Cornelius Vander Starr wanted to see the world. In 1918, the 26-year-old Californian emptied his bank account to purchase a one-way ticket to the Far East on a steam-ship. After “bumming around” Japan for several months, Vander Starr traveled to Shanghai, China, where he landed a job working for an insurance company. Within a short period of time, Vander Starr realized that selling insurance was a low overhead business that was ideally suited for a young entrepreneurial type like himself, so he quit his job and set up his own insurance agency, American Asiatic Underwriters. Vander Starr’s business grew rapidly. By the time of his death in the late 1960s, Starr’s one-man firm had become a multibillion-dollar international conglomerate with operating units in Europe, Latin America, the Middle East, and the United States. The Starr Foundation that he created before his death ranks among the world’s largest philanthropic organizations. In 1948, the Chinese civil war forced Vander Starr to relocate his company’s head-quarters from Shanghai to New York City. As he neared retirement, Vander Starr chose his protégé, Maurice “Hank” Greenberg, to replace him as his company’s chief executive officer. During the early 1960s, Greenberg had revamped the company’s business model. Instead of focusing on selling life insurance and other insurance products for individuals, Greenberg convinced Starr that the company’s principal line of business should be insurance and other financial services products designed for large corporations. In 1969, Greenberg took the company, which had been renamed American International Group, Inc. (AIG), public by listing its stock on the New York Stock Exchange. Greenberg would serve as AIG’s top executive for nearly four decades. Under his leadership, the company became known worldwide for the new and innovative financial services products that it continually developed and the aggressive methods that it used to market those products. These efforts produced impressive financial results for the company. By the turn of the century, AIG was one of the 10 largest companies in the United States and among the 20 largest companies worldwide. In early 2001, a group of AIG executives came up with an idea for a new financial service that they believed would appeal to a wide range of large corporations. This service would involve AIG creating customized “special purpose entities” or SPEs for such companies. An SPE is typically a limited partnership that two or more companies join together to form. Since an SPE is an unconsolidated subsidiary, a company can download or transfer underperforming assets and related liabilities to that entity to improve its apparent financial condition. This “balance sheet management feature” of SPEs was the principal selling point that AIG intended to rely on in marketing its new service. In fact, many large corporations were already using SPEs “to perform cosmetic surgery on their balance sheets.” 1 Enron Corporation, a large Houston-based energy company, was among the most prolific users of SPEs. 2 Enron had significantly improved its apparent financial condition by “hiding” distressed assets………………….. 1. Is it ethical for a CPA or CPA firm to help companies “manage” their reported earnings and financial condition? In responding to this question, first assume that the CPA or CPA firm is serving as a consultant, and then assume that the CPA or CPA firm is serving as the given entity’s independent auditor. Defend your answers. 2. When a dispute arises between an audit client and its auditor regarding the proper accounting treatment for a transaction or other item, the audit client will sometimes retain another accounting firm to issue a report, previously known as a SAS No. 50 report, on the proper accounting treatment for the given item [see AS 6105 of the PCAOB auditing standards and AU-C Section 915 of the AICPA Professional Standards]. Identify the potential ethical dilemmas that may result from allowing accounting firms to issue such reports to nonaudit clients.
> Tri-Cities Bank has a single drive-in teller window. On Friday mornings, customers arrive at the drive-in window randomly, following a Poisson distribution at an average rate of 30 per hour. a. How many customers arrive per minute, on average? b. How man
> Describe a situation in which a business might want customers to wait some amount of time before receiving service.
