Question: What is financial planning? What four types

> What is meant by making a proper year-end cutoff? Explain the effects of errors in the cutoff of sales transactions in both the income statement and the balance sheet.

> Identify the general objectives of the auditors’ substantive procedures with respect to any major asset category.

> Why is audit work usually organized around balance sheet accounts rather than income statement accounts?

> What problems are created for a CPA firm when audit staff members underreport the amount of time spent in performing specific audit procedures?

> Suggest some factors that might cause an audit engagement to exceed the original time estimate. Would the extra time be charged to the client?

> Planning information for the audit of Keystone Computers & Networks, Inc., appears in this appendix. Review each major section of the audit plan and briefly describe the purpose and content of the section. Organize your solution in the following mann

> The accompanying flowchart summarizes Corporation’s processing of sales. Some of the flowchart symbols are labeled to indicate controls and records. For each symbol numbered 1 through 13, select one response from either the list of oper

> Certain audit risks are significant in that they require special audit consideration. Describe the typical characteristics of these significant risks.

> Assume that you have been hired by Willington, CPA, as a new staff assistant. He informs you that his approach to audits has always been to assess control risk at the maximum and perform all the substantive procedures he considers necessary. However, he

> Tammy Potter, a new partner with the regional CPA firm of Tower & Tower, was recently appointed to the board of directors of a local civic organization. The chairman of the board of the civic organization is Lewis Edmond, who is also the owner of a real

> You are auditing for the first time the financial statements of Central Savings and Loan Association for the year ending December 31, 20X3. The CPA firm that audited the association’s financial statements for the prior year issued an unqualified audit re

> As you are planning the annual audit of Norton Corporation, you note that the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for d

> CPAs may audit around or through computers in the audit of the financial statements of clients who use IT to process accounting data. a. Describe the auditing approach referred to as “auditing around the computer.” b. Under what conditions do CPAs decide

> The Ultimate Life Insurance Company has a database system that stores policy and payment information. The company is now planning to provide its branch offices with terminals that have online access to the central IT facility. a. Define a database. b. Gi

> You have been asked by the board of trustees of a local church to review its accounting procedures. As part of this review, you have prepared the following comments relating to the collections made at weekly services and record keeping for membersâ

> Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially numbered sales order and sends copies to the shipping and accounting departments. When the mercha

> You are invited by John Bray, the president of Cheviot Corporation, to discuss with him the possibility of your conducting an audit of the company. The corporation is a small, closely held manufacturing organization that appears to be expanding. No previ

> Prospect Corporation, your new audit client, processes its sales and cash receipts in the following manner: (1) Sales. Salesclerks prepare sales invoices in triplicate. The original and second copy are presented to the cashier, and the third copy is reta

> Describe the risk of material misstatement of an assertion. List the two components that make up this risk.

> Island Trading Co., a client of your CPA firm, has requested your advice on the following problem. It has three clerical employees who must perform the following functions: (1) Maintain general ledger. (2) Maintain accounts payable ledger. (3) Maintain a

> Orange Corp., a high-technology company, utilizes the following procedures for recording materials and transferring them to work in process. (1) Upon receipt of raw materials by stores, the storekeeper prepares a stock-in report with part number and quan

> Lee Wong, CPA, is auditing the financial statements of the Alexandria Corporation, which has a batch-processing IT-based system for shipping and invoicing that it purchased from a software vendor. The following comments have been extracted from Wong&acir

> For each definition (or partial definition) in the first column below, identify the most closely related term. Each term may be used once or not at all. Definition (or Partial Definition) Term 1. Batch processing 2. Data warehouse 1. A subject-orle

> For each of the following descriptions, select the computer audit procedure most closely related. Computer audit procedures may be used once, more than once, or not at all. Definition Computer Audit Procedures 1. Auditing by manually testing the In

> Auditors should be familiar with the terminology employed in IT processing. The following statements contain some of the terminology so employed. Indicate whether each statement is true or false. a. A recent improvement in computer hardware is the abilit

> Select the best answer for each of the following questions. Explain the reasons for your selection. a. LAN is the abbreviation for: (1) Large Area Network. (2) Local Area Network. (3) Longitudinal Analogue Network. (4) Low Analytical Nets. b. End user c

> Answer the following questions relating to tests of controls and control risk. a. Tests of controls do not address: (1) How controls were applied. (2) How controls were originated. (3) The consistency with which controls were applied. (4) By what means t

> For each term in the first column, find the closest definition (or portion of a definition) in the second column. Each definition may be used only once or not at all. Term Definition (or Portion) a. Compensating control b. Complementary control c.

> Auditors should have an understanding of the various terms that relate to their consideration of internal control of an organization. For each term presented below, select the category that most clearly defines or includes the term. The categories may be

> An audit plan is desirable when new staff members are assigned to an engagement, but an experienced auditor should be able to conduct an audit without reference to it.” Do you agree? Discuss.

> For each definition (or portion of a definition) in the first column, select the term that most closely applies. Each term may be used only once or not at all. Definition (or Portion) Term a. Representations by management that are communicated, exp

> Assume the following general flow of documents in an accounting system. Reply to the following questions: a. The auditors are concerned about source documents that reflect valid transactions that have not been recorded in the journals. Which procedure

> You have been hired to perform the audit of Hanmei, Inc.’s financial statements. When planning such an audit, you often may need to access the profession’s auditing standards to perform research. For each of the following circumstances, select the topic

> You are working with William Bond, CPA, and you are considering the risk of material misstatement in planning the audit of Toxic Waste Disposal (TWD) Company’s financial statements for the year ended December 31, 20X0. TWD is a privatel

> Michael Green, CPA, is considering audit risk at the financial statement level in planning the audit of National Federal Bank (NFB) Company’s financial statements for the year ended December 31, 20X1. Audit risk at the financial stateme

> Select the best answer for each of the following. Explain the reasons for your selection. a. In planning and performing an audit, auditors are concerned about risk factors for two distinct types of fraud: fraudulent financial reporting and misappropriati

> Listed below are controls that have been developed by the management of Cirus Manufacturing Co. 1. Management surveys customers about their satisfaction with the company’s service. 2. The human resources department investigates the educational background

> You are performing an audit of Systex Corporation and evaluating various controls. Classify the following controls as being primarily preventive (P), detective (D), or corrective (C). Explain your answers. a. Annual physical inventory. b. Monthly reconci

> Select the best answer for each of the following questions. Explain the reason for your selection. a. Which of the following would be least likely to be considered an objective of internal control? (1) Checking the accuracy and reliability of accounting

> Mary Deming has been asked to accept an engagement to audit a small financial institution. Deming has not previously audited a financial institution. Required: a. Describe the types of knowledge about the prospective client and its environment that Demi

> Can a standard audit plan be used for most engagements?

> In the overall audit strategy for the audit of Keystone Computers & Networks, Inc., in this appendix, there is a section on significant risks. For each of the risks, identify the implications and potential responses.

> Options can be combined to create more complicated payoff structures. Consider the combination of one put option and one call option with the same expiration date and the same strike price. Draw the payoff diagram and describe what the purchaser of such

> Define internal growth rate (IGR). Identify the characteristics of a high-growth firm that has no external funds needed?

> How does the dividend payout ratio affect the amount of funds needed to finance growth?

> Explain why the fixed asset account may or may not vary with sales?

> Why is sales not always a good measure to use in forecasting fixed assets?

> Explain how sales can be used to develop pro forma financial statements?

> What is the sustainable growth rate? Why is it important?

> Identify whether each of the following factors implies a lower or higher price for a bond? a. Low marketability of the security. b. Short term to maturity. c. Low credit rating of the issuer. d. No call provision.

> Discuss the advantages of shelf registration. What kinds of securities are most likely to be registered this way?

> How can capital structure decisions affect the control of a firm?

> What are the characteristics of a public bond? (Think in terms of comparing it to private placement and bank term loans.)

> Identify the three cost components that make up the total cost of issuing securities for a company. Briefly describe each?

> Explain why the owners of a company might choose to keep it private?

> Define underpricing, and explain why the majority of IPOs are underpriced. What role do investment banks play in the price-setting process?

> Identify the three basic services investment bankers provide to help firms bring new security issues to the market. During which stage of the typical IPO does the investment banker take on the risk of the offering? Is there an alternative in which the ri

> Managers at a large firm are looking for a medium-size loan with a long term to maturity and low liquidity. Which of the following types of debt would be the most appropriate? a. Public bond. b. Private placement. c. Bank term loan.

> Assume you work for a venture capital firm and have been approached by a couple of recent college graduates with a request to fund their new business. If you are interested in the idea, what process will you follow?

> Explain what a negative cash conversion cycle means?

> Why is the commercial paper market available only to the most creditworthy companies?

> Suppose you are a financial manager at a big firm and you expect interest rates to decline in the near future. What current asset investment strategy would you recommend that the company pursue?

> Why is financial flexibility important in the choice of a capital structure?

> What are some industries in which the use of lockboxes would especially benefit companies? Explain.

> How do the following circumstances affect the cash conversion cycle: (a) favorable credit terms allow the firm to pay its accounts payable slower, (b) inventory turnover increases, (c) accounts receivable turnover decreases?

> A beverage bottling company in Vermont has days’ sales outstanding of 23.7 days. Is this good? Explain?

> How are customers and suppliers affected by a firm’s working capital management decisions?

> If the value of the firm remains constant as a function of its capital structure and the three Modigliani and Miller assumptions apply, why might the overall cost of capital change or not change as capital structure changes?

