Related questions with answers

Heisey Company is a very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As a result, Terry Baden handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.

The balance per the bank statement on October 31, 2014, was $18,380. Outstanding checks were: No. 62 for$140.75, No. 183 for $180, No. 284 for$253.25, No. 862 for $190.71, No. 863 for$226.80, and No. 864 for $165.28. Included with the statement was a credit memorandum of$185 indicating the collection of a note receivable for Heisey Company by the bank on October 25. This memorandum has not been recorded by Heisey.

The company’s ledger showed one Cash account with a balance of $21,877.72. The balance included undeposited cash on hand. Because of the lack of internal controls, Terry took for personal use all of the undeposited receipts in excess of$3,795.51. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Cash balance per books, October 31$21,877.72Add: Outstanding checksNo. 862$190.71No. 863226.80No. 864165.28482.7922,360.51Less: Undeposited receipts3,795.51Unadjusted balance per bank, October 3118,565.00Less: Bank credit memorandum185.00Cash balance per bank statement, October 31$18,380.00\begin{array}{lrr} \text{Cash balance per books, October 31}&&\text{\$\hspace{1pt}21,877.72}\\ \text{Add: Outstanding checks}\\ \qquad\text{No. 862}&\text{\$\hspace{1pt}190.71}\\ \qquad\text{No. 863}&\text{226.80}\\ \qquad\text{No. 864}&\underline{\text{\hspace{5pt}165.28}}&\underline{\text{\hspace{18pt}482.79}}\\ &&\text{22,360.51}\\ \text{Less: Undeposited receipts}&&\underline{\text{\hspace{11pt}3,795.51}}\\ \text{Unadjusted balance per bank, October 31}&&\text{18,565.00}\\ \text{Less: Bank credit memorandum}&&\underline{\text{\hspace{19pt}185.00}}\\ \text{Cash balance per bank statement, October 31}&&\underline{\underline{\text{\$\hspace{1pt}18,380.00}}}\\ \end{array}


(b) Indicate the three ways that Terry attempted to conceal the theft and the dollar amount involved in each method.


Ragan, Inc., was formed nine years ago by brother and sister Carrington and Genevieve Ragan. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave each 50,000 shares of stock. In the event either wished to sell stock, the shares first had to be offered to the other at a discounted price.

 Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have combined the information about their main competitors in the table below.

 Expert HVAC Corporation’s negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per share for the company would have been $1.10. The ROE for Expert HVAC is based on net income excluding the writeoff.

 In the previous year, Ragan, Inc., had an EPS of$3.15 and paid a dividend to Carrington and Genevieve of $45,000 each. The company also had a return on equity of 17%. The siblings believe that 14% is an appropriate required return for the company.

Ragan, Inc., Competitors
EPS DPS Stock Price ROE R
Arctic Cooling, Inc. $1.30 $.16 $25.34 8.50% 10.00%
National Heating & Cooling 1.95 .23 29.85 10.50 13.00
Expert HVAC Corp. -.37 .14 22.13 9.78 12.00
Industry Average $.96 $.18 $25.77 9.59% 11.67%


After discussing the stock value with Josh, Carrington and Genevieve agree that they would like to increase the value of the company stock. Similar to many small business owners, they want to retain control of the company, so they do not want to sell stock to outside investors. They also feel that the company’s debt is at a manageable level and do not want to borrow more money. How can they increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price?


Answered 1 year ago
Answered 1 year ago

One way for Carrington and Genevieve to boost the value of the stock is to issue more dividends, this action would increase the value of shares.

The strategy of boosting the price of the stock would not work in case if the growth rate for dividends will be low.

Create an account to view solutions

By signing up, you accept Quizlet's Terms of Service and Privacy Policy
Continue with GoogleContinue with Facebook

Create an account to view solutions

By signing up, you accept Quizlet's Terms of Service and Privacy Policy
Continue with GoogleContinue with Facebook

More related questions