...EXECUTIVE SUMMARY Terry Johnson, a native of Longmont, Colorado established the MiniScribe Corporation, a disk drive manufacturing company that would grow to be one of the largest producers and distributors of disk drives for personal computers in America. This report focuses on relevant facts and figures in the evaluation of MiniScribe’s liquidity, profitability, and overall stability aiming to determine whether or not maintaining its stocks on the Alexander and Ferris brokerage firm’s “Buy” list is a practical action. The primary methods of analysis include the assessment of various liquidity and efficiency ratios together with quarterly statements of cash flow for 1988 which can be found in the appendices. Given the results of the analyzed data inclusive of industry trends, financial reports, and ratios, the group's decision is to have Alexander and Ferris remove MiniScribe's stocks from its "Buy" recommendation list not only because of poor performances when it comes to profitability and liquidity but also due to factors related to dwindling management capacities. Although the corporation is increasing its efforts in the research and development department, the investments made have not translated to a significant improvement in income as MiniScribe continues to experience a rise in expenses without the same degrees of increase in sales. These investments are rapidly becoming a financial burden because of the high costs that come with them. Operational cash flows...
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...1．Construct a 1988 Statement of Cash Flows for MiniScribe. MiniScribe Statement of Cash Flows | (millions of dollars) | | 1988 | | 1987 | | | | | Cash Flows from Operating Activities | | | | | | | | Net Income | 26 | | 31 | | | | | Non-Cash Adjustments | | | | Depreciation Expense | 6 | | 11 | | | | | Changes in Assets and Liabilities Related to Operations | | | | Accounts Receivable | -116 | | -17 | Inventory | -56 | | -39 | Accounts Payable | 143 | | 23 | Accruals | 6 | | 4 | | | | | Net Cash Flow from Operating Activities | 9 | | 13 | | | | | | | | | Cash Flows from Investing Activities | | | | | | | | Purchase of PPE | -9 | | -49 | Purchase of Other Asset | | | -9 | Net Cash Flow from Investing Activities | -9 | | -58 | | | | | | | | | Cash Flows from Financing Activities | | | | | | | | Long term debt | 1 | | 75 | Issuance of Common Stock | | | 4 | Net Cash Flow from Financing Activities | 1 | | 79 | | | | | | | | | Net Change In Cash and Cash Equivalents | 1 | | 34 | | | | | | | | | Cash at Beginning of Period | 50 | | 16 | | | | | | | | | Cash at End of Period | 51 | | 50 | 2．Perform a ratio analysis using the case Appendix to identify red flags for potential fraud at MiniScribe. Emerging Fraud Models Ratios | 1988 | 1987 | 1986 | 1. Quality of Earnings | | | | OCF | 9 | 13 | 8 | NI | 26 | 31 | 23 | OCF/NI...
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...Question 1: Construct 1988 Statements of Cash Flow for MiniScribe.（assume that 1988 depreciation expense is $6） Table 1: Statement of Cash Flow of MiniScribe of 1988 and 1987 | 1988 | | 1987 | Statement of Cash Flows | | | | | Cash Flows from Operating Activities | | | | | | | | Net Income | 26.00 | | 31.00 | | | | | Non-Cash Adjustments | 6.00 | | 11.00 | Changes in Assets and Liabilitites Related to Operations | | | | | Change in Accounts Receivable | (116.00) | | (17.00) | Change in Inventory | (56.00) | | (39.00) | Change in Account Payable | 143.00 | | 23.00 | Change in Accruals | 6.00 | | 6.00 | | | | | Net Cash Flow from Operating Activities | 9.00 | | 15.00 | | | | | Cash Flows from Investing Activities | | | | Change in PP&E | (9.00) | | (49.00) | Change in Other Assets | 0.00 | | (9.00) | | | | | Net Cash Flow from Investing Activities | (9.00) | | (58.00) | | | | | | | | | Cash Flows from Financing Activities | | | | Change in Longterm Debt | 1.00 | | 75.00 | Change in Common Stock | 0.00 | | 0.00 | Change in APIC | 0.00 | | 4.00 | Net Cash Flow from Financing Activities | 1.00 | | 79.00 | | | | | Net Change In Cash and Cash Equivalents | 1.00 | | 34.00 | | | | | Cash at Beginning of Period | 50 | | 16 | | | | | Cash at End of Period | 51 | | 50 | Question 2: Perform a ratio analysis using the...