> Evaluate the statement that the weighted average cost of capital (WACC) for a firm (assuming that all three assumptions of Modigliani and Miller’s propositions hold) is always less than or equal to the cost of equity for the firm?

> List and briefly describe the three key assumptions in Modigliani and Miller’s Proposition 1 that are required for total firm value to be independent of capital structure?

> When we observe the capital structure of many firms, we find that they tend to utilize lower levels of debt than that predicted by the trade-off theory. Offer an explanation for this?

> Using the Modigliani and Miller framework but excluding the assumptions that there are no taxes and no information or transaction costs, describe the value of the firm as a function of the proportion of debt in its capital structure?

> If a firm increases its debt to a very high level, then the positive effect of debt in aligning the interests of management with those of stockholders tends to become negative? Explain why this occurs.

> What does the empirical evidence tell us about the two theories?

> Agency problems occur because the nonowner managers and stockholders of a firm have different interests. Propose a capital structure change that might help better align these different interests?

> Crossler Automobiles sells autos in a market where the standard auto comes with a 10-year/100,000-mile warranty on all parts and labor. Describe how an increased probability of bankruptcy could affect sales of autos by Crossler?

> The Modigliani and Miller propositions, when the no-tax assumption is relaxed, suggest that the firm should finance itself with as much debt as possible. Taking this suggestion to the extreme, is it even possible to finance a firm with 100 percent debt a

> Consider the WACC for a firm that pays taxes. Explain what a firm’s best course of action would be to minimize its WACC and thereby maximize the firm value. Use the WACC formula for your explanation?

> The Starlight, Inc. financial statements for the fiscal year ended June 30, 2017, are presented below. The firm’s sales are projected to grow at a rate of 20 percent next year, and all financial statement accounts will vary directly wit

> You are valuing two otherwise identical firms in the same industry. One firm has a corporate jet for every executive at the vice president level and above, while the other does not have a single corporate jet. More than likely, which firm has the greates

> You are offered jobs with identical responsibilities by two different firms in the same industry. One has no debt in its capital structure, and the other has 99 percent debt in its capital structure. Will you require a higher level of compensation from o

> Are taxes necessary for the cost of debt financing to be less than the cost of equity financing?

> Rockville Corporation is going to borrow $250,000 from its bank at an APR of 8.5 percent. The bank requires its customers to maintain a 10 percent compensating balance. What is the effective interest rate on this bank loan?

> By obtaining a lockbox, Nizam’s Manufacturing was able to reduce its total cash collection time by two days. The firm has annual sales of $570,000 and can earn 4.75 percent annual interest. Assuming that the lockbox costs $50 per year, calculate the savi

> What is the pecking order theory of capital structure?

> Below is a partial aging of accounts receivable for Bitar Roofing Services. Fill in the rest of the information and determine Bitar’s days’ sales outstanding. How does it compare to the industry average of 40 days?

> Merrifield Cosmetics calculates that its operating cycle for last year was 76 days. The company had $230,000 in its accounts receivable account and had sales of $1.92 million. Approximately how many days does it take from the time the raw materials are

> You are provided the following working capital information for the Blue Ridge Company: If all sales are made on credit, what are the firm’s operating and cash conversion cycles? Account Beginning Balance Ending Balance Inventory $

> Digital, Inc., an electronic games manufacturer, is planning to purchase flash memory from one of two sources. Kyoto, Inc., quotes a price of ¥6,800 per gigabyte. The current exchange rate is ¥102.30/$. Another Japanese manufacture offers to supply the s

> Your firm, which uses oil as an input to its production processes, hedges its exposure to changes in the price of oil by buying call options on oil at today’s price. If the price of oil goes down by the time the contract expires, what effect will that ha

> Your company is considering opening a new factory in Europe to serve the growing demand for your product there. What real options might you want to consider in your capital budgeting analysis of the factory?

> ADCAP International is a U.S.-based company which sells its products primarily in overseas markets. The company’s stock is currently trading at $50 per share. Depending on the outcome of U.S. trade negotiations with the countries to which ADCAP exports i

> The stock of Augusta Light and Power is currently selling at $12 per share. Over the next year the company is undertaking a new electricity production project. If the project is successful, the company’s stock is expected to rise to $24 per share. If the

> Use the financial statements from Problem 16.1 and the information from Problem 16.2 to calculate the company’s retention(plowback) ratio, external funds needed (EFN), internal growth rate (IGR) and sustainable growth rate (SGR)? Refer

> Use the financial information for Starlight from Problem 19.1. Assume now that equity accounts do not vary directly with sales but change when retained earning change or new equity is issued. The company pays 45 percent of its income as dividends every y

> What are agency costs, and how are they related to the use of debt financing?

> List the inputs that are used in calculating a Eurocredit price?

> Why is credit risk higher in international markets?

> Which currency is the preferred currency of exchange in global financial markets? Why?

> What is the difference between foreign bonds and Eurobonds?