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dolution.
According to data released by the World Bank, the mean PM10 (particulate matter) concentration for the city of Kabul, Afghanistan, in 2008 was 37. Suppose that because of efforts to improve air quality in Kabul, increases in modernization, and efforts to establish environmentally-friendly businesses, city leaders believe rates of particulate matter in Kabul have decreased. To test this notion, they randomly sample 12 readings over a one-year period with the resulting readings shown below. Do these data present enough evidence to determine that PM10 readings are significantly less now in Kabul? Assume that particulate readings are normally distributed and that Ă‚Â 0.01.
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Think carefully about each of the following statements. For each one, indicate whether you believe it to be always true, generally true, generally false, or always false. For any item you judge to fall into the last three categories, describe your reasoning.
(a). Sales discounts are reported on the income statement as an operating expense.
(b). When a company writes off an uncollectible account against Allowance for Doubtful Accounts, the net amount of Accounts Receivables reported on the balance sheet does not change.
(c). Jabba Company purchased inventory for its retail store. Jabba should include in the cost of this inventory the amount charged by the freight company to deliver the goods to Jabba’s store.
(d). Most retail stores will report three categories of inventory: raw materials, work-inprocess, and finished goods.
(e). When merchandise is sold to customers, the entries to Sales Revenue and Accounts Receivable will be for different amounts than the entries to Merchandise and Cost of Goods Sold.
(f). A purchase of merchandise for later resale to customers has no effect on the income statement.
(g). Purchase discounts received from vendors should be deducted when determining and reporting the cost of merchandise.
(h). Ford Motor Company just received 1,000 steering wheels for a particular line of cars it manufactures. The cost of these items should be recorded initially in Work-in-Process Inventory.
(i). The cost of wages earned by factory employees should be reported on the income statement as Wages Expense during the accounting period in which employees earned them.
(j). Diggin Deep Company, a gold mining firm, sold gold bars to Lookin’ Good, Inc. The second firm is a manufacturer of jewelry. Diggin Deep sold finished goods but Lookin’ Good bought raw materials.
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Expense Account Fraud
While auditing the financial statements of Petty Corporation, the certified public accounting firm of Trueblue and Smith discovered that its client’s legal expense account was abnormally high. Further investigation of the records indicated the following:
• Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.
• Swindle, Fox, and Kreip were not Petty Corporation’s attorneys.
• A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk.
• Boghas’s other duties included performing the endof-month bank reconciliation.
• Subsequent investigation revealed that Swindle, Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.
Required:
a. What control procedures could Petty Corporation have employed to prevent this unauthorized use of cash? Classify each control procedure in accordance with the COSO framework (authorization, segregation of functions, supervision, and so on).
b. Comment on the ethical issues in this case.
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