Question: Blitz Industries has a debt-equity ratio

> Your client is BigC Ltd., a large private firm with offices in all major cities of Canada. BigC specializes in selling concentrated fruit juices to Canadian and overseas buyers. This is the first year your &ium

> For each of the following statements, identify the audit assertion that it relates to: a. Sales are made to customers that do not have approved credit. b. Goods not ordered by the customer are shipped. c. Unit prices on customer invoices are incorrect. d

> Tinkerbell Toys Co. (Tinkerbell) is a manufacturer of children’s building block toys. It has been in business for more than 35 years and it sells to a wide variety of customers including large and small toy retailers across the country. The company’s yea

> North West Paper Ltd. provides cardboard, paper, and plastic packaging materials to a large number of manufacturers and distributors in all provinces. The cardboard and paper division is a well established business, but North West has been providing plas

> Anna Mourani has the task of designing the audit program for the payroll area. There have been no recent changes to the payroll system or its interface with the general ledger. Among other tests, Anna is considering using the following analytical procedu

> Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2020, year end. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft’s i

> Seb Lee and Boris Shonk off are discussing the audit program for the revenue account. Seb and Boris disagree about whether they should use procedure A or B below to test the occurrence assertion for the revenue account: A. Select a sample of sales from th

> Boris Shonk off has another suggestion for the audit program for the revenue account. This time he suggests: Select a sample of sales from the sales journal and agree the details in the journal to the sales invoices, delivery slips, and customer orders.

> Boris Shonk off suggests the following audit procedure should be included in the audit program to gather evidence on the cut-off assertion for the revenue account: Select a sample of sales from the sales journal and agree the dates on the invoices to the

> Carla DaCosta has been asked to join the team responsible for designing the audit program for a new client, Gaskin Industries Ltd., a manufacturing and wholesaling firm. Gaskin recently went public and is now listed on the Toronto Stock Exchange. Carla ha

> James Wu has been assigned the audit planning for the property, plant, and equipment section for a large manufacturing audit client. The client built a new factory during the first six months of the year; therefore, significant additions were made to its p

> The following items are documented in the audit working papers: 1. Sales transaction included in the year ended December 31, 2020, but evidence from the cut-off procedure suggests that the sale should be dated January 2, 2021 ($1,250,000). 2. Warranty ex

> Analysis is a substantive audit procedure that auditors use when they are performing financial statement audits. Required: a. Distinguish between analysis and analytical procedures. b. Identify the three stages in the audit process at which analysis can

> Answer the following questions based on the information presented for Cloud 9 in Appendix A of this book and the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters. Required: Based on ever

> Review your answers to the previous questions. Comment on the persuasiveness of evidence from each test. Explain any factors that would affect your assessment.

> Your assurance services manager has requested that you use substantive analytical procedures to calculate Shady Oaks’ estimated revenue for patients staying in the centre, excluding medical procedures and ancillary costs such as medication. Required: Ba

> a. Identify two key account balances likely to be affected by the above information. b. For each account balance identified in part (a), identify and explain the key assertions most at risk. c. For each assertion identified in part (b), identify specific sub

> Marty Novakowski has to audit the sales transactions of Okawa Ltd., which supplies tools to the mining industry. Okawa carries a large number of different makes and models of standard mining tools. It also designs and manufactures tools for special purpos

> Connie Cyr is the recently appointed engagement partner of the audit of Camel Ltd. She has just taken over the audit from Kar-Ming Leo, who rotated off the audit after a seven-year period as the engagement partner. Kar-Ming had a small portfolio of clien

> Mathieu Lapointe has the task of reviewing the evidence from analytical procedures conducted by the audit juniors on the audit of Soleil Services Ltd. The audit juniors have reported the results of these analytical procedures: 1. Comparison of depreciati

> Hilltop Partners is planning the audit for one of its clients. Jake Hilltop is performing the risk assessment at the assertion level for the accounts payable account to determine the nature and timing of the substantive work to be performed. Jake has ass

