ACR SOLUTION (Continued)
(g) HAVENHILL COMPANY
Balance Sheet
December 31, 2017
Assets
Current assets
Cash …………………………………………………
$27,420
Accounts receivable ………………………….
1,880
Inventory …………………………………………..
17,880
Prepaid insurance ……………………………..
Total current assets ……………………..
$48,380
Property, plant, and equipment
Equipment ……………………………………….
28,000
Total assets ……………………………………………..
$73,180
Less: Accumulated
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ……………………………..
$6,100
Income taxes payable ………………………..
425
$6,525
Stockholders’ equity
Common stock ………………………………….
50,000
Retained earnings ($14,200 + $2,455) …
CT 7-1 FINANCIAL REPORTING PROBLEM
(a) The first paragraph of the independent registered public accounting
firm’s report states that:
We have audited the accompanying consolidated balance sheets of
Apple Inc. as of September 27, 2014 and September 28, 2013, and the
related consolidated statements of operations, comprehensive income,
shareholders’ equity and cash flows for each of the three years in the
(b) The consolidated balance sheet shows the combined cash and cash
equivalent balances (in millions) at September 27, 2014 and September
28, 2013:
(c) The consolidated statement of cash flows indicates that three activities
are responsible for the change in cash in 2014: (1) operating, (2) investing,
(d) In Note 1 under cash equivalents and marketable securities, it states:
(e) The management of Apple Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. After
performing an evaluation of company procedures, management
CT 7-2 COMPARATIVE ANALYSIS PROBLEM
(In thousands)
Columbia
Sportswear
VF
Corporation
Cash/cash equivalents balance
$413,558
Cash as a percentage of total assets
2014:
23.1%*
9.7%***
Cash provided by operating activities
$185,783
$1,697,629
(d) The objective in cash management is to ensure that a company has
sufficient cash to meet payments as they come due, yet minimize the
amount of non-revenue-generating cash on hand. The decrease in cash as
a percentage of total assets experienced by Columbia is a cause of
CT 7-3 COMPARATIVE ANALYSIS PROBLEM
(In millions)
Amazon.
com
Wal-Mart
Stores
(a)
Cash/cash equivalents balance
(b)
Cash as a percentage of total assets
2014:
26.7%*
4.5%***
(c)
Cash provided by operating activities
$6,842
$28,564
(d) The percentage of cash to total assets for Wal-Mart was about 6 times
lower than the percentage of cash to total assets for Amazon in both 2013
and 2014. However, Wal-Mart generated more than 4 times the operating
cash flow during 2014 than did Amazon.com. This may be a somewhat
CT 7-4 INTERPRETING FINANCIAL STATEMENTS
(a) The global percentage of companies that experienced a significant
instance of fraud during the period covered by the survey was 12%
and Egypt had the highest rate at 44%.
(b) 35% of survey respondents were asked to participate in an ABAC risk
assessment in the two years prior to the survey.
CT 7-5 REAL-WORLD FOCUS
(a) The mission of the Financial Accounting Standards Board is to estab–
lish and improve standards of financial accounting and reporting that
(b) The Chairman will consult with FASB members, staff directors, and others
as appropriate before making a decision to add or remove a project from
the FASB’s technical agenda or to change the priorities of existing
projects.
(c) The FASB is committed to following an open, orderly process for
setting standards. The FASB designed its comprehensive due process
procedures to permit timely, thorough, and open study of financial
accounting and reporting issues and to encourage broad public
participation in the standards-setting process by creating channels for
CT 7-6 REAL-WORLD FOCUS
(a) The PCAOB is a private-sector, non-profit corporation, created by the
Sarbanes-Oxley Act of 2002 to oversee the auditors of public companies
(b) The PCAOB is required to conduct inspections of public accounting
firms to assess compliance with the Sarbanes-Oxley Act, the rules of
the Board, the rules of the SEC, and professional standards in
(c) The PCAOB has authority to investigate and discipline registered
public accounting firms and persons associated with those firms for
noncompliance with the Sarbanes-Oxley Act of 2002, the rules of the
PCAOB and the Securities and Exchange Commission, and other laws,
CT 7-7 REAL WORLD FOCUS
(a) The article lists 8 different forms of payment. They are: wire transfer,
paper checks, automated clearing house (ACH) credits, ACH debits, pur-
(b) As more payment options become available, it is more likely that compa-
nies will pay the same bill twice.