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...recognition. More specifically ASC 605-25-1 states that, “The recognition of revenue of an entity during a period involves consideration of the following two factors, being realized or realizable and being earned.” In terms of revenue realization, FASB Concepts Statement No. 5 states that, “revenue is realized when products, merchandise or other assets are exchanged for cash or claims to cash.” In MiniScribe’s case, by booking sales when goods are shipped to the warehouses rather then when they were shipped to customers to increase sales, they were not following the Accounting Standards Codifications guidelines of reporting revenues when earned. Based on these documents Reggie, and not his superior, is right to question the practices of MiniScribe in their effort to increase sales. 2. Reggie is in an extremely tough position. While his superior’s main goals are to increase sales, Reggie should realize as a worker in the company that the goal should be to increase sales ethically and by the rule book. Although his superiors may not want to hear it, Reggie should tell them about their faulty practices in reporting revenue. Although his boss may see this as a lack of enthusiasm to increase sales on Reggie’s part, if his boss is a decent and somewhat ethical businessman as he should be, he will realize that Reggie is only trying to help the company. If Reggie does not say anything, the company will continue their unethical practices and while they may continue to see sales increases...
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...strategies that can enable a business to attain its desired goal of profit maximization. Failure to implement project management in a business has been found to affect the performance of many businesses (Robbins & Coulter, 2005). This paper contains a detailed explanation of three companies that have been unsuccessful because of their refusal to implement project management. The three companies with some background information Alpa, MiniScribe and Panther are among the companies that have become unsuccessful due to lack of implementing project management. Beginning with Alpa, it previously used to design and manufacture 35 mm SLR cameras. It was known as among the best companies in this task. However, Alpa could not attain their goal. Not only did they fail to earn higher returns or profits but they ended up experiencing a bankruptcy something that made them to sell the company. Today, those who bought the company do designing and manufacturing medium and high end cameras and this is what the company does (Pride, Hughes & Kapoor, 2003). Secondly, MiniScribe was formed in the year 1980 in Longmont. They then used to design and sell hard disk drives ad stepper motor-based. The company was doing well until when the owner known as Terry retired and sold it. Coming the year 1990,...
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...Research Paper Number One Nathan C. Fears, Student Kaplan University Abstract The perception of the financial and the accounting field over the past decade has been very poor in the eyes of the public. Especially after many recent scandals that have more then embarrassed the industry. The overall idea behind the field of accounting is for accountants to serve the public for the greater good. Yet the public doesn’t feel that accountants can be trusted. Hence, the numerous amounts of regulations imposed by the government on the finance field. In this paper we discuss the field of finance and accounting, overall view of the public, several scandals that led to the lowly perception of the accounting profession and some of the numerous regulations imposed by the government. Are these regulations too many or too little and how do they affect the economy? Research Paper Number One The perception of the financial and the accounting field over the past decade has been very poor in the eyes of the public. Especially after the recent scandals that have more then embarrassed the industry. The overall idea behind the field of accounting is for accountants to serve the public for the greater good. Yet the public doesn’t feel that accountants can be trusted. Hence, the numerous regulations imposed by the government on the finance field. According to a recent poll done by U.S. News and World Report of the top jobs...
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...CHAPTER 10 Auditing Revenue and Related Accounts 1 Explain the concept of accounting cycles and their impact on audit approaches, and identify the accounts in the revenue cycle. 2 Discuss the importance of proper revenue recognition and the characteristics of revenuerelated fraud. 3 Describe the major types of fraud and misstatements that have occurred in the revenue accounts. 4 Describe how to use analytical procedures to identify possible misstatements in the revenue cycle. 5 Assess inherent and control risk regarding revenue cycle accounts. 6 Use audit procedures to test the effectiveness of controls in the revenue cycle. 7 Link the auditor’s control risk assessment to the development of substantive tests of accounts in the revenue cycle. 8 Describe the factors that influence the effectiveness and efficiency of audits of account balances. 9 Apply auditing concepts to test revenue. 10 Apply auditing concepts to test accounts receivable. 11 Describe fraud indicators in the revenue cycle and related audit procedures. 12 Evaluate the adequacy of a client’s allowance for doubtful accounts. Th om so n LEARNING OBJECTIVES Le ar ni ng ™ The overriding objective of this textbook is to build a foundation to analyze current professional issues and adapt audit approaches to business and economic complexities. Through studying this chapter, you will be able to: CHAPTER OVERVIEW This chapter illustrates the audit concepts developed in Chapters...