> You are testing the controls over bank accounts for your audit client, Manitoba Ltd. You note that the responsibility for bank reconciliations has changed due to a corporate reorganization halfway through the current financial year. Both the staff member p

> Two of your friends from high school will soon realize their lifetime dream of opening an English style pub. They recently spoke with their accountant, who indicated that they should ensure that they implement some strong controls. They have no idea what

> Alabama Industries manufactures and wholesales small tools. It sells the tools to a large group of regular customers and makes most sales by telephone to this group. Additionally, it receives orders online from its sales team, who sign up new customers w

> The worksheet you completed for the case study question in chapter 8 includes your estimates of the overall risk assessment (ORA) and the acceptable detection risk (DR) in the sales to cash receipts process. Required: Based on your ORA and DR estimates,

> Within a client’s IT system, supplier information is contained in a supplier master fi le (SMF). Each supplier has a unique supplier code. If the purchasing clerk attempts to place an order from a supplier not in the SMF, the order cannot be processed. To

> International Bank is experiencing bad publicity surrounding huge fraud losses in its foreign currency department. Accusations are being made in the press that the rogue trader blamed for the losses was operating outside the official guidelines with the ta

> The following errors due to sloppy paperwork and poor controls were found during an audit. 1. A customer’s order was shipped without credit approval. 2. Some sales made in January were recorded as being made in December. The company has a December 31 fisc

> Carmel Harrison runs Emerald Spa, a business providing women-only hairdressing, beauty, relaxation massage, and counselling services in a small tourist town. Ninety percent of the clients using the beauty and massage services at Emerald Spa are weekend v

> The sales transactions at Alberta Park, a new audit client, are handled by a software application that is not supported by very detailed documentation. The audit partner requests that the team re-perform some controls to ensure that the software applicat

> Arne Eklund, the audit senior, is reviewing the working papers written by the audit assistant on the audit of Quebec Creepers, a nursery and retailer of garden accessories. Arne reads the following description of the results of testing of inventory contr

> Lisa Curtis is documenting the purchasing and cash payments processes at Hardies Wholesaling. Hardies Wholesaling imports ladies clothing such as T-shirts, blouses, skirts, dresses, and pants from suppliers in Southeast Asia. All items are non-perishable

> Required: a. Identify the key assertion at risk for payables in relation to payments made prior to receipt of goods. b. For the control procedures (1) to (5) above for payables: i. Identify the key preventive internal control that directly addresses the

> Required: For each of the accounts for Shady Oaks (1 and 2 above) identified to be a significant risk: a. Determine the key assertion at risk. b. Describe a practical preventive internal control that would directly address t

> In relation to the new manufacturing costing system, describe two automated application controls that you would expect to find.

> Answer the following question based on the information presented for Cloud 9 in Appendix A of this book and in the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters. While Cloud 9 maintain

> Select two components of internal control. Explain how the roles of the internal and external auditors would differ when assessing these components in relation to the new manufacturing costing system.

> Write a management letter to Justin and Sarah Morris.

> Assess the internal controls at Featherbed. What changes would you recommend?

> The audit senior on the audit of Frankel Factors is preparing the audit plan for the year ended December 31, 2020. The following notes relate to the payroll application system that went live on June 1, 2020. 1. The new payroll application is more comple

> Powersys is an electricity distribution company based in a large capital city. Its business is to manage the electricity assets, including poles, wires, and other equipment, that are used to deliver electricity to more than 500,000 retail and business cu

> The results of substantive testing of sales invoices at City Electronics are shown in table 6.8. The three strata correspond to different departments and the overall tolerable error is set at $40,000. Required: a. Project the errors for e

> Alice Pang is planning the control testing of the accounts payable function in the hardware retailer Bunns and Major. Alice is attempting to determine the appropriate sample size for her tests and is writing a report to the engagement partner of the audi

