FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
19th Edition
ISBN: 9781119493624
Author: Kimmel
Publisher: WILEY
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The following paragraphs describe fraudulent accounting committed by the company Rite-Aid in 1999. After reading the paragraphs, list the journal entries you think Rite-Aid would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud. From at least the first quarter of FY 1998 through the first quarter of FY 2000, Rite Aid also made improper adjusting entries known as "gross profit" entries. This practice had the effect of lowering cost of goods sold and accounts payable. These entries caused material overstatements of Rite Aid's net income in each quarterly period in which they were made. In the second quarter of FY 1999, for example, Rite Aid improperly reduced cost of goods sold and accounts payable by approximately $100 million. As a result of these "gross profit" entries alone, Rite Aid overstated pre-tax income by $100 million in the second quarter of FY 1999. In each of the relevant…
The following paragraphs describe fraudulent accounting committed by the company Rite-Aid in 1999. After reading the paragraphs, list the journal entries you think Rite-Aid would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud.Under Generally Accepted Accounting Principles, Rite Aid
should have written off the pertinent "dead deal" expenses at the time that it
decided not to build on each specific site. Such writeoffs would have reduced
reported income in the relevant periods. Instead, Rite Aid continued to carry these
items on its balance sheet as assets. By the end of FY 1999, the accumulated
dead deal expenses totaled $10.6 millio
The following paragraphs describe fraudulent accounting committed by the company Rite-Aid in 1999. After reading the paragraphs, list the journal entries you think Rite-Aid would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud. Rite Aid failed to record an accrued expense for stock appreciation rights it had granted to employees, in a program that gave the recipients the right to receive cash or stock in amounts tied to increases in the market price of Rite Aid stock. Rite Aid should have accrued an expense of $22 million in FY 1998 and $33 million in FY 1999 for these obligations.
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- You are asked to be interviewed by a student newspaper regarding the nature of accounting fraud. The reporter says, “As I understand it, asset misappropriations are more likely to be found are more likely to be found in small organizations, but not in larger organizations. On the other hand, fraudulent financial reporting is more likely to be found in larger organizations.” How would you respond to the reporter’s observation?arrow_forwardYou are asked to be interviewed by a student newspaper regarding the nature of accounting fraud. The reporter says, “As I understand it, asset misappropriations are more likely to be found are more likely to be found in small organizations, but not in larger organizations. On the other hand, fraudulent financial reporting is more likely to be found in larger organizations.” How would you respond to the reporter’s observations?arrow_forwardJustine is an accountant in the accounting department of Modern Industries, Inc. Justine has just discovered evidence that some of the corporation's marketing managers have been wrongfully inflating their expense reports in order to obtain higher reimbursements from the firm. According to the understanding and acceptance of the basic principles and concepts of ethical conduct, what should Justine do upon discovering this evidence? a. Notify the marketing managers involved. b. Notify the controller. c. Ignore the evidence because she is not part of the Marketing Department. d. Notify the president of the corporation.arrow_forward
- The owner of a trading company engaged your services as auditor. There is a discrepancy between the companys income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following: 1. Physical inventory, taken December 31, 2019 under your observation, showed that cost was P26,500 and market value, P25,000. The inventory of January 1, 2019 showed cost of P39,000 and market value of P37,500. It is the firms practice to value inventory at lower of cost or market. Any loss between cost and market value is included in Other Expenses. 2. The average gross profit rate was 40% of net sales. 3. The Accounts Receivable as of January 1, 2019 were P13,500. During 2019, Accounts Receivable written off during the year amounted to P1,000. Accounts Receivable as of December 31, 2019 were P37,500. 4. Outstanding purchase invoices amounted to P50,000 at the end of 2019. At the beginning of 2019 they…arrow_forwardA former chairman, CFO, and controller of Donnkenny, Inc., an apparel company that makes sportswear for Pierre Cardin and Victoria Jones, pleaded guilty to financial statement fraud. These managers used false journal entries to record fictitious sales, hid inventory in public warehouses so that it could be recorded as “sold,” and required sales orders to be backdated so that the sale could be moved back to an earlier period. The combined effect of these actions caused $25 million out of $40 million in quarterly sales to be phony. Why might control procedures listed in this chapter be insufficient in stopping this type of fraud? How could this type of fraud be stoppedarrow_forwardAs the lead accountant for a small company, you notice that inventory purchases from a certain vendor have increased dramatically over the past few months, whereas purchases from all other vendors have decreased. You suspect that something may not be right and that there may be a fraudulent relationship between someone in your company and the vendor that is getting increased business. question: Which theft act investigative method would you use to investigate your suspicions? state evidences that you to support suspicions.arrow_forward
- Mark Buffalo works for a mid-size accounting firm in Boston. One day he overhears a colleague talking to a friend on his cellphone. Mark gasps when he realizes the colleague is sharing one of their client's confidential information, likely as an insider trading tip. As a member of the AICPA, Mark is required to report this discreditable act to the Boston chapter of the AICPA. Select one: True Falsearrow_forwardIf an employee skims sales from a customer, which of the following will likely occur? a. The stolen payment if not material, will not be noticed by the organization. b. The receivable will become past due C. The customer will not be able to show proof that payment has been made. O d. The organization is likely to notice the theft of the payment immediately.arrow_forwardWhich of the following is an example of fraudulent financial reporting? a. The treasurer diverts customer payments to his personal due, concealing his actions by debiting an expense account, thus overstating expenses. O b. An employee steals inventory and the "shrinkage" is recorded in cost of goods sold. O c. Company management changes inventory count tags and overstates ending inventory, while understating cost of goods sold. O d. An employee steals small tools from the company and neglects to return them; the cost is reported as a miscellaneous operating expense.arrow_forward
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