> This chapter implies that customers find waiting in line to be an unpleasant experience. In addition to reducing the length of the wait itself, what other steps could a business take to reduce the frustration customers experience while waiting? Give spec
> Consider the three queuing configurations shown in Figure 13.2. For each configuration, describe a situation (besides the examples mentioned in the chapter) in which you have encountered or observed the same type of queuing system. Figure 13.2 Custo
> Calls arrive at a rate of 150 per hour to the 800 number for the Land’s Beginning mail-order catalog company. The company currently employs 20 operators who are paid $10 per hour in wages and benefits and can each handle an average of 6 calls per hour. A
> The drive-thru window at Hokie Burger requires 2.5 minutes on average to process an order with a standard deviation of 3 minutes. Cars arrive at the window at a rate of 20 per hour. a. On average, how many cars are waiting to be served? b. On average, ho
> Interstate 81 through southwest Virginia is heavily traveled by long-distance truckers. To cut down on accidents, The Virginia State Patrol carries out random inspections of a trucks weight and the condition of its brakes. On Fridays, trucks approach the
> Road Rambler sells specialty running shoes and apparel through catalogs and the Web. Customers can phone in orders at any time day or night, 7 days a week. During the 4 a.m. to 8 a.m. shift, a single sales rep handles all calls. During this time, calls a
> Customers checking out at Food Tiger arrive in a single-line queue served by two cashiers at a rate of eight per hour according to a Poisson distribution. Each cashier processes customers at a rate of eight per hour according to an exponential distributi
> Patrick’s luck had changed overnight – but not his skill at mathematical reasoning. The day after graduating from college he used the $20 that his grandmother had given him as a graduation gift to buy a lottery ticket. He knew his chances of winning the
> During the summer of 2006, a syndicate of investors led by The Blackstone Group, one of Wall Street’s largest private equity investment firms, initiated a secret plan to acquire Freescale Semiconductor. Based in Austin, Texas, Freescale was among the wor
> Suzette Washington financed her college education by working as an inventory clerk for Bertolini’s, a clothing store chain located in the southeastern United States. 1 Bertolini’s caters primarily to fashion-conscious young men and women. The company’s
> Alex Fries emigrated to the United States from Germany in the early nineteenth century. 1 The excitement and opportunity promised by the western frontier fascinated thousands of new Americans, including the young German, who followed his dreams and the
> Imagine this scenario. A few years after graduating from the University of Miami, New Mexico State University, or Ohio Wesleyan University with an accounting degree, you find yourself working as an audit senior with an international accounting firm. Your
> Sam Walton was born on March 29, 1918, in Kingfisher, Oklahoma, a small town 50 miles northwest of Oklahoma City. Sam’s father, a farmer, struggled to support his family during the Great Depression. The Walton family hopscotched around the country before
> A Japanese bank introduced the concept of around-the-clock access to cash in the 1960s when it installed the world’s first cash-dispensing machine. In 1968, the first networked ATM appeared in Dallas, Texas. 1 Two generations later, there are more than
> During the early 1880s, David McConnell, the son of Irish immigrants, eked out a livelihood in New York City by selling books door to door. The persistent McConnell tried one gimmick after another to boost his sales. One evening, he prepared a home-made
> Lore Levi was worried as she scanned the most recent monthly bank statement for the Howard Street Jewelers. 1 For decades, she and her husband, Julius, had owned and operated the small business that they had opened after fleeing Nazi Germany during Worl
> In 1890, the Brooklyn Trolley Dodgers professional baseball team joined the National League. Over the following years, the Dodgers would have considerable difficulty competing with the other baseball teams in the New York City area. Those teams, principa
> On the morning of October 14, 2011, Michael Woodford met with the 15-member board of directors of Tokyo-based Olympus Corporation. 1 Woodford, a native of Great Britain who had been appointed Olympus’s chief executive officer (CEO) two weeks earlier, exp
> The surging demand for petroleum products in recent decades has produced a windfall of revenues for many oil-rich Islamic countries in the Middle East, including, among others, Kuwait, Saudi Arabia, and the United Arab Emirates. Because Islam limits the
> In 1956, the Republic of the Sudan obtained its independence from Great Britain. Although unified, Sudan was effectively two countries within one. Northern Sudan, home of the nation’s capital, Khartoum, was controlled by Islamic fundamentalists, while so
> In January 2007, Matthew Neumann and Nicholas Tides, two Boeing employees, transferred to the company’s internal audit department. Neumann, who worked in Boeing’s Seattle headquarters, and Tides, who was based in St. Louis, believed that the move would a
