable international reserves depletion: From ‘fear of floating’to the ‘fear of losing international reserves’? International Review of Economics & Finance, 24, 250-269.

Knapp, M. (2010). Contemporary Auditing: Real Issues and Cases, Updated. Cincinnati, OH: South-Western.

 
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Financial and Managerial Accounting

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Managerial Accounting 1B

 

Financial and Managerial Accounting

 

Chapter 19

 

1.

 

Exercise 19-1 Income reporting under absorption costing and variable costing L.O. P2

 

Adams Company, a manufacturer of in-home decorative fountains, began operations on September 1 of the current year. Its cost and sales information for this year follows.

 

 

 

       
  Production costs      
     Direct materials $ 40   per unit
     Direct labor $ 60   per unit
     Overhead costs for the year      
         Variable overhead $ 3,000,000  
         Fixed overhead $ 7,000,000  
  Nonproduction costs for the year      
     Variable selling and administrative $ 770,000  
     Fixed selling and administrative $ 4,250,000  
  Production and sales for the year      
     Units produced   100,000  units
     Units sold   70,000  units
     Sales price per unit $ 350  per unit

 

 

 

1. Prepare an income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

 

 

 

2. Prepare an income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

 

 

 

3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

 

 

 

 

 

Exercise 19-4 Income reporting under absorption costing and variable costing L.O. P2

 

[The following information applies to the questions displayed below.]

 

Woodson Company, a producer of solid oak tables, reports the following data from its current year operations, which is its second year of business.

 

 

 

       
  Sales price per unit $ 320  per unit
  Units produced this year   115,000  units
  Units sold this year   118,000  units
  Units in beginning-year inventory   3,000  units
  Beginning inventory costs      
       Variable (3,000 units × $135) $ 405,000  
       Fixed (3,000 units × $80)   240,000  
 
 
       Total $ 645,000  
  Production costs this year      
       Direct materials $ 40  per unit
       Direct labor $ 62  per unit
       Overhead costs this year      
           Variable overhead $ 3,220,000  
           Fixed overhead $ 7,400,000  
  Nonproduction costs this year      
       Variable selling and administrative $ 1,416,000  
       Fixed selling and administrative   4,600,000  

 

 

 

 

 

2.Exercise 19-4 Part 1

 

1. Prepare the current year income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

 

 

 

3.Exercise 19-4 Part 2

 

2. Prepare the current year income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

 

 

 

4.Exercise 19-6 Converting variable costing income to absorption costing income L.O. P2, P4

 

Lyon Furnaces prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 375 furnaces were produced and 225 were sold; this left 150 furnaces in ending inventory. The income statement information under variable costing follows.

 

 

 

     
  Sales (225 × $1,600) $ 360,000
  Variable production cost (225 × $625)   140,625
  Variable selling and administrative expenses (225 × $65)   14,625
 
  Contribution margin   204,750
  Fixed overhead cost   56,250
  Fixed selling and administrative expense   75,000
 
  Net income $ 73,500
 

 

 

 

1. Prepare this company’s income statement for its first month of operations under absorption costing.(Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

 

5.

 

Exercise 19-9 Contribution margin format income statement L.O. P3

 

Polarix is a retailer of ATVs (all terrain vehicles) and accessories. An income statement for its Consumer ATV Department for the current year follows. ATVs sell, on average, for $3,800. Variable selling expenses are $270 each. The remaining selling expenses are fixed. Administrative expenses are 40% variable and 60% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,830 each.

 

 

 

POLARIX
Income Statement—Consumer ATV Department
For Year Ended December 21, 2011
  Sales     $ 646,000
  Cost of goods sold       311,100
     
  Gross margin       334,900
  Operating expenses        
      Selling expenses $ 135,000    
      Administrative expenses   59,500   194,500
 
  Net income     $ 140,400
     

 

 

 

Required:

 

 

 

1. Prepare an income statement for this current year using the contribution margin format. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

 

 

 

2. For each ATV sold during this year, what is the contribution toward covering fixed expenses and that toward earning income? (Omit the “$” sign in your response.)

 

 

 

  Contribution margin per ATV  

 

6.

 

Exercise 19-11 Absorption costing and over-production L.O. C2

 

Rourke Inc. reports the following annual cost data for its single product.

