Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 31QRA
a.
To determine
Explain the difficulty in the fair valuation.
b.
To determine
Explain the process of auditing the impairment loss in the given situation.
c.
To determine
Explain the responsibilities with respect to using the specialist’s work.
d.
To determine
Provide two estimates of the fair value of its recently purchased franchise location.
e.
To determine
Provide the type of evidence that would be expectedto examine the assumptions explained in d.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The accountant of Swift Inc. was preparing for the audit of its financial statements for the year ended December 31, 2022, and discovered that an automobile was being incorrectly depreciated. The automobile was purchased on January 1, 2021, for $50,000 and the estimated residual value after five years was expected to be $5,000.
The company uses the straight-line basis for depreciating vehicles, but the residual value was not considered when determining the depreciation amount. The financial controller informed the accountant that the company was switching to the double- declining balance method of depreciation for the current and future years, as it was believed this method would more accurately portray the consumption of benefits received from the asset's use.
Required: State whether it is a change in accounting estimate/policy or an accounting error. Prepare the journal entries required on December 31, 2022. Ignore income tax effects. Show all workings
XYZ Company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The entity has acknowledged its responsibility for the contamination.
An initial clean up feasibility study has shown that it will cost at least P500,000 to clean up the toxic waste.
During the current year, the entity has been sued for patent infringement and lost the case. A preliminary judgment of P300,000 was issued and is under appeal.
The entity’s attorney agrees that it is probable that the entity will lose this appeal.
What amount of provision should be accrued as liability?
a. 0
b. 800,000
c. 500,000
d. 300,000
You are auditing the financial records of a company, and you are aware that it has grown quickly in the last few years by acquiring other companies. You look up the disclosure in last year’s annual report which states, “The company amortizes its intangibles over periods ranging from 3 to 15 years.” As you review the company’s records, you find that the company made an acquisition of a “high-tech” company 3 years ago and has not recognized any impairment on the related goodwill. In the last 6 years, the company has made five other acquisitions and has not recognized any impairment related to them. Included in the acquisitions are several patents that are amortized over 9 years and some intangibles with indefinite lives.
Required:
From financial reporting and ethical perspectives, discuss the issues raised by this situation.
Chapter 13 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 13 - Prob. 1RQCh. 13 - K-J Corporation has current assets of 5 million...Ch. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Explain the use of a system of authorizations for...Ch. 13 - Moultrie Company discovered recently that a number...Ch. 13 - Does a failure to record the retirement of...Ch. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 11RQCh. 13 - Prob. 12RQCh. 13 - Prob. 13RQCh. 13 - Prob. 14RQCh. 13 - Prob. 15RQCh. 13 - Gibson Manufacturing Company acquired new factory...Ch. 13 - Prob. 17RQCh. 13 - Do the auditors question the service lives adopted...Ch. 13 - Prob. 19RQCh. 13 - Explain how the existence of lease agreements may...Ch. 13 - Prob. 21RQCh. 13 - Prob. 22QRACh. 13 - Prob. 23QRACh. 13 - Gruen Corporation is a large diversified company...Ch. 13 - Prob. 25QRACh. 13 - Prob. 26QRACh. 13 - Prob. 27QRACh. 13 - Prob. 28QRACh. 13 - Prob. 29QRACh. 13 - Prob. 30QRACh. 13 - Prob. 31QRACh. 13 - To assure accountability for fixed-asset...Ch. 13 - Prob. 32BOQCh. 13 - Which of the following is an internal control...Ch. 13 - Which of the following accounts should be reviewed...Ch. 13 - Prob. 32EOQCh. 13 - Prob. 32FOQCh. 13 - Which of the following statements is not typical...Ch. 13 - Prob. 32HOQCh. 13 - Prob. 32IOQCh. 13 - An effective procedure for identifying unrecorded...Ch. 13 - Which of the following is not an overall test of...Ch. 13 - Prob. 32LOQCh. 13 - Prob. 33OQCh. 13 - Analysis of which account is least likely to...Ch. 13 - Prob. 34BOQCh. 13 - Prob. 34COQCh. 13 - Prob. 34DOQCh. 13 - A search for overstated property, plant, and...Ch. 13 - The following are typical questions that might...Ch. 13 - Prob. 36PCh. 13 - Prob. 37PCh. 13 - Chem-Lite, Inc., maintains its accounts on the...Ch. 13 - Prob. 39PCh. 13 - You are reviewing the property, plant, and...
Knowledge Booster
Similar questions
- You are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…arrow_forwardYou are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…arrow_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. If Apex Construction also sues Williams for negligence, what are the probable legal defenses Williams’s attorney would raise?…arrow_forward
- Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. What liability does Williams have to Jackson Financial? Explainarrow_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. Will the negligence of Mark Williams, CPA, prevent him from recovering on a liability insurance policy covering the practice of…arrow_forwardYou were requested to personally deliver your auditor’s report to the board of directors of Sebal Manufacturing Corporation and answer questions posed about the financial statements. While reading the statements, one director asked what are the precise meanings of the terms cost, expense, and loss? These terms seem sometimes to identify similar items and other times dissimilar items.”book value of the component’s net assets. The component was operating at a loss from the beginning of the year. in addition, Lynn had one of its manufacturing plants destroyed by an earthquake during the year. Earthquakes are not uncommon in Lynn’s operating environment. 1. Explain how Lynn should report discoutinued operations of a component of its business on its income statement for this year. Do not discuss earnings per share requirements. 2. Explain how Lynn…arrow_forward
- For the following independent situations, assume that you are the audit partner on the engagement: 1. The client recorded impairment of goodwill for $40,000 last year. It recorded reversal of impairment in goodwill for $20,000 this year after considering the carrying amount and recoverable amount of the cash generating unit. Net income is $10,000 in current year. Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion.arrow_forwardFor every of the following independent situation, discuss the issue and describe the impact on the audit record with provide examples i. During the audit, the crew discovers that one of the five improvement projects, valued at RM880,000 and included as intangible assets, does no longer meet the criteria for capitalisation. The finance director does not intend to alternate the accounting remedy adopted as she considers this an immaterial quantity.arrow_forwardMike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation's annual audit engagement. Frost has been a client of Crane's firm for many years. Frost is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost's accounting manager, “I don't really see your problem. After all, it's perfectly legal to change an accounting estimate. Besides, our CEO likes to see big earnings!” Instructions Answer the following questions. a. What are the ethical issues concerning Frost's practice of changing the useful lives of…arrow_forward
- Sawyer and Sawyer, CPAs, audited the financial statements of Rattler Corporation that were included in Rattler’s Form 10-K, which was filed with the SEC. Subsequently, Rattler Corporation went bankrupt and the stockholders of the corporation brought a class-action lawsuit against management, Sawyer and Sawyer, and the corporation’s board of directors and attorneys for misstatements of the financial statements. Assume that the jury in the case decides that responsibility for $5 million in losses should be allocated as follows: Management 70% Board of directors 20 Auditors 5 Attorneys 5 100% Under what securities act would the stockholders initiate this lawsuit? Assuming that all the defendants in the case are financially able to pay their share of the losses, calculate the amount of losses that would be allocated to Sawyer and Sawyer. Assuming that management had no financial resources, describe how Sawyer and Sawyer’s share of the losses might be increased.arrow_forwardJones, CPA, has completed the audit of Sarack Lumber Supply Co.and has issued a standard