You have just won the lottery and just elected to receive $50,000 per year for 20 years. Assume that a 4 percent interest rate is used to evaluate the annuity and that you receive each payment at the beginning of the year.
a) What is the present value of the lottery?
b) How much interest is earned on the present value to make the $50,000 per year payment?
Joe Accountant and Mary Supervisor are very busy in meeting some deadlines in their department. The have been under a great deal of pressure to meet the deadlines. All week long they have worked long hours. It is Thursday afternoon and Rudy Auditor comes in and says to Mary that he needs certain files and reports by Monday morning so he can meet his audit deadline on a phase of the audit. Mary says she will do her best but can not promise they will be ready by Monday. As soon as Rudy leaves Mary s office Joe begins complaining about how auditors are interfering with his and Mary s important work. Mary agrees that they are an unnecessary pain. Rudy reports back to Susy Audit Manager that the information needed Monday may not be ready as Mary was not being very cooperative. Susy tells Rudy that these company employees do not know what is important. There is a problem here. What should the CFO of the company do? What should the audit manager from the audit firm do?
The first place the auditor in charge should go on arriving at a company is to visit the CEO. This is important to touch base with the CEO and get any comments the CEO may have. I know of one case where this visit provided the auditor some important information that would not be known for at least a month. The CEO admitted insider trading of the company stocks and in a meeting with the board reached an agreement. The CEO would resign in one month, pay back the profit made on the trades and the board would accept the resignation and there would be no disclosure of what happened. The CEO asked the auditor not to disclose what had happened as there was no financial harm to the company.
Do you believe that this situation would have to be disclosed by the auditor?
You have completed the auditing of Company A and have found $10,000 purchase of a fixed asset was recorded as maintance expense. The company has $100,000 million in fixed assets, net income of 15 million and total assets of 500,000 million? What should the company do when they find out about this error in accounting?
Audit of general motors revenue. Each car and truck has an invoice on the window and is in GM s computer system, and that 8 million cars and trucks were sold. The automobile revenues of General Motors are $100 billion. How many invoices out of 8 million would you want to examine in order to verify the $100 billion of revenues in the financial statements?
Explain what the following five words mean to you non CPA audit, financial audit, compliance audit, operational audit, fraud audit.
As audit manager you realize that to complete the audit of xyz company you will need to bring in two more auditors and another audit supervisor March 15th 2010. However the cost of the additional auditors will cause the audit manager to increase the cost of Audit of XYZ company by $45,000. Without the additional auditors the audit can be completed by the First of April 2010. The audit covers the year Jan 1 2009 to Dec. 31, 2009. As audit manager what would you do and why?
The company in question had a very significant amount of plant assets and also had a very significant maintenance expense each year. The company goals were reflected at every level of the company. The CEO knew that his job was on the line and to keep it he had to meet certain earnings goals. In establishing those goals a certain amount was agreed on as the budget amount for maintenance expense for the year. One VP had most plant assets under his supervision and also his department spent most of the maintenance dollars. If he met the maintenance goals he would receive a bonus equal to his annual salary. Under the VP were 5 managers whose sections spent the maintenance dollars. The VP told the managers to do what was necessary to meet the maintenance goals. In a memo to the managers the VP stated to the managers there was only one choice and that was to have the maintenance expense be at or below budget and that he would be very upset with anyone who exceeded their allocated amount. All turned out well as the maintenance expense came in under budget.
What would you as the senior auditor do?
Carver World Inc. paid out $22.5 million in total common dividends and reported $278.9 million of retained earnings at year end. The prior year s retained earnings were $212.3 million. What was the net income? Assume that all dividends declared were actually paid.
Show all relevant calculation s.
Capital City Construction (CCC) needs $1 million of assets to get started, and it expects to have a basic earning power ratio of 20%. CCC will own no securities, so all of its income will be operating income. If it so chooses, CCC can finance up to 50% of its assets with debt, which will have an 8% interest rate. Assuming a 40% tax rate on all taxable income, what is the difference between CCC s expected ROE if it finances with 50% debt versus its expected ROE if it finances entirely with common stock?