 

 

 

       
  Normal production and sales level   60,000  units
  Sales price $ 56.00  per unit
  Direct materials $ 9.00  
  Direct labor $ 6.50  per unit
  Variable overhead $ 11.00  per unit
  Fixed overhead $ 720,000  in total

 

 

 

If Rourke increases its production to 80,000 units, while sales remain at the current 60,000 unit level, by how much would the company’s gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production. (Omit the “$” sign in your response.)

 

 

 

  Gross margin    

 

7.Problem 19-1A Variable costing income statement and conversion to absorption costing income L.O. P2, P4

 

Torres Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for its first year of operations follows.

 

 

 

 
  Sales (80,000 units × $50 per unit)     $ 4,000,000
  Cost of goods sold        
     Beginning inventory $ 0    
     Cost of goods manufactured (100,000 units × $30 per unit)   3,000,000    
 
   
     Cost of good available for sale   3,000,000    
     Ending inventory (20,000 × $30)   600,000    
 
   
     Cost of goods sold       2,400,000
     
  Gross margin       1,600,000
  Selling and administrative expenses       530,000
     
  Net income     $ 1,070,000
     

 

 

 

Additional Information

 

 

 

a. Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2.25 per unit in variable selling and administrative expenses.
b. The company’s product cost of $30 per unit is computed as follows.

 

 

 

 
  Direct materials $ 5  per unit
  Direct labor $ 14  per unit
  Variable overhead $ 2  per unit
  Fixed overhead ($900,000 / 100,000 units) $ 9  per unit

 

 

 

Required:

 

 

 

1. Prepare an income statement for the company under variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)
 
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Perpetual: Income effects of inventory methods LO A1

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Exercise 5-4 Perpetual: Income effects of inventory methods LO A1

Laker Company reported the following January purchases and sales data for its only product.
Date Activities Units Acquired at Cost Units Sold at Retail
Jan. 1 Beginning inventory 230  units  @  $8.60 = $ 1,978
Jan. 10 Sales 130  units  @$16.60
Jan. 20 Purchase 300  units  @  $7.60 = 2,280
Jan. 25 Sales 225  units  @$16.60
Jan. 30 Purchase 170  units  @  $6.60 = 1,122
Totals 700  units $ 5,380 355  units
Laker uses a perpetual inventory system. For specific identification, ending inventory consists of 345 units, where 170 are from the January 30 purchase, 80 are from the January 20 purchase, and 95 are from beginning inventory.
1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $2,400, and that the applicable income tax rate is 39%. (Do not round your Intermediate calculations.)

 

 

2. Which method yields the highest net income?
[removed] Specific identification
[removed] LIFO
[removed] FIFO
[removed] Weighted average

 

3. Does net income using weighted average fall between that using FIFO and LIFO?
[removed] Yes
[removed] No

 

4. If costs were rising instead of falling, which method would yield the highest net income?
[removed] Weighted average
[removed] LIFO
[removed] Specific identification
[removed] FIFO

 

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Persona

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Competencies

In this project, you will demonstrate your mastery of the following competencies:

  • Apply elements of the marketing mix to inform business decisions that support organizational objectives
  • Determine appropriate marketing and communication distribution channels
  • Explain how marketing decisions are made to target the consumer

Scenario

Chocolate Bliss started as a small, family-owned store in Seattle, Washington in 1976. While once a boutique chocolatier selling handmade “secret family recipe” chocolate bonbons, the company today has a wider variety of product offerings including boxed chocolate candies, chocolate baking products, and carob (chocolate alternative) candies and health bars. Chocolate Bliss products are sold online and in their stores to consumers and to other businesses, specifically grocery stores, throughout the Northwest.

The company has maintained its “secret family recipe” brand even as it has expanded its product offerings, and today enjoys strong brand awareness in the states where it is sold.

The company’s primary competitors are:

  • Ghirardelli Chocolate Company
    • Chocolate Bliss’s higher-price range baking products, sold to grocery stores, compete directly with Ghirardelli.
    • Chocolate Bliss also competes with Ghirardelli for its boxed chocolate candies sold in their stores and online to consumers, and sold to grocery stores.
  • Nestlé
    • Chocolate Bliss’s mid-price range baking products, sold to grocery stores, compete directly with Nestlé.
  • Rise Bar
    • Chocolate Bliss competes with Rise Bar for its carob (chocolate alternative) products sold in their stores and online to consumers, and sold to grocery stores.