(c) The controls suggested in the article are:
2. Make sure purchase orders are extinguished whenever a payment
is made.
4. Make sure the same coding standards are used.
5. Establish a payment timing policy adhered to by everyone.
CT 7-8 DECISION MAKING ACROSS THE ORGANIZATION
(a) The material weaknesses and the related principle(s) of internal control
that was violated are as follows:
Material Weakness
Internal Control Principle
• Non-timely deposit of cash
receipts
• Physical controls—cash should
be deposited in total daily
• Excessive past due accounts
receivable
• Establishment of responsibility
payment of invoices
• Absence of segregation of
duties
• Segregation of duties
• Inadequate procedures for
applying accounting principles
• Documentation procedures
• Lack of qualified management
personnel
• Establishment of responsibility
• Lack of supervision by outside
board of directors
• Establishment of responsibility;
independent internal verification
(b) Under the Sarbanes-Oxley Act, publicly traded companies are required
to maintain adequate systems of internal control. Failure to comply
with the Act can result in fines and imprisonment of officers. Managers
CT 7-9 COMMUNICATION ACTIVITY
Mr. Frank Simon
Simon Company
Main Street, USA
Dear Mr. Simon:
Weaknesses
Suggested Improvement
1.
mail.
cash summary. While this procedure
does not assure that all checks will
be listed, it does allow the company
get deposited.
A list of checks received is not pre–
pared by the person who opens the
This list should be prepared so that it
can later be compared with the daily
2.
Mail is opened by only one person.
When this occurs, there is no assur-
3.
The cashier is allowed to open the
mail.
pare the cash summary and make the
bank deposit. This involves no
segregation of duties as the cashier
controls the cash from the time it is
Under this arrangement, it is possible
for the cashier to open the mail, pre-
4.
The accounts receivable clerk is
allowed to open the mail.
Again, there is poor segregation of
duties. In this case, the clerk could
CT 7-9 (Continued)
Weaknesses
Suggested Improvement
Mail receipts are deposited weekly.
This makes the receipts vulnerable to
robbery and to misappropriation. The
receipts should be deposited daily.
CT 7-10 ETHICS CASE
(a) The amount of fee revenue depending on order of processing would be:
(2) Smallest to largest: 1 bounced check X $30 = $30
(3) In order of check number: 2 bounced checks X $30 = $60
(b) Whether this is ethical is subject to debate. On the one hand, it can be
argued that customers have a responsibility to maintain an adequate
balance in their accounts. Some customers are frequently overdrawn;
(c) In deciding what approach to take, the bank must consider its relationship
with the customer. Clearly, by adopting a “largest to smallest” approach,
it is going to anger some customers, who may well decide to leave the
(d) Answer will vary depending on student’s opinion.
CT 7-11 ETHICS CASE
Answers will vary depending on article chosen.
LO 1 BT: S Difficulty: Hard TOT: 40 min. AACSB: Communication and Technology AICPA FC: Measurement
and Reporting
CT 7-12 ALL ABOUT YOU
Answers are provided to students on the government website as they complete
the ID Theft Faceoff quiz.
CT 7-13 FASB CODIFICATION ACTIVITY
(a) Consistent with common usage, cash includes not only currency on
hand but demand deposits with banks or other financial institutions.
Cash also includes other kinds of accounts that have the general
characteristics of demand deposits in that the customer may deposit
additional funds at any time without prior notice or penalty. All charges
(b) Cash equivalents are short-term, highly liquid investments that have
both of the following characteristics:
a. Readily convertible to known amounts of cash
b. So near their maturity that they present insignificant risk of changes
in value because of changes in interest rates.
Generally, only investments with original maturities of three months or
less qualify under that definition. Original maturity means original
CT 7-13 (Continued)
(c) Cash and cash items. Separate disclosure shall be made of the cash
and cash items which are restricted as to withdrawal or usage. The
provisions of any restrictions shall be described in a note to the
financial statements. Restrictions may include legally restricted deposits
held as compensating balances against short-term borrowing arrange-
IFRS CONCEPTS AND APPLICATION
IFRS7-1
Companies listed on U.S. stock exchanges must comply with the Sarbanes–
Oxley Act. This compliance gives investors greater assurance that these
companies have adequate internal controls in place. In addition, the
auditors for these publicly traded companies must attest to the effectiveness
Note 1.18 Cash and cash equivalents state that:
Cash and cash equivalents comprise cash and highly liquid money-market
investments subject to an insignificant risk of changes in value over time.