Several years ago, Wilson Blowhard founded a communications company. The company became successful and grew by expanding its customer base and acquiring some of its competitors. In fact, most of its growth resulted from acquiring other companies. Mr. Blowhard is adamant about continuing the company’s growth and increasing its net worth. To achieve these goals, the business’s net income must continue to increase at a rapid pace.
If the company’s net worth continues to rise, Mr. Blowhard plans to sell the company and retire. He is, therefore, focused on improving the company’s profit any way he can.
In the communications business, companies often use the lines of other communications companies. This line usage is a significant operating expense for Mr. Blowhard’s company. Generally accepted accounting principles require operating costs like line use to be expensed as they are incurred each year. Each dollar of line cost reduces net income by a dollar.
After reviewing the company’s operations, Mr. Blowhard concluded that the company did not currently need all of the line use it was paying for. It was really paying the owner of the lines now so that the line use would be available in the future for all of Mr. Blowhard’s expected new customers. Mr. Blowhard instructed his accountant to capitalize all of the line cost charges and
Required
a. How does Mr. Blowhard’s scheme affect the amount of income that the company would otherwise report in its financial statements and how does the scheme affect the company’s
b. Review the AICPA’s Articles of Professional Conduct (see Chapter 4) and comment on any of the standards that were violated.
c. Review the fraud triangle discussed in Chapter 4 and comment on the features of the fraud triangle that are evident in this case.
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Survey Of Accounting
- Chapter 9 on Decentralized Operations 1. What is the role of management to ensure that the true meaning of "decentralized" is realized? 2. What type of management or leadership is needed to help businesses continue to grow and flourish? Please watch this Ted Talk - How machine learning can teach us to build more effective teams by Drew Humphreys. After viewing the video, share your thoughts on how you view decentralization of a business operations and the type of leadership that is necessary to ensure success, in all forms. https://www.ted.com/talks/drew_humphreys_how_machine_learning_can_teach_us_to_build_more_effective_teamsarrow_forwardPURPOSE:The concept of creating shared value (CSV) was articulated by Michael Porter and Mark Kramer. They describe it as “Creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.”34 This approach to business is especially relevant in today’s business world as the connection between businesses and their customers becomes stronger through social media attention and easy access to information on the internet. Many customers not only care about the product or service value but also want to know how the company operates and what it stands for. From the company’s perspective, it is also very important to understand that not all profit is equal. Porter and Kramer state, “Profits involving a social purpose represent a higher form of capitalism—one that will…arrow_forward*** Please solve Part 4 & 5 *** K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly. A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector. Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows. Price at the end of month Month Month end Price…arrow_forward
- QUESTION 13 Resilience in the case of a corporate means: O Increasing efficiency of production by re-structuring the company Contracting out much of the production process to reduce costs Considering short-term improvements in logistics to cut costs A shift from a just in time' production system to a 'just in case' systemarrow_forwardQ 14 Question 14 What is an accurate definition of business sustainability? Select one: a. It is the ability to continue a defined business endeavor indefinitely. b. It is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. c. It is managing the triple bottom line as a process by which companies manage their financial, social and environmental risks, obligations, and opportunities. d. All of the abovearrow_forwardChapter 9 on Decentralized Operations 1. What is the role of management to ensure that the true meaning of "decentralized" is realized? 2. What type of management or leadership is needed to help businesses continue to grow and flourish?arrow_forward
- Question 2 Use the Goretex case to explain how the P.R.O.F.I.T. supports the assertion that it’s managerial practices and organisational culture make it ‘a great place to work’ The Case When Goretex developed the core technology on which most of its more than 2,000 worldwide patents is based, the company’s unique culture played a crucial role in allowing Gore to pursue multiple end-market applications simultaneously, enabling rapid growth from a niche business into a diversified multinational company. The company’s culture is team-based and designed to foster personal initiative. It is described on the company’s website as follows: There are no traditional organizational charts, no chains of command, nor predetermined channels of communication. Instead, we communicate directly with each other and are accountable to fellow members of our multidiscipline teams. We encourage hands-on innovation, involving those closest to a project in decision making. Teams organize around…arrow_forwardQUESTION 16 Anthony plans to take a day off from work to participate in the Boston Marathon. This is an example of a. work-life balance Ob. dual career partnerships Oc. turnover d. whistleblowing QUESTION 17 includes issues involving fairness of company policies and procedures, the treatment of employees from supervisors, and pay and other rewards received from the company. a. Organizational commitment b. Filtering c. Retribution d. Organizational justicearrow_forwardT. The stakeholder view of corporate governance requires corporate decision making to put the interests of employees and customers above shareholders' interest. True Falsearrow_forward
- Q No. 4 K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly. A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector. Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows. Price at the end of month Month Month end Price KSE 100 INDEX Jan 175…arrow_forward113-It is very common phenomenon that every business tries to earn maximum profit. In doing so many efforts are carried out by the companies to increase the sales. Marketing department puts its effort in the form of designing an eye-catching advertisement which attracts customers. "Those companies who spend more on advertisement, have more operating expenses as compared to others who advertise less." This statement is the perfect example of a. Neutral statement b. Normative statement c. All of the options d. Positive statementarrow_forwardIn this chapter, we stated that many organizations view their human capital as an important variable in the formula for economic success. Discuss the role the HR management process plays in optimizing an organizations human capital.arrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- Accounting Information SystemsFinanceISBN:9781337552127Author:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan HillPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning