ACTG 6610 Lecture 5: Special Engagements (cont'd), Use of experts, Corporate governance, and Going Concern

Q84

A private health-care clinic has been offered a leasing dealwhere it could lease a CAT scanner at a fixed charge of $2,000 permonth and a charge per patient of $6 per patient scanned. Theclinic currently charges $10 per patient for taking a scan. (a) Atwhat level of demand (in number of patients per week) will theclinic break even on the cost of leasing the CAT scan? (b) Would arevised lease that stipulated a fixed cost of $3,000 per week and avariable cost of $0.2 per patient be a better deal? [3 Marks]

Heels, a shoe manufacturer, is evaluating the costs and benefitsof new equipment that would custom fit each pair of athletic shoes.The customer would have his or her foot scanned by digital computerequipment; this information would be used to cut the raw materialsto provide the customer a perfect fit. The new equipment costs$111,000 and is expected to generate an additional $44,000 in cashflows for 5 years. A bank will make a $111,000 loan to the companyat a 12% interest rate for this equipment’s purchase. Use thefollowing table to determine the break-even time for thisequipment. All cash flows occur at year-end. (PV of $1, FV of $1,PVA of $1, and FVA of $1) (Use appropriate factor(s) fromthe tables provided.)

. Write an IOM to the CEO concerning your analysis of thefollowing case stating strengths and weaknesses giving testingtools and recommendation for controls.

A Spring Water Spa Company is a 15-store chain in the Midwestthat sells hot tubs, supplies and accessories. Each store has afull-time, salaried manager and an assistant manager. The salespersonnel are paid an hourly wage and a commission based on salesvolume.

The company uses electronic cash registers to record eachtransaction. The salesperson enters his or her employee number atthe beginning of his/her shift. For each sale, the salespersonrings up the order by scanning the item’s bar code, which thendisplays the item’s description, unit price, and quantity (eachitem must be scanned.) The cash register automatically assigns aconsecutive number to each transaction. The cash register prints asales receipt that shows the total, any discounts, the sales tax,and the grand total.

The salesperson collects payment from the customer, gives thereceipt to the customer, and either directs the customer to thewarehouse to obtain the items purchased or makes arrangements withthe shipping department for delivery. The salesperson isresponsible for using the system to determine whether credit cardsales are approved and for approving both credit sales and salespaid by check. Sales returns are handled in exactly the reversemanner, with the salesperson issuing a return slip whennecessary.

At the end of each day, the cash registers print a sequentiallyordered list of sales receipts and provide totals for cash, creditcard, and check sales, as well cash and credit card returns. Theassistant manager prepares a daily reconciled report for the storemanager’s review.

Cash sales, check sales, and credit card sales are reviewed bythe manager, who prepares the daily bank deposit. The managerphysically makes the deposit at the bank and files the validateddeposit slip. At the end of the month, the manager performs thebank reconciliation. The cash register tapes, sales invoices,return slips, and reconciled report are mailed daily to corporateheadquarters to be processed with files from all the other stores.Corporate headquarters returns a weekly Sales and CommissionActivity Report to each store manager for review.