> The Horn of Africa has long played an important role in world history. Most historians believe that the large triangular peninsula that juts into the Indian Ocean along the east coast of Africa was the home of the legendary Kingdom of Punt, an important
> The black Toyota minivan made slow but steady progress down the narrow, unpaved road as it approached the village of Takhli in south central Thailand, approximately 150 miles north of Bangkok. On either side of the bumpy road were fields of sugarcane, de
> In 1996, two friends and business partners, Jia Xiao Gong and Weizhou Lian, founded Longtop Financial Technologies Limited in Beijing. Gong served as Longtop’s chair-man of the board, while Lian assumed the title of chief executive officer (CEO). The two
> “Excuse me, are you Jake Tadlock?” 1 “No, my name is Eli. Eli Arezzo.” “Hello, Eli. My name is Olivia. Olivia Thomas. I’m sorry. I was told that this was Jake’s cubicle.” “No need to be sorry. Jake’s cubicle is around the corner,” Eli replied as he poin
> Frank Coleman pounded away at his calculator as he tried in vain to reconcile his number for the LIFO reserve to the figure recorded by the client. 1 Frustrated and fatigued, Frank glanced at his wristwatch; he couldn’t believe it was 9:40 p.m. Frank im
> In the mid-1990s, KPMG Peat Marwick audited a small, Dallas-based drugstore chain, Texas Drug Warehouse (TDW). Before beginning the company’s 1995 audit, KPMG “made a business decision to reduce the number of hours it would expend on the TDW audit and to
> Ladislas Nay immigrated to the United States from Hungary in 1921 at the age of 18. The opportunities offered by his new land excited the industrious young immigrant and he promised himself that he would make the most of them. Shortly after arriving in t
> In the business world of the Roaring Twenties, the schemes and scams of flimflam artists and confidence men were legendary. The absence of a strong regulatory system at the federal level to police the securities markets—the Securities and Exchange Commis
> Historians disagree when the first email message caromed down the information superhighway, but there is no dispute that email was the Internet’s first “killer app.” Email quickly became the primary communication medium within the business world. By 2015
> In 2012, Reuters, an international news agency based in London, startled the U.S. accounting profession. A Reuters article reported that Washington Council Ernst & Young (WCEY), a registered lobbying firm and division of Ernst & Young (EY), was providing
> Attracting customers and closing sales are challenges that face all retailers, ranging from a Piggly Wiggly grocery in a small southern town to the Giorgio Armani Boutique nestled among the elegant shops lining Rodeo Drive in Beverly Hills. Besides the n
> Sarah Russell grew up in a small town in the flatlands of western Kansas where she was born. 1 In high school, she was homecoming queen, valedictorian of her graduating class, point guard on her basketball team for two years, and a candy striper (volunt
> In the late 1990s, James Fazio reached what many CPAs consider the pinnacle of success in the accounting profession, namely, partnership in one of the Big Four public accounting firms. For more than a decade, Fazio served as an audit partner with Deloitt
> “So, any good news on the staffing front, Till?” Sophie White Eagle asked in between bites of a Christmas cookie. 1 “Nope. Still short at least one staff accountant,” Tillman Rollins replied glumly before adding, “probably two.”Tillman Rollins and his
> Madison Wells should have been happy. 1 Another hectic busy season was coming to an end which meant the audit manager’s standard workload would drop from 55 to 65 hours per week to a much more reasonable 45 hours. But Madison wasn’t thinking of the end
> “No, that’s okay, Bea. I’ll write that memo this weekend and send it to Mr. Fielder. You go on home.” 1 “Are you sure, Chuck? I don’t mind staying a while longer.” “Thanks, Bea, but you’ve already put in too much overtime this week.” After he sent his s
> “Oh no, not Store 51,” Avis Love moaned under her breath. For the third time, Avis compared the dates listed in the cash receipts journal with the corresponding dates on the bank deposit slips. Avis shook her head softly and leaned back in her chair. The
> One month after being promoted to audit senior, Tommy O’Connell was assigned to the audit engagement team for the Altamesa Manufacturing Company. 1 Tommy worked out of his Big Four employer’s Fort Worth practice office, while Altamesa was headquarted in
> After spending much of the previous three months working elbow-to-elbow with as many as six colleagues in a cramped and poorly ventilated conference room, Hamilton Wong was looking forward to moving on to his next assignment. 1 Wong served as an in-charg
> “Bill, will you have that inventory memo done by this afternoon?” 1 “Yeah, Sam, it’s coming along. I should have it done by five, or so.” “Make it three . . . or so. Okay, Bub?” Bill responded with a smile and a nod. He had a good relationship with Sam H
> Leigh Ann Walker graduated from a major state university with a bachelor’s degree in accounting. 1 During her college career, Walker earned a 3.9 grade point average and participated in several extracurricular activities, including three student business
> In 1983, Marta Giordano inherited the restaurant that her grandfather, Alberto Buranello, had established shortly after returning to his hometown of Boston after serving in World War I. 1 For nearly a century, the restaurant, Buranello’s Ristorante, has
