Paid-In Capital and the Balance Sheet
m Chapter 12, Ethical Issue 12-1. Complete all parts of the case and respond to at least two of your classmates’ postings.
Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of the European Union. Sewell intended to sell individual franchises for the major language groups of Western Europe—German, French, English, Spanish, and Italian. Naturally, investors considering buying a franchise from Sewell asked to see the financial statements of his business.
Believing the value of the franchise to be $500,000, Sewell sought to capitalize his own franchise at $500,000. The law firm of St. Charles & LaDue helped Sewell form a corporation chartered to issue 500,000 shares of common stock with par value of $1 per share. Attorneys suggested the following chain of transactions:
a.Sewell’s cousin, Bob, borrows $500,000 from a bank and purchases the franchise from Sewell.
b.Sewell pays the corporation $500,000 to acquire all its stock.
c.The corporation buys the franchise from Cousin Bob.
d.Cousin Bob repays the $500,000 loan to the bank.
In the final analysis, Cousin Bob is debt-free and out of the picture. Sewell owns all the corporation’s stock, and the corporation owns the franchise. The corporation’s balance sheet lists a franchise acquired at a cost of $500,000. This balance sheet is Sewell’s most valuable marketing tool.
- What is unethical about this situation?
- Who can be harmed? How can they be harmed? What role does accounting play?
Effects on Retained Earnings and the Income Statement
Discuss cash dividends and stock dividends. How is each recorded? When each is issued, what is the affect on assets, liabilities and owner’s equity? Respond to at least two of your classmates’ postings.
Wk 2 DQ
DQ 1The Statement of Cash Flows
From Chapter 14, Fraud Case 14-1. Complete all parts of the case and respond to at least two of your classmates’ postings by Day 7.
Frank Lou had recently been promoted to construction manager at a development firm. He was responsible for dealing with contractors who were bidding on a multi-million dollar excavation job for the new high-rise. Times were tough, several contractors had gone under recently, and the ones left standing were viciously competitive. That morning, four bids were sitting on Frank’s desk. The deadline was midnight, and the bids would be opened the next morning. The first bidder, Bo Freely, was a tough but personable character that Frank had known for years. Frank had lunch with him today, and after a few beers, Bo hinted that if Frank “inadvertently” mentioned the amount of the lowest bid, he’d receive a “birthday card” with a gift of cash. After lunch, Frank carefully unsealed the bids and noticed that another firm had underbid Bo’s company by a small margin. Frank took Bo’s bid envelope, wrote the low bid amount in pencil on it, and carried it downstairs where Bo’s son William was waiting. Later that afternoon, a new bid came in from Bo’s company. The next day, Bo’s company got the job, and Frank got a birthday card in his mailbox.
1.Was Frank’s company hurt in any way by this fraudulent action?
2.How could this action hurt Frank?
3.How can a business protect against this kind of fraud?
DQ 2Financial Statement Analysis
Discuss what high current ratios indicate and why are businesses with extremely high current ratios (example: 25.0) at risk? Explain what a high accounts receivable turnover indicates to a business? Respond to at least two of your classmates’ postings.
DQ 1Introduction to Managerial Accounting
From Chapter 16, Ethical Issue 16-1. Complete all parts of the case and respond to at least two of your classmates’ postings.
Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer’s regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.
Becky’s former employer, Shamalay Automotive, receives only about 25 cars a month. Consequently, Shamalay was not very profitable.
Becky is surprised to learn that her new employer, Mueller Imports, receives over 200 cars a month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer’s regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma.
1.Put yourself in Becky’s place.
a.What is the ethical issue?
b.What are your options?
c.What are the possible consequences?
d.What should you do?
DQ 2Job Order and Process Costing
Manufacturers use three inventory accounts. Name each one and explain what costs each contain.
Wk 4 DQ
DQ 1 Activity-Based Costing and Other Cost Management Tools