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...surrounding revenue recognition. ASC 605-25-1 states that, “The recognition of revenue of an entity during a period involves consideration of the following two factors, being realized or realizable and being earned.” In terms of revenue realization, FASB Concepts Statement No. 5 states that, “revenue is realized when products, merchandise or other assets are exchanged for cash or claims to cash.” In MiniScribe’s case, by booking sales when goods are shipped to the warehouses rather than when they were shipped to customers to increase sales, they were not following the Accounting Standards Codifications guidelines of reporting revenues when earned. Based on these documents Reggie, and not his superior, is right to question the practices of MiniScribe in their effort to increase sales. 2. Assume you are in Reggie’s position. What would you do in the above situation? Explain in detail the rationale that supports your decision. As a part of your explanation, include a discussion of the major stakeholders of the company who would be affected by your decision. Reggie is in an extremely tough position. While his superior’s main goals are to increase sales, Reggie should realize as a worker in the company that the goal should be to increase sales ethically and by the rules. Although it might not be what his superiors want, Reggie should tell them about their faulty practices in reporting revenue. Although his boss may see this as a lack of enthusiasm to increase sales on Reggie’s...
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...recognition. More specifically ASC 605-25-1 states that, “The recognition of revenue of an entity during a period involves consideration of the following two factors, being realized or realizable and being earned.” In terms of revenue realization, FASB Concepts Statement No. 5 states that, “revenue is realized when products, merchandise or other assets are exchanged for cash or claims to cash.” In MiniScribe’s case, by booking sales when goods are shipped to the warehouses rather then when they were shipped to customers to increase sales, they were not following the Accounting Standards Codifications guidelines of reporting revenues when earned. Based on these documents Reggie, and not his superior, is right to question the practices of MiniScribe in their effort to increase sales. 2. Reggie is in an extremely tough position. While his superior’s main goals are to increase sales, Reggie should realize as a worker in the company that the goal should be to increase sales ethically and by the rule book. Although his superiors may not want to hear it, Reggie should tell them about their faulty practices in reporting revenue. Although his boss may see this as a lack of enthusiasm to increase sales on Reggie’s part, if his boss is a decent and somewhat ethical businessman as he should be, he will realize that Reggie is only trying to help the company. If Reggie does not say anything, the company will continue their unethical practices and while they may continue to see sales increases...
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...Examining the Ethicality of Airborne’s Marketing Strategy Patrick Legendre Business Ethics Prof. Martin Wednesday, October 16, 2013 I. Case Overview Dietary Supplement Industry The growing dietary supplement industry, which includes the hundreds of weight loss and immune support supplements on the market, grosses approximately $20 billion annually (Burke). As established by the Dietary Supplement and Health and Education Act of 1994 (DSHEA), these supplements are not required to undergo testing or receive approvals from the Food and Drug Administration (FDA). Instead, companies must notify the FDA of all new products and ensure that they are safe for consumers. The Federal Trade Commission (FTC) does not prohibit dietary supplements from claiming health benefits but rather requires thorough clinical trials to support such statements. In 2012, the Department of Health and Human Services investigated 127 supplements and found that 20 percent of them were illegally labeled and lacked the necessary scientific evidence to support the proclaimed health benefits (Ibid). Many of these illegal labels included confirmatory statements on curing or preventing diseases such as diabetes or cancer. The report also revealed that 7 percent of the surveyed supplements did not have the mandatory disclaimer stating that the FDA had not evaluated statements on the label for validity (Ibid). Airborne Case Airborne, a popular vitamin and herbal supplement known for its controversy over preventing...
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...West Point graduate and veteran corporate downsizer unaffectionateiy known as "Chainsaw Al" — who put company managers under orders to get the stock price up at any cost. One way to do that, as it turned out, was to report robust .sales of electric blankets in the summer and barbecue grills in late autumn. Eventually, earnings woes and Dunlap's bluster prompted his ouster by an aroused board of directors in June 1998. That was followed shortly by the replacement of accounting firm Arthur Andersen and a series of investigations and shareholders lawsuits, most of which are still pending. Sunbeam joins an ignominious cluster of companies — Rite Aid, c u e International (now part of Cendant Corp.), Livent, Oxford Health Plans, Phar-Mor, Miniscribe and, most recently. MicroStrategies — in business's hall of shame. All of these companies have one depressing feature in common: top managers who, whether out of desperation or greed, apparently turned to accounting trickery to manufacture imaginary sales and other revenues and pump up earnings, sometimes over a period of years. Writing in The Wall Street Journal, one pundit recently reckoned that just three recent fraud cases — Sunbeam, CUC and Oxford — burned...