> Richard Grimes glanced at his wristwatch as he pulled into the nearly deserted parking lot of the corporate headquarters of McCaleb Medical Corporation (MMC). 1 It was 6:25 a.m. on a cold and overcast Friday morning in February. Based in a suburb on the
> In late 2003, Le-Nature’s Inc., a Pennsylvania-based beverage company, selected BDO Seidman to replace Ernst & Young (EY) as its independent audit firm. A few months earlier, EY had insisted that Le-Nature’s retain an external law firm to investigate all
> No doubt, Guy Enright was apprehensive as he talked to the mysterious stranger on the phone. At the time, Enright, a British citizen and Chartered Accountant, was working on an unusual engagement for his employer, KPMG. 1,2 The Big Four accounting firm h
> In the early 1930s, the Great Depression forced engineering student William Harrah to drop out of UCLA. Known as a “hustler” by his friends, Harrah began operating a bingo parlor to support himself. After repeated confrontations with law enforcement auth
> Russell Smith knew why he had been summoned to the office of A. Walter Rognlien, the 74-year-old chairman of the board and chief executive officer (CEO) of Smith’s employer, Cardillo Travel Systems, Inc. 1 Just two days earlier, Cardillo’s in-house attor
> Like most high school graduates, Michael Dell had a sense of anticipation, if not exhilaration, when he left home to begin his college career. Because Dell planned to become a doctor, like his father, he declared premed as his major when he enrolled in t
> “The final undergraduate award today is the William J. Upchurch Medal, which is given annually to the outstanding senior in the Hopkins College of Business. 1 Nominations are made by Hopkins faculty members and the criteria considered in choosing the w
> Arvel Ray Smart was born in Lebanon, Missouri, and grew up in the small town of Bolivar, 40 miles west of Lebanon in southeastern Missouri. 1 Arvel’s mother and father graduated from the University of Missouri with accounting degrees in the mid-1970s. T
> Wiley Jackson spent three months as an audit intern with a local practice office of a major accounting firm while he was earning an undergraduate accounting degree at the University of Wisconsin–Milwaukee. Wiley thoroughly enjoyed the three-month interns
> “Woody, that’s $2,400 you owe me. Okay? We’re straight on that?” “Yeah, yeah. I got you.” “And you’ll pay me back by next Friday?” “Al, I said I’d pay you back by Friday, didn’t I?” “Just checkin’.” Borrowing money from a friend can strain even the stron
> Refer to the data in Exercise 10–25, regarding Canandaigua Container Company. Prepare journal entries to: 1. Record the purchase of direct material on account. 2. Record the direct-material variances and add direct-material cost to Work-in-Process Invent
> Visit the website for one of the following companies, or a different company of your choosing. Marriott Hotels www.marriott.com ………………
> Choose one of the following manufacturers (or any manufacturer of your choosing), and use the Internet to gather information about any new products the company has recently introduced or plans to introduce. Boeing www.boeing.com ……….……… Kodak www.kodak.c
> Canandaigua Container Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller. Direct labor: ……………………… Direct material:
> The following terms are used to describe various economic characteristics of costs. a. Opportunity cost b. Out-of-pocket cost c. Sunk cost d. Differential cost e. Marginal cost f. Average cost Required: Choose one of the terms listed above to character
> Maria Chavez makes custom mooring covers for boats in Tumpa, Florida. Each mooring cover is hand sewn to fit a particular boat. If covers are made for two or more identical boats, each successive cover generally requires less time to make. Chavez has bee
> Global Communications, Inc. manufactures communications satellites used in TV signal transmission. The firm currently purchases one component for its satellites from a European firm. A Global Communications engineering team has found a way to use the com
> For each of the following costs, indicate whether the amount is a direct or indirect cost of the equipment maintenance department. Also indicate whether each cost is at least partially controllable by the department supervisor. 1. Cost of electricity use
> Due to evaporation during production, Plasto Company requires 4 pounds of material input for every 3 pounds of good plastic sheets manufactured. During May, the company produced 6,000 pounds of good sheets. Required: Compute the total standard allowed i
> Write the formula for ROI, showing sales margin and capital turnover as its components.
> Show, using T-accounts, how production overhead is added to Work-in-Process Inventory when standard costing is used.
> McCartney Company manufactures guitars. The company uses a standard, job-order cost accounting system in two production departments. In the Construction Department the wooden guitars are built by highly skilled craftspeople and coated with several layers
> Execucraft, Inc., manufactures upholstered office chairs. The standard cost for material and labor is $89.20 per chair. This includes 8 kilograms of direct material at a standard cost of $5.00 per kilogram, and 6 hours of direct labor at $8.20 per hour.
