ATC 6-7 Ethical Dilemma I need just a little extra money

Internal Control and Accounting for Cash

ATC 6-7 Ethical Dilemma I need just a little extra money

John Riley, a certified public accountant, has worked for the past eight years as a payroll clerk for Southeast Industries, a small furniture manufacturing firm in the northeast. John recently experienced unfortunate circumstances. His teenage son required minor surgery and the medical bills not covered by John’s insurance have financially strained John’s family.

John works hard and is a model employee. Although he received regular performance raises during his first few years with Southeast, John’s wages have not increased in three years. John asked his supervisor, Bill Jameson, for a raise. Bill agreed that John deserved a raise, but told him he could not currently approve one because of sluggish sales.

A disappointed John returned to his duties while the financial pressures in his life continued. Two weeks later, Larry Tyler, an assembly worker at Southeast, quit over a dispute with management. John conceived an idea. John’s duties included not only processing employee terminations but also approving time cards before paychecks were issued and then distributing the paychecks to firm personnel.

John decided to delay processing Larry’s termination, to forge timecards for Larry for the next few weeks, and to cash the checks himself. Because he distributed paychecks, no one would find out, and John reasoned that he was really entitled to the extra money anyway. In fact, no one did discover his maneuver and John stopped the practice after three weeks.

Required
a. Does John’s scheme affect Southeast’s balance sheet? Explain your answer.
b. Review the AICPA’s Articles of Professional Conduct (see Chapter 2) and comment on any of the standards that have been violated.
c. Identify the three elements of unethical and criminal conduct recognized in the fraud triangle.

ATC 6-8 Research Assignment Investigating cash and management issues at Smucker’s

Using the most current annual report available on the company’s website, answer the following questions about the J. M. Smucker Company.

Required
a. Instead of “Cash,” the company’s balance sheet uses the account name “Cash and cash equivalents.” How does the company define cash equivalents?
b. The annual report has two reports in which management clearly acknowledges its responsibility for the company’s financial reporting and internal controls. What are the names of these reports and on what pages are they located?

ATC 6-9 Spreadsheet Assignment Using Excel

At the end of Year 1, the following accounting information is available for Bainbridge and Crist companies:

Required
a. Set up the preceding spreadsheet. Complete the balance sheet and income statement. Use Excel formulas for rows that “total” on the balance sheet and for gross margin and net income on the income statement.
b. Calculate the designated ratios using Excel formulas.
c. Assume that sales increased 10 percent and that the additional sales were made on account. Adjust the balance sheet and income statement for the effects. Notice that Retained Earnings will also need to be adjusted to keep the balance sheet in balance. What is the resultant effect on the ratios?