Assume that in an annual audit of Pharoah Inc. at December 31, 2020, you find the following transactions near the closing date. Assuming that each of the amounts is material, state whether the merchandise should be included in the client’s inventory. Transactions 1. A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on December 31, 2020. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2021. select an option IncludeDo not include 2. Merchandise costing $5,180 was received on January 3, 2021, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2020, f.o.b. destination. select an option IncludeDo not include 3. A packing case containing a product costing $6,290 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” Your investigation revealed that the customer’s order was dated December 18, 2020, but that the case was shipped and the customer billed on January 10, 2021. The product was a stock item of your client. select an option IncludeDo not include 4. Merchandise received on January 6, 2021, costing $1,258 was entered in the purchase journal on January 7, 2021. The invoice showed shipment was made f.o.b. supplier’s warehouse on December 31, 2020. Because it was not on hand at December 31, it was not included in inventory. select an option IncludeDo not include 5. Merchandise costing $1,332 was received on December 28, 2020, and the invoice was not recorded. You located it in the hands of the purchasing agent; it was marked “on consignment.” select an option IncludeDo not include

Assume that in an annual audit of Pharoah Inc. at December 31, 2020, you find the following transactions near the closing date. Assuming that each of the amounts is material, state whether the merchandise should be included in the client’s inventory. Transactions 1. A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on December 31, 2020. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2021. select an option IncludeDo not include 2. Merchandise costing $5,180 was received on January 3, 2021, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2020, f.o.b. destination. select an option IncludeDo not include 3. A packing case containing a product costing $6,290 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” Your investigation revealed that the customer’s order was dated December 18, 2020, but that the case was shipped and the customer billed on January 10, 2021. The product was a stock item of your client. select an option IncludeDo not include 4. Merchandise received on January 6, 2021, costing $1,258 was entered in the purchase journal on January 7, 2021. The invoice showed shipment was made f.o.b. supplier’s warehouse on December 31, 2020. Because it was not on hand at December 31, it was not included in inventory. select an option IncludeDo not include 5. Merchandise costing $1,332 was received on December 28, 2020, and the invoice was not recorded. You located it in the hands of the purchasing agent; it was marked “on consignment.” select an option IncludeDo not include

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter4: Professional Liability, Auditor Judgment Frameworks, And Professional Responsibilities

Section: Chapter Questions

Problem 54RSCQ

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	Transactions
1.	A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on December 31, 2020. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2021.	select an option IncludeDo not include
2.	Merchandise costing $5,180 was received on January 3, 2021, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2020, f.o.b. destination.	select an option IncludeDo not include
3.	A packing case containing a product costing $6,290 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” Your investigation revealed that the customer’s order was dated December 18, 2020, but that the case was shipped and the customer billed on January 10, 2021. The product was a stock item of your client.	select an option IncludeDo not include
4.	Merchandise received on January 6, 2021, costing $1,258 was entered in the purchase journal on January 7, 2021. The invoice showed shipment was made f.o.b. supplier’s warehouse on December 31, 2020. Because it was not on hand at December 31, it was not included in inventory.	select an option IncludeDo not include
5.	Merchandise costing $1,332 was received on December 28, 2020, and the invoice was not recorded. You located it in the hands of the purchasing agent; it was marked “on consignment.”	select an option IncludeDo not include

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As per the revenue recognition principle, sales should be recorded only when goods are delivered to the customers and title is also passed.

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