Fraud Case 24-1
Everybody knew Ed McAlister was a brilliant businessman. He had taken a small garbage collection company in Kentucky and built it up to be one of the largest and most profitable waste management companies in the Midwest. But when he was convicted of a massive financial fraud, what surprised everyone was how crude and simple the scheme was. To keep the earnings up and the stock prices soaring, he and his coworkers came up with an almost foolishly simple scheme: First, they doubled the useful lives of the dumpsters. That allowed them to cut
Requirements
- If an asset has either too long a useful life or too high an estimated salvage value, what happens, from an accounting perspective, when that asset is worn out and has to be disposed of?
- Do the rules of GAAP (Generally Accepted Accounting Principles) mandate specific lives for different types of assets?
- How might either too long a useful life or too high an estimated salvage value affect key performance indicators such as
return on investment and residual income?
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Chapter 24 Solutions
Horngren's Accounting: The Managerial Chapters (12th Edition) (loose Leaf Version)
- The Perfect Crime? Consider the following story of an actual embezzlement.This was the ingenious embezzler’s scheme: (a) He hired a print shop to print a private stock of Ajax Company checks in the company’s numerical sequence. (b) In his job as an accounts payable clerk at Ajax, he intercepted legitimate checks written by the accounts payable department and signed by the Ajax treasurer and destroyed them. (c) He substituted thesame numbered check from the private stock, payable to himself in the same amount as the legitimate check, and he “signed” it with a rubber stamp that looked enough like the Ajax Company treasurer’s signature to fool the paying bank. (d) He deposited the money in his own bank account. The bank statement reconciler (a different person) was able to agree the check numbers and amounts listed in the cleared items in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the embezzler’s scheme.The embezzler was able to…arrow_forwardAll companies are vulnerable to fraud, but small businesses are particularly vulnerable. Why do you think this may be the case? What signs of possible fraud may be more pronounced in small businesses when compared to larger ones?arrow_forwardGladys is in charge of receiving all customer payments, recording the payments, and depositing them at the bank. What element of the fraud triangle is best described here? Group of answer choices Opportunity Rationalization Incentive/Pressure Attribution Gladys has large amounts of student loan debt and a crippling gambling habit. She works part-time job in another city. What element of the fraud triangle is best described here? Group of answer choices Opportunity Fraudy fraud Pressure/incentive Rationalizationarrow_forward
- ! Required information Chapter 04 Problem 4-31 LO 4-6, 4-9 [The following information applies to the questions displayed below.] Management fraud (e.g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds (e.g., Enron and WorldCom) can have a significant effect on shareholders, employees, and other parties. The PCAOB's AS 2401, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors. Chapter 04 Problem 4-31 Part c LO 4-6, 4-9 c. Select the items that are most likely to be objectives of the "brainstorming" meeting that is held among the engagement team members: Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. ?Share insights about the entity and its environment and the entity's business risks. ? Provide an opportunity for the team…arrow_forwardThe Dude Fraud Case Scenario In his own words, Daniel Jones was “The Dude.” With his waist-long dreadlocks, part-time rock band, and a well-paid job managing a company’s online search directory—he seemed to have it all. Originally from Germany, Jones, now age 32, earned his doctorate and taught at the University of Munich before coming to the United States, where he started his career in computers. In 1996, Jones started working with the company as a director of operations for the U.S.- Speech Engineering Service and Retrieval Technology—working on a new, closely guarded search engine tied to the company’s .net concept. The company allows employees to order an unlimited amount of software and hardware, at no cost, for business purposes. Between December 2001 and November 2002, Jones ordered or used his assistant and other employees (including a high school intern) to order nearly 1,700 pieces of software which had very low cost but were worth a lot on the street. He then resold them…arrow_forwardQUESTION 10 Why are some banks considered too big to fail? A. The Glass-Steagal Act prohibits the failure of any bank wiht more than $5 billion in assets B. Very large banks have enough assets to prevent financial distress and cannot fail C. These banks are so large that their failure may initiate a financial crisis in the broader economy D. Congress has always stepped in to bail out banks owned by politically connected individualsarrow_forward
- Too Big to Fail - During the recession of 2008, we were introduced to this new term. A large bank or financial institution that engages in illegal activity many are not severely punished or have its officials charged with criminal activity. Why? What is the reason?arrow_forwardCan anyone help? The Sarbanes-Oxley Act is a product of a series of scandals that took place around the turn of the millennium. A) Has Sarbanes-Oxley really done anything to curb fraud? B) How does the Sarbanes-Oxley Act affect U.S. companies as they compete globally?arrow_forwardAssume that brooke miles accounts payable clerk for west coast design inc.stole $48,350 by paying fictitious companies and cashed the checks at a local banks. Describe a control procedure that would have prevented or detected the fraud?arrow_forward
- Large fraud perpetrators are more likely to use the money for all of the following except: a. to support extramarital affairs. b. to pay taxes c. to pay for expensive vacations. d. to purchase new homes.arrow_forward8 A company offers your friend, Lily, an interesting gamble involving giving her the choice of the contents in one of two sealed, identical-looking boxes. One box has $10,000 in cash and the second has nothing inside. There is an equal probability that the chosen box contains cash versus nothing. Lily states that she would not call off the gamble if you offered her a certain $2,999 instead of her choice of box. However, she would be indifferent if $3,000 was offered in place of the risky gamble; and she would definitely take $3,001 to call off the gamble. We would describe Lily as in this instance. I A. Having a risk preference B. Being risk indifferent C. Being risk averse D. Cannot decide Garrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengageAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning