...Name: Shawnyknoxville Class: HADM 542 W13 MANAGERIAL ACCT/HTH CARE ORG Date: 1/29/2013 Assignment: Case 3-1 Lakeside Hospital For Case 3-1: answer questions 1 - 5. 1. Breakeven Volume Analysis Varible costs Medical Supplies: $493,806 Purchased Laboratory Services: $24,476 Water Usage: $20,896 Total Variable Costs: $539,178 Number of treatments: 5,736 Total Variable Cost / Number of treatments $539,178 / 5,736 = 94 Px = a + bx $250x = $510,870 + 94x $156x = $510,870 ($156x = $510,870)/$156 = 3274.81 3274.81 treatments per year 7 nurses -1 $35,000/7 = $5,000 bi-monthly / 2 = $2,500 monthly ($2,500 monthly)12 = $30,000 per year 7 techs -1 $30,680/7 = $4382.86 bi-monthly(2 Employees)/ 2 = $4382.86 monthly ($4382.86 monthly)12 = $52,594.29 per year $30,000 per year + $52,594.29 per year = $82,594.29 per year total payroll last year = $436,800 $436,800 - $82,594.29 = $354,205,71 projected payroll with 3 less employees $354,205.71/$436,800 = 81.1% of previous years payroll expenses Assumptions: Medical Supplies: $493,806 Purchased Laboratory Services: $24,476 Water Usage: $20,896 Are variable expensed and Depreciation is a fixed expense 2. Fair Share of Overhead: @ 50% Capasity 120 Treatments per week / 2 = 60 Treatments per week (60 Treatments per week)(52 weeks in a year) = 3120 Treatments per year @ 50% Capacity Treatments per year @ 50% Capacity / Number of treatments last year: 5,736 = 3,120/5,736 = 54.4%...
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...The Lakeside Company Case Studies in Auditing Twelfth Edition John M. Trussel Dalton State College J. Douglas Frazer Millersville University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Donna Battista Acquisitions Editor: Stephanie Wall Editorial Project Manager: Christina Rumbaugh Senior Managing Editor: Cynthia Zonneveld Production Project Manager: Carol O'Rourke Senior Operations Supervisor: Diane Peirano Printer/Binder: BindRite Graphics, Robbinsville Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Copyright © 2012, 2008, 2005, 2003 by Pearson Education, Inc., publishing Prentice Hall. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290...
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...Audit Lakeside Case October 13, 2015 1. An engagement letter is an essential aspect in establishing an understanding between the client and the audit firm. This documentation is required in order to identify the objective and scope of the audit, outline the specific responsibilities of management and the audit firm, identify inherent limitation of the audit, ascertain the applicable financial reporting framework, and the expected forms Engagement letters are necessary in settling disputes between auditor and management. When management signs the written engagement letter, they are entered into an executor contract with the auditor. In the engagement letter presented by Abernethy and Chapman, the audit firm clearly outlined the following responsibilities for Lakeside management: 1) The financial Statements 2) Establish and Maintain internal controls over financial reports 3) Identify and ensure compliance with laws and regulations applicable to its activities 4) Make all financial records and related information available to auditors 5) At the end of the engagement, providing a representation letter Abernethy and Chapman outlined the following responsibilities for the auditor: 1) Audit financial statements for purpose of establishing an opinion on the financial position, results of operations, and cash flows in compliance with GAAP. 2) Obtain reasonable, not absolute, assurance that financial statements are free of material misstatements, in...
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...The Likeside Company: Auditing Cases AUDITING PROCEDURES AND AUDITING DOCUMENTATION: TESTING THE INVENTORY PURCHASING SYSTEM Art Heyman is employed as a staff auditor with the independent accounting firm of Abernethy and Chapman. For the first two weeks of December 2012, Heyman is asined to the Lakeside Company examination. During this period, he is to perform a number of testing procedures designed by Carole Mitchell, in-charge auditor on the engagement. Heyman recalled that several parts of the initial risk brainstorming involved inventory and merchandise purchases. At the present time, Heyman is beginning to analyze the transactions that occur in the client's merchandise procurement system. Within this testing, he is especially interested in determining the extent to which employees comply with control procedures while carrying out various required activities. This evaluation will influence the assessment of control risk and therefore, the nature, timing, and extent of substantive tests to be performed by the firm in this area. Lakeside leases a perpetual inventory record accounting system from DATA Processing System of Richmond, an outside service organization. The initial entries are made by the Controller's division of Lakeside, and on a weekly basis the transactions are uploaded through DATA Processing Systems' website. Reports are then generated, and one copy of the current inventory balances goes to Edward Thomas, who is responsible for acquiring merchandise, while...
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...Exhibit 9-5) he had located the invoices substantiating the capitalized transactions (see Exhibit 9-7) while reviewing the invoices received by Lakeside subsequent to the end of 2012. Perform the necessary steps to test the warehouse account (#111-1) and document your procedures on an audit document similar to the one in Exhibit 9-4. Indicate and prepare on the audit document any proposed correcting entries that are needed to ensure fair presentation of this financial information. [Case 9-1.doc] Lakeside Company Tests of Buildings - Warehouse/Office December 31, 2012 Audit document No. W-3 Prepared by: KB Reviewed by: RG Reviewed by: JG Description | Amount | | Audit Procedures | Balance per books - Beg. of Year | $248,400 | | | Additions: | | Invoice No. | | Grade land and pour foundation | 21,800 | 3145 | > # | October- Warehouse Construction | 16,900 | 3189 | > # | November- Warehouse Construction | 25,300 | 3214 | > # | Roofing Repair and Warehouse Construction | 14,600 | 3228 | > # | Disposals: | | Cash Rec. No. | | | | | | | | | | | | | | Balance per books - End of Year | | | | Proposed Adjustments: | | Adj. Entry No. | | Proposed Adjustment A | (3,500) | AJE 1 | | Proposed Adjustment B | 17,100 | AJE 2 | | Proposed Adjustment C | 1,600 | AJE 3 | | Proposed Adjustment D | 2,345 | AJE 4 | | Proposed Reclassification - E | (96,145) | AJE 5 | | | | | | Adjusted Balance...
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...Executive Summary De Havilland (Havilland) is Canadian aircraft manufacturer that was recently acquired by Boeing. The parent company has requested Havilland take on several initiatives including seeking 25% price reductions from suppliers, reducing the total number of suppliers and seeking more long-term fixed pricing agreements. Havilland recently received submissions for an RFQ for the supply of supply flap shrouds and equipment bay doors. The pricing received raises some concerns however, as there are large variations in pricing between the lowest price from Marton Enterprises Inc. (Marton) and the highest price from the incumbent, Dollard Plastics (Dollard). There are several viable alternatives for Havilland. They may accept the bid from Marton on the condition that it is assured Marton fully understands the scope, their facilities are sufficiently equipped, and they provide their financials. It will be in Havilland’s best interests not to pursue their policy under the Bidder Selection Board (BSB) to attempt to renegotiate the price lower since Marton already provided substantial savings. The next option for Havilland is to pursue the first option but only given Marton 80% of the work for the first year and keep the incumbent under contract for the remaining 20% of work. The third option is to cancel the RFQ, clarify with the bidders what was unclear in the specifications that resulted in such a wide variation in pricing and go out for bids again. The final option...
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...Executive Summary De Havilland (Havilland) is Canadian aircraft manufacturer that was recently acquired by Boeing. The parent company has requested Havilland take on several initiatives including seeking 25% price reductions from suppliers, reducing the total number of suppliers and seeking more long-term fixed pricing agreements. Havilland recently received submissions for an RFQ for the supply of supply flap shrouds and equipment bay doors. The pricing received raises some concerns however, as there are large variations in pricing between the lowest price from Marton Enterprises Inc. (Marton) and the highest price from the incumbent, Dollard Plastics (Dollard). There are several viable alternatives for Havilland. They may accept the bid from Marton on the condition that it is assured Marton fully understands the scope, their facilities are sufficiently equipped, and they provide their financials. It will be in Havilland’s best interests not to pursue their policy under the Bidder Selection Board (BSB) to attempt to renegotiate the price lower since Marton already provided substantial savings. The next option for Havilland is to pursue the first option but only given Marton 80% of the work for the first year and keep the incumbent under contract for the remaining 20% of work. The third option is to cancel the RFQ, clarify with the bidders what was unclear in the specifications that resulted in such a wide variation in pricing and go out for bids again. The final option...
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...Lakeside Auditing Case Study Case 1 Prepared by: January 27, 2011 1: An independent annual audit can provide credibility to information, and this could be very helpful for decision making. In this specific case, the owner of the Lakeside requires an independent CPA firm to perform an annual audit because the owner wants to show the public a “good-look” of its financial statements; since he would like to receive more capital by making his company public. In addition, good-looking financial statements of the company could provide good credit from the bank. To the lakeside company, the owner would like to provide audited financial statement to the bank to obtain the loan and receive the best possible interest rate. On the other hand, a decision by a bank loan officer about whether to make a loan to Lakeside Company and what rate of interest adequately compensates the bank for the level of risk assumed depends on an independent auditing report about lakeside’s financial reports. An auditing report about the company is reliable for the bank; it can significantly reduce the level of information risk. If the loan officer has assurance from the auditors that the company’s financial statements are prepared in accordance with GAAP, he or she will have more confidence in his or her assessment of business risk. By reducing information risk, the audit reduces the overall risk to the bank. 2: According to GAAS, the auditor must obtain a sufficient understanding of the entity and...
