An employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims

An employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks of between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of work to cash some of the checks. Beyond this, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years.


Why would it take so long to discover such a fraud?


Answer:
This is an example of a fraud with significant collusion. Frauds that are perpetrated with multiple parties in different positions of control make detecting fraud more
difficult. In this case, the fraud began with an employee responsible for authorizing claim payments. This is a sensitive position because his decisions would initiate payments. However, claims would need to be authorized and verified before payment would be made. Knowing this, the employee made sure each claim had a phony “victim.” Thus, there was a verifiable story behind each claim. Only by tracking physical evidence of the accident could it be discovered that the claim was fictitious. However, the very nature of the process was to resolve small claims quickly without excessive control. Lastly, corrupt lawyers were brought into the fraud to act as attorneys for the claimants. This gave the claims even more credibility. In actuality, the lawyers had done legitimate business with the trucking company, so all appeared normal. This fraud was discovered when the fraudulent employee’s bank noticed irregularities in his bank account and notified authorities. As the saying goes, “Follow the money!” As a side note, the corrupt claims
administrator fell into this behavior due to gambling problems.





The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department.

a. Indicate the weak link in internal control in the handling of cash receipts.
b. How can the weakness be corrected?


Answer:
a. The remittance advices should not be sent to the cashier.
b. The remittance advices should be sent directly to the Accounting Department by the mailroom.

Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie™ fashion dolls and accessories

Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie™ fashion dolls and accessories, Hot Wheels™, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands):



First quarter ending March 31 $ (41,844)
Second quarter ending June 30 (184,934)
Third quarter ending September 30 (55,548)
Fourth quarter ending December 31 955,600



Explain why Mattel reported negative net cash flows from operating activities during the first three quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.


Answer:
Toy manufacturers and retailers experience a seasonal trend in cash flows from operating activities. Mattel, Inc., experiences negative cash flows during the periods when merchandise is ordered for the holiday season. Mattel, Inc., generates positive cash flows during the holiday season, November–December. As a result, Mattel, Inc., reports overall positive net cash flows from operating activities for the year.




Journalize the entries to record the following:

a. Check No. 33694 is issued to establish a petty cash fund of $900.

b. The amount of cash in the petty cash fund is now $70. Check No. 33749 is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, $525; miscellaneous selling expense, $190; miscellaneous administrative expense, $85. (Since the amount of the check to replenish the fund plus the balance in the fund do not equal $900, record the discrepancy in the cash short and over account.)


Answer:

a.
 Petty Cash 900
Cash 900

b.
 Office Supplies 525
Miscellaneous Selling Expense 190
Miscellaneous Administrative Expense 85
Cash Short and Over 30
Cash 830

Junkyard Arts, Inc., had earnings of $316,000 for 2014. The company had 40,000 shares of common stock outstanding during the year

Junkyard Arts, Inc., had earnings of $316,000 for 2014. The company had 40,000 shares of common stock outstanding during the year. In addition, the company issued 15,000 shares of $50 par value preferred stock on January 9, 2014. The preferred stock has a  dividend of $1.60 per share. There were no transactions in either common or preferred stock during 2014.

Determine the basic earnings per share for Junkyard Arts.


Answer:









Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
Earnings per Share = $316,000 – ($1.60 × 15,000 shares)
40,000 shares
Earnings per Share = $7.30 per share