Chocolate Bliss is financially healthy and has plans to expand into the midwestern United States. This expansion will include the launch of a new product.

You have been with the company for a few years and have been selected to be on the team that will develop a marketing plan for the new product launch. The executives at Chocolate Bliss will use the marketing plan to make decisions about how to best use the marketing budget to ensure a successful product launch, so you need to have sound research and reasoning to support your work that will contribute to developing a marketing plan. You also realize that the marketing plan is not just about a successful product launch; it is about building the Chocolate Bliss brand and positioning the company strongly against its competitors, especially when it comes to price point.

Three chocolate bonbon candies

Directions

  1. Product Selection: Begin by selecting which product you want to be the basis of your entire project. Specifically, choose one of the following products:
    • Gourmet truffles with fruit, herb, and flower extract infusions
    • Semisweet chocolate baking chips
    • “Healthy” carob (chocolate substitute) bars

Then, based on your product selection, complete the components below, which will contribute to the development of a marketing plan. You will use the Marketing Plan Strategy Template in the What to Submit section to help structure your marketing plan submission.

  1. Persona (Target Market): Research the target market (potential buyers) for your chosen product to develop a persona. Specifically, address the following:
    1. Conduct target market research to identify key demographic and psychographic characteristics.
    2. Develop one persona that represents users of your chosen product. Use the Module Two Milestone Worksheet in your Soomo webtext to create your persona.
    3. Draft this portion of the project as part of the Module Two milestone, and after you receive feedback from your instructor, revise your persona as needed for inclusion in your project submission.
  2. Promotion: Recommend marketing communication channels for your chosen product. Specifically, address the following:
    1. Recommend two marketing communication channels for your chosen product. Briefly describe each and explain why they are appropriate based on your persona.
    2. Draft this portion of the project as part of the Module Four milestone, and after you receive feedback from your instructor, revise your marketing communication channel selections as needed for inclusion in your project submission.
  3. Price: Consider how pricing for your chosen product should be set. Specifically, address the following:
    1. Explain how one of the following is used to determine the approach to pricing for any offering.
      • Company profitability
      • Competitor pricing
      • Target market price sensitivity
    2. Identify which one of the four basic pricing strategies you feel is most appropriate for your chosen product and persona from the Module Two milestone. Describe the general advantages and drawbacks of that pricing strategy.
    3. Draft this portion of the project as part of the Module Four milestone, and after you receive feedback from your instructor, revise your pricing strategy selection as needed for inclusion in your project submission.
  4. Place (Distribution Channels): Consider how decisions on distribution channels should be made. Specifically, address the following:
    1. Describe how one recent change in the marketplace (e.g., purchasing habits or social, economic, and political events) has affected distribution of products.
    2. Recommend one potential distribution channel for your chosen product and explain why it is appropriate, given your persona.
    3. Draft this portion of the project as part of the Module Five milestone, and after you receive feedback from your instructor, revise your distribution channel selection as needed for inclusion in your project submission.
  5. Product: Identify considerations for the ways in which your chosen product should be marketed. Specifically, address the following:
    1. Explain, in one to two paragraphs, how your chosen product should be marketed in relation to meeting the needs and wants of your persona (e.g., the features and benefits of your chosen product that directly address your persona’s needs and wants).
      1. Consider how a product you regularly purchase is marketed in terms of consumer needs and wants. What is the marketing message, and what other methods are used to convey the benefits of the product? Use this as a guide to describe how you would suggest marketing your chosen product to your persona.
    2. Describe, in one to two paragraphs, how bringing this product to the marketplace can help support and build the company’s brand.
      1. Describe the Chocolate Bliss brand based on the scenario. Explain how offering your chosen product is in alignment with the brand, and how bringing the product to the marketplace will help the company increase awareness of its brand.
  6. Evaluation: Identify how you would evaluate the effectiveness of the marketing plan. Keep in mind that you need to collect data on the target market and the competition.
    1. Identify two specific quantitative data-collection tools you should use and explain, in two to three paragraphs, how they can help you evaluate the marketing plan. Quantitative data comes in the form of numbers.
    2. Identify two specific qualitative data-collection tools you should use and explain, in two to three paragraphs, how they can help you evaluate the marketing plan. Qualitative data comes in the form of words and sentences.
 
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