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...HBSP Product Number TCG 5 rP os t THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. Lakeside Hospital A hospital just can’t afford to operate a department at 50 percent capacity. If we average 20 dialysis patients, it costs us $425 per treatment, and we’re only paid $250. If a department can’t cover its costs, including a fair share of overhead, it isn’t self-sufficient and I don’t think we should carry it. op yo Peter Lawrence, M.D., Director of Specialty Services at Lakeside Hospital, was addressing James Newell, M.D., Chief Nephrologist of Lakeside’s Renal Division, concerning a change in Medicare’s payment policies for hemodialysis treatments. Recently, Medicare had begun paying independent dialysis clinics for standard dialysis treatments, and the change in policy had caused patient volume in Lakeside’s dialysis unit to decrease to about 50 percent of capacity, producing a corresponding increase in per-treatment costs. By February of the current fiscal year, Dr. Lawrence and Lakeside’s Medical Director were considering closing the hospital’s dialysis unit. Dr. Newell, who had been Chief Nephrologist since he’d helped establish the unit, was opposed to closing it. Although he was impressed by the quality of care that independent centers offered, he was convinced that Lakeside’s unit was necessary for providing back-up and emergency services for the outpatient centers, as well as for treatment for some of the hospital’s seriously ill inpatients. Furthermore...
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...Lakeside Hospital A hospital just can’t afford to operate a department at 50 percent capacity. If we average 20 dialysis pa- tients, it costs us $425 per treatment, and we’re only paid $250. If a department can’t cover its costs, includ- ing a fair share of overhead, it isn’t self-sufficient and I don’t think we should carry it. Peter Lawrence, M.D., Director of Specialty Services at Lakeside Hospital, was addressing James Newell, M.D., Chief Nephrologist of Lakeside’s Renal Division, concerning a change in Medicare’s payment policies for hemodialysis treatments. Recently, Medicare had begun paying independent dialysis clinics for standard dialysis treatments, and the change in policy had caused patient volume in Lakeside’s dialysis unit to decrease to about 50 percent of capacity, producing a corresponding increase in per-treatment costs. By February of the current fiscal year, Dr. Lawrence and Lakeside’s Medical Director were considering closing the hospital’s dialysis unit. Dr. Newell, who had been Chief Nephrologist since he’d helped establish the unit, was op- posed to closing it. Although he was impressed by the quality of care that independent centers of- fered, he was convinced that Lakeside’s unit was necessary for providing back-up and emergency services for the outpatient centers, as well as for treatment for some of the hospital’s seriously ill inpatients. Furthermore, although the unit could not achieve the low costs of the independent cen- ters, he disagreed...
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...ANALYSIS OF OBSERVATION OF PHYSICAL INVENTORY COUNT Physical inventory counting is a much unloved procedure in most merchandising and manufacturing businesses. The process ensures that the inventory on the company's financial books matches the amount of inventory on the sales floor, stockroom or warehouse. Many businesses undergo a thorough annual inventory count, usually at the end of either the calendar or their fiscal year. Sample, or cycle, counts are often conducted between full inventory counts. Sample counts are not intended to check the entire inventory. Instead, they check a portion of the inventory listed on the books. The primary reason auditors observe their client taking the physical inventory is to make sure the inventory reflected on the balance sheet actually exists and that the balance sheet includes all inventory owned by the company. This includes all raw materials, supplies, inventory in transit when using Free on Board (FOB) shipping point, inventory the company may have on consignment with another business, and inventory stored off the premises. Confirming the existence of inventory through your observations addresses the occurrence and completeness assertions as well. However, the auditor must always bear in mind that he is there not to participate in the actual counting of inventory but to rather observe. But before an auditor can pursue this audit procedure, he must first have to gather enough information about the company under audit’s inventory...
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...assignment 1 CASE Lakeside Hospital Financial information & decision making bm01Afm 2015-2016 The abovementioned students declare that this report contains original work and all the team members equally contributed to its preparation. Question 1. To calculate the break-even volume for the dialysis unit we first assume that every patient receives three treatments a week, 156 a year. We use the numbers of last year to calculate the break-even volume as stated in exhibit 1 and 2 of the case. We assume that the allocated expenses and all other costs, except for the major equipment depreciation, stay the same. Since the 14 machines cannot be sold after four years and they are for already five years in the company, we define this as a sunk cost and the major equipment depreciation is not included in the calculation of the break-even volume. The fixed costs are the salaries and wages as stated in Exhibit 2. The supplies and purchases services are not included since they differ according to the number of treatments provided. The fixed costs are therefore 438,900 + 71,970=$510,870. However the annualized salaries have decreased by 84,000 and the fringe benefits by 8,400 and the major equipment depreciation of 26,250 is not included anymore. The fixed costs decrease to $392,220 (510,870 – 84,000 – 8,400 – 26,250 =$392,220). The allocated expenses are $277,267, which makes total fixed costs of (277,267+392,220) $669...
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...ACCT 504 WEEK 3 CASE STUDY 1 FLOWER LANDSCAPING CORPORATION A+ Graded Tutorial Available At: http://hwsoloutions.com/?product=week-3-case-study-1-flower-landscaping-corporation Visit Our website: http://hwsoloutions.com/ Product Description ACCT 504 Week 3 Case Study 1 Flower Landscaping Corporation, JOURNAL Entries July 19 Made payment on account to Lakeside Company, $400. July 31 Received cash for landscaping revenue for the last half of July, $2,620. July 31 Declared and paid cash dividend of $1,600. Prepare journal entries to record the July transactions in the General Journal below. Use the following account names for journal entries. General Journal Chart of Accounts: Account Title (Normal Balance) Date Description(Account Name) Debit Credit 1-Jul Assets Cash 24,000 Cash (Debit) Common Stock 24,000 Prepaid Insurance (Debit) Landscaping Supplies (Debit) 1-Jul Prepaid Insurance 2,400 Landscaping Equipment (Debit) Cash 2,400 Accum Depr -Equipment (Credit) 1-Jul Rent Expense 2,080 Liabilities Cash 2,080 Accounts Payable (Credit) Income Tax Payable (Credit) 3-Jul Landscaping Equipment 8,800 Cash 1,200 Stockholders Equity Accounts Payable 7,600 Common Stock (Credit) Retained Earnings (Credit) 8-Jul Landscaping Supplies 780 Dividends (Debit) Accounts Payable 780 Revenue 12-Jul Utility Expense 308 Landscaping Revenue (Credit) Cash 308 Expenses 16-Jul Cash 2,724 Rent Expense (Debit) Landscaping Revenue 2,724 Utility Expense (Debit) Insurance...
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...DISCUSSION 1. A company profit-sharing arrangement is a matter of auditor concern because it provides an incentive for employees to generate artificially high income figures. These individuals can receive direct financial benefits from the manipulation of reported earnings. This potential problem is even more of a concern in the Lakeside engagement because controls are weak and each store is geographically isolated from the oversight provided by the administrative offices. 2. This case describes the payroll system used by the Lakeside Company. Tests of controls are designed by the auditor to verify that specific control features identified as possible strengths are operating effectively. A sample of such tests would include the following: a. Compare the payroll records produced by Sarah Sweet to time tickets completed by hourly employees noting agreement as to hours worked; b. Verify that time tickets have been appropriately authorized; c. Recalculate salaried employees' monthly pay and compare to the payroll records; d. d. Recalculate salesmen's commissions and compare to payroll records; e. Recalculate payroll deductions based on government payroll tables and the data listed on the W-4 form filed by each employee. Compare these deductions to the company's payroll records; f. Recompute Lakeside's payroll taxes and compare to total reported balance; g. Verify mathematical accuracy of net wage figures (salary less deductions); h. Foot the...
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...DISCUSSION QUESTIONS 1. Both the company’s bank and Lakeside owners would require an independent CPA firm to avoid any biases and upkeep the independence in auditing. 2. Under generally accepted auditing standards the audit is to be performed by a person or persons having adequate training which is interpreted to mean ‘technically qualified and experienced in those industries in which their clients are engaged” (Arens, Elder, Beasley, & Hogan, 2010, p. 35). This interpretation is based on recent court cases. With that information in mind this engagement should not be accepted. Care industry is significantly different than electronics so I would believe an audit in each industry would be considerably different. The auditor should certainly discuss the lack of expertise and possibly consider having a contract or new hired personnel to assist with such an audit. 3. Provided the employees truly have an understanding of how to achieve a profit sharing bonus, auditors may be concerned with the decision making of the employees. employees loyalty would be torn between providing the most independent unbiased information for the customer and the information that will provide their family with additional income. 4. A firm does face independence issues with auditing the output of systems the designed and installed regardless if the company is publicly traded or not. As the creator of the system the company may be biased as to how well the system works. The assumption that they created...
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