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Dilean Reyes-Rivera was the president of Global Reach Trading (GRT), a corporation registered in Puerto Rico. His brother Jeffrey was the firm’s accountant. Along with GRT sales agents and other promoters, the brothers solicited funds from individuals by promising to invest the funds in low-risk, shortterm, high-yield securities. e investors were guaranteed a rate of return of up to 20 percent. Through this arrangement, more than 230 persons provided the brothers with about $22 million. This money was not actually invested. Instead, the funds received from later investors were used to pay “returns” to earlier investors. The Reyes-Riveras spent$4.6 million of the proceeds to buy luxury vehicles, houses, furniture, jewelry, and trips for themselves. What is this type of scheme called? What are the potential consequences? Discuss.
The town of Parson uses a general fund. The operating budget for the current year, an adjusted trial balance, and a journal are provided in the Working Papers.
Prepare a statement of revenues, expenditures, and changes in fund balance-budget and actual for the year ended December 31 of the current year.
Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the boarding of broodmares and their foals. A recent economic downturn in the thoroughbred industry has led to a decline in breeding activities, and it has made the boarding business extremely competitive. To meet the competition, Green Pastures planned in 2017 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees.
The budget report for 2017 is presented below. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at per mare. The variable expenses per mare per day were budgeted: feed , veterinary fees , blacksmith fees , and supplies . All other budgeted expenses were either semifixed or fixed.
During the year, management decided not to replace a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients.
|Budget||Actual||Favorable F Unfavorable U|
|Number of mares||52||60||8 U|
|Number of boarding days||19,000||21,900||2,900 U|
|Less: Variable expenses|
|Veterinary fees||58,838||65,700||6,862 F|
|Blacksmith fees||4,984||5,475||491 F|
|Total variable expenses||178,390||192,720||14,330 F|
|Contribution margin||201,610||354,780||153,170 U|
|Less: Fixed expenses|
|Repairs and maintenance||10,000||11,000||1,000 F|
|Total fixed expenses||180,000||184,000||4,000 F|
|Net income||$ 21,610||$170,780||$149,170 U|
Instructions With the class divided into groups, answer the following. (c) Based on the flexible budget report, answer the three questions in part (a) above.