> Fred Saros is auditing cash payments for OGA, a large supermarket. OGA deals with several very large corporate suppliers who expect payment by electronic funds transfer within three business days of delivery. Other large suppliers will accept cheques or

> Your friend, Alexei Antropov, has recently began working for an auditing fi rm and he wants your advice regarding some tests of sales transactions that he is currently undertaking with respect to one of his clients. He has been careful not to disclose to

> Rahim, a first-year auditor, is asked to select a sample of invoices to audit the utility expense account. Below is the account detail. The audit program asks to select a sample of four items. Required: a. Using systematic selection, det

> Answer the following question based on the information presented for Cloud 9 in Appendix A and in the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters. Required: Prepare common-size stat

> Ron McLellan established his business, McLellan’s Shoes, in 1980. Ron keeps records and his wife helps him prepare basic accounting records. As McLellan’s Shoes has no outside owners, Ron has never seen the need to have his books audited. When Chip Maste

> In Problem 10, suppose the corporate tax rate is 22 percent. What is EBIT in this case? What is the WACC? Explain.Problem 10:Thrice Corp. uses no debt. The weighted average cost of capital is 8.4 percent. If the current market value of the equity is $16.

> Thrice Corp. uses no debt. The weighted average cost of capital is 8.4 percent. If the current market value of the equity is $16.3 million and there are no taxes, what is EBIT?

> Ghost, Inc., has no debt outstanding and a total market value of $185,000. Earnings before interest and taxes, EBIT, are projected to be $29,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 30 percent

> You need a 30-year, fixed-rate mortgage to buy a new home for $235,000. Your mortgage bank will lend you the money at an APR of 5.35 percent for this 360-month loan. However, you can afford monthly payments of only $925, so you offer to pay off any remai

> Wayne, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $64 per share, but the book value per share is $19. Net income is currently $11.5 million. The new facility will cost $3

> Nemesis, Inc., has 165,000 shares of stock outstanding. Each share is worth $77, so the company’s market value of equity is $12,705,000. Suppose the firm issues 30,000 new shares at the following prices: $77, $73, and $65. What effect will each of these

> The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $21.39 for each of the 20 million shares sold. The initial offering price was $23 per share, and the stock rose to $28.41 per share in the first few minutes of trading.

> In Problem 5, if the SEC filing fee and associated administrative expenses of the offering are $1.2 million, how many shares need to be sold?Problem 5:The Whistling Straits Corporation needs to raise $60 million to finance its expansion into new markets.

> Refer to Table 12.1 in the text and look at the period from 1970 through 1975. Data from Table 12.1:a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period.b. Calculate the standard deviation of the returns for l

> Given the following information for Bowie Pizza Co., calculate the depreciation expense: Sales = $64,000; Costs = $30,700; Addition to retained earnings = $5,700; Dividends paid = $1,980; Interest expense = $4,400; Tax rate = 22 percent

> The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $35,000 per year forever. If the required return on this investment is 4.7 percent, how much will you pay for the policy?

> The Whistling Straits Corporation needs to raise $60 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $21 per share and the company’

> The Woods Co. and the Spieth Co. have both announced IPOs at $40 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan to buy 1,000 shares of each issue. If an issue is un

> Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 22 percent, what is the aftertax cost of the company’s debt?,,,

> Being Human, Inc., recently issued new securities to finance a new TV show. The project cost $35 million, and the company paid $2.2 million in flotation costs. In addition, the equity issued had a flotation cost of 7 percent of the amount raised, whereas

> Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $2.3 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .6

> You want to borrow $115,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $2,250, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan?

> The Clifford Corporation has announced a rights offer to raise $35 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a nonrefundable reviewing fee of $5,000 per page. The stock c

> Using the following returns, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y.

> Cully Company needs to raise $80 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 70 percent common stock,

> Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent. Your boss has decided to fund the project by bor

> You want to be a millionaire when you retire in 40 years. How much do you have to save each month if you can earn an annual return of 9.7 percent? How much do you have to save each month if you wait 10 years before you begin your deposits? 20 years?