> Ozarks Camping Equipment, Inc., has established the following direct-material standards for its two products. During May, the company purchased 4,200 yards of tent fabric for its standard model at a cost of $26,880. The actual May production of the stan
> California Housewares’ Merced Division is a small manufacturer of wooden household items. Al Rivkin, divisional controller, plans to implement a standard-costing system. Rivkin has collected information from several co-workers that will assist him in dev
> McKeag Corporation manufactures agricultural machinery. At a recent staff meeting, the following direct-labor variance report for the year just ended was presented by the controller. McKeag’s controller uses the following rule of thumb
> Concord Farms produces items made from local farm products that are distributed to supermarkets. For many years, Concord’s products have had strong regional sales on the basis of brand recognition; however, other companies have begun marketing similar p
> Instructional Resources International (IRI) is a rapidly expanding company involved in the m ass reproduction of instructional materials. Ralph Boston, owner and manager of IRI, has made a concentrated effort to provide a quality product at a fair price,
> The director of cost management for Peoria Instrument Corporation compares each month’s actual results with a monthly plan. The standard direct-labor rates for the year just ended and the standard hours allowed, given the actual output
> SolarPrime, Inc. uses a standard-costing system to assist in the evaluation of operations. The company has had considerable trouble in recent months with suppliers and employees, so much so that management hired a new production supervisor, Marc Hoctor.
> Valport Valve Company manufactured 15,600 units during March of a control valve used by milk processors in its Shreveport plant. Records indicated the following: Direct labor .................................................... 80,200 hr. at $10.95 Direc
> List three observable and three hidden quality costs that could occur in the airline industry related to the quality of service provided.
> The following data pertain to Colgate Palmolive’s liquid filling line during the first 10 mon t hs of a particular year. The standard ratio of direct-labor hours to machine hours is 4:1. The standard direct-labor rate is $15.08. Requir
> Harrison Wolfe operates a residential landscaping business in an affluent suburb of Atlanta. In an effort to provide quality service, he has concentrated solely on the design and installation of upscale landscaping plans (e.g., trees, shrubs, fountains,
> South Atlantic Chemical Company manufactures industrial chemicals in Rio de Janeiro, Brazil. The company plans to introduce a new chemical solution and needs to develop a standard product cost. The new chemical solution is made by combining a chemical co
> Gandolph Game Company has established the following standards for the prime costs of o n e unit of its chief product, dartboards During September, Gandolph purchased 320,000 kilograms of direct material at a total cost of $608,000. The total wages for S
> During March, Manhattan Fabrics Corporation manufactured 1,000 units of a special multilayer fabric with the trade name Stylex. The following information from the Stylex production department also pertains to March. Direct material purchased: 36,000 yard
> The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency varianc
> Part of your company’s a c counting database was destroyed when Godzilla attacked the city. You have been able to gather the following data from your files. Reconstruct the remaining information using the available data. All of the raw
> Refer to the data in the preceding exercise. Use diagrams similar to those in Exhibits 10–2, 10–3, and 10–4 to determine the direct-material and direct-labor variances. Indicate whether each variance
> Seneca Hardwoods produces handcrafted jewelry boxes. A standard-size b ox requires 7 board feet of hardwood in the finished product. In addition, 1.5 board feet of scrap lumber is normally left from the production of one box. Hardwood costs $5.00 per boa
> Refer to the data in the preceding exercise. Draw diagrams depicting the direct-material and direct-labor variances similar to the diagrams in Exhibits 10–2, 10–3 , and 10–4 . Exhibit 10-2: Exhibit 1
> Information taken from Ticonderoga Paper Company’s records for the most recent year is as follows: Direct material used ................................................... $203,000 Direct labor ..................................................
> During April, Dryden Company’s material purchases amounted to 6,500 pounds at a price of $7.40 per pound. Actual costs incurred in the production of 2,000 units were as follows: Direct labor: $118,035 ($18.30 per hour) Direct material: $31,820 ($7.40 per
> Refer to your answer for Exercise 10–31. Set up T-accounts, and post the journal entries to the general ledger.
> MacGyver Corporation manufactures a product called Miracle Goo, which comes in handy for just about anything. The thick tarry substance is sold in six-gallon drums. Two raw materials are used; these are referred to by people in the business as A and B. T
> Metro Fashions, Inc., manufactures women’s blouses of one quality, which are produced in lots to fill each special order. Its customers are department stores in various cities. Metro Fashions sews the particular stores’
> Briefly describe three issues that create special challenges for multinational firms in preparing their budgets.
> List the steps you would go through in developing a budget to meet your college expenses.
> Discuss this comment by a small-town bank president: “Budgeting is a waste of time. I’ve been running this business for 40 years. I don’t need to plan.”
> Why is participative budgeting often an effective management tool?
> Define the term budgetary slack, and briefly describe a problem it can cause.
> Discuss the importance of predictions and assumptions in the budgeting process.
> Pinellas Pillow Company’s planned production for the year just ended was 10,000 units. This production level was achieved, but only 9,000 units were sold. Other data follows: Direct material used ........................................... $80,000 Direct
> How can a company’s board of directors use the budget to influence the future direction of the firm?