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...THANH SON, LUONG Student ID: 116181927 MDC individual assignment Short-termism Introduction Short-termism or ‘myopia’ has long been a matter of great controversy. The effects led by this dysfunctional behavior are perceived negatively across all sectors of the economy. This report is going to define and analyze the problem in both theory and real world by the example of Lehman Brothers. Recommendations are also made to mitigate the issue. Overview of the issue In order to last, there is a need for firms to take appropriate actions to secure long-term sustainability. However, the short-term outcomes must not be precluded from consideration, if the firms at least want to survive. Therefore, both long-term and short-term goals need to be equally considered. The most important point is whether the firm can maintain the balance between long-term and short-term. The problem, so called ‘short-termism’ or ‘myopia’, arises when an organization acts in favor of short-term targets at the expense of the long-term (Marginson and Mcaulay, 2008). There are a number of reasons for the occurrence of short-termism. The first reason which causes the issue here is the frequency of financial reporting. More frequent financial reporting is considered as a solution for a more accountable and transparent accounting system. However, this solution leads to another problem for managerial accounting because it pressures companies’ executives to focus more on short-term results, which promotes...
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...Chapter 9 Profit Planning Solutions to Questions 9-1 A budget is a detailed quantitative plan for the acquisition and use of financial and other resources over a given time period. Budgetary control involves the use of budgets to control the actual activities of a firm. 9-2 1. Budgets communicate management’s plans throughout the organization. 2. Budgets force managers to think about and plan for the future. 3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. 4. The budgeting process can uncover potential bottlenecks before they occur. 5. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance. 9-3 Responsibility accounting is a system in which a manager is held responsible for those items of revenues and costs—and only those items—that the manager can control to a significant extent. Each line item in the budget is made the responsibility of a manager who is then held responsible for differences between budgeted and actual results. 9-4 A master budget represents a summary of all of management’s plans and goals for the future, and outlines the way in which these plans are to be accomplished. The master budget...
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...Running Head: Is Ethics The Main Reason For Accounting Scandals? Is Ethics The Most Important Reason Behind Years of Accounting Scandals? Joshua A. Williams DeVry University Is Ethics The Main Reason For Accounting Scandals? Ethics: Is It The Most Important Reason Behind Years of Accounting Scandals? Ethics is a term that refers to a code or moral system that provides criteria for evaluating right and wrong (Spiceland, Spe, Tomassini, 2007). An ethical dilemma is a situation in which an individual or group is faced with a decision that tests this code. Many of these dilemmas are simple to recognize and resolve. For example, have you ever been tempted to call your professor and ask for an extension on the due date of an assignment by claiming a fictitious illness? Temptation like this will test your personal ethics. The direct issues when dealing with ethics is that it cannot be measured or quantified it is intangible almost to a fault. A person’s ethical background can be affected by all types of outside forces such as familial background, financial status, and educational backgrounds as well to name a few. Ethical codes are informative and helpful. However, the motivation to behave ethically must come from within oneself and not just from the fear of penalties for violating professional codes (Spiceland, Sepe, Tomassini, 2007). There is specific analytical model which gives a sequence of seven steps that provide a framework for analyzing ethical issues. These...
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...ACCOUNTING FRAUDS CONTENTS WHAT ARE FRAUDS? | WHAT ARE ACCOUNTING FRAUDS? | NOTABLE FRAUDS | NOTABLE OUTCOMES | MANIPULATION & FALSIFICATION OF RECORDS | MISAPPROPRIATION OF CASH BALANCES | MISAPPROPRIATION OF GOODS | TEEMING & LADING | WINDOW DRESSING | SECRET RESERVES | ENRON FRAUD | WORLDCOM FRAUD | WHAT ARE FRAUDS ??? FRAUDS AND THEIR CHARACTERISTICS Misstatements in the financial statements can arise from fraud. In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual, Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud Industries most commonly effected by fraud are banking, manufacturing, and government. Fraud can be committed through many media, including mail, wire, phone, and the Internet (computer crime and Internet fraud). * The term “fraud” refers to an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage. Although fraud is a broad legal concept, the auditor is concerned with fraudulent acts that cause a material misstatement in the financial statements. Misstatement of the financial statements may not be the objective of some frauds. Auditors do not make legal determinations of whether fraud has actually occurred. Fraud involving one or more members of...
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