> An all-equity firm is considering the following projects:The T-bill rate is 4 percent, and the expected return on the market is 11 percent.a. Which projects have a higher expected return than the firm’s 11 percent cost of capital?b. Whi

> Titan Mining Corporation has 7.5 million shares of common stock outstanding, 250,000 shares of 4.2 percent preferred stock outstanding, and 140,000 bonds with a semiannual coupon of 5.1 percent outstanding, par value $1,000 each. The common stock current

> Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $35. At the close of business, the day before the ex-rights day, the compa

> Prahm Corp. wants to raise $4.7 million via a rights offering. The company currently has 530,000 shares of common stock outstanding that sell for $55 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a s

> Show that the value of a right just prior to expiration can be written as:Value of a right=PRO PX = (PRO Ps) / (N + 1)where PRO, PS, and PX stand for the rights-on price, the subscription price, and the ex-rights price, respectively, and N is the number

> In Problem 10, what would the ROE on the investment have to be if we wanted the price after the offering to be $75 per share? (Assume the PE ratio remains constant.) What is the NPV of this investment? Does any dilution take place?Problem 10:The Metallic

> In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Previous problem:You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers

> Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,560,000; the new one will cost $1,872,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $

> The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:Stock price …………………………………………………………………………………………… $ 75Number of shares ……………………………………………………………………………… 64,

> You have an investment that will pay you 0.67 percent per month. How much will you have per dollar invested in one year? In two years?

> Targaryen Corporation has a target capital structure of 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The rel

> For the firm in Problem 7, suppose the book value of the debt issue is $95 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity; the book value of this issue is $40 million, and the

> Jiminy’s Cricket Farm issued a 30-year, 6 percent semiannual bond three years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 22 percent.a. What is the pretax cost of debt?b. What is the after tax cost of debt?c.

> Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 103 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What

> Holdup Bank has an issue of preferred stock with a stated dividend of $4.25 that just sold for $93 per share. What is the bank’s cost of preferred stock?

> Suppose Stark, Ltd., just issued a dividend of $2.51 per share on its common stock. The company paid dividends of $2.01, $2.17, $2.25, and $2.36 per share in the last four years. If the stock currently sells for $43, what is your best estimate of the com

> In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures.Previous problem:We are evaluating a project that costs

> The Rhaegel Corporation’s common stock has a beta of 1.07. If the risk-free rate is 3.5 percent and the expected return on the market is 10 percent, what is the company’s cost of equity capital?

> Your company has been approached to bid on a contract to sell 4,800 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment

> What would the lease payment have to be for both lessor and lessee to be indifferent about the lease?

> You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $250 per month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pa

> Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate is 21 percent.Debt: …………………….. 15,000 bonds with a 5.8 percent coupon outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par;

> Starset, Inc., has a target debt-equity ratio of .85. Its WACC is 9.1 percent, and the tax rate is 23 percent.a. If the company’s cost of equity is 14 percent, what is its pretax cost of debt?b. If instead you know that the after tax cost of debt is 6.5

> In Problem 12, suppose the most recent dividend was $3.25 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The

> Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $68, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of

> Fama’s Llamas has a weighted average cost of capital of 7.9 percent. The company’s cost of equity is 11 percent, and its pretax cost of debt is 5.8 percent. The tax rate is 25 percent. What is the company’s target debt-equity ratio?

> What was the average annual return on large-company stocks from 1926 through 2016: a. In nominal terms?b. In real terms?

> Lannister Manufacturing has a target debt-equity ratio of .55. Its cost of equity is 11 percent, and its cost of debt is 6 percent. If the tax rate is 21 percent, what is the company’s WACC?

> The Drogon Co. just issued a dividend of $2.80 per share on its common stock. The company is expected to maintain a constant 4.5 percent growth rate in its dividends indefinitely. If the stock sells for $58 a share, what is the company’s cost of equity?

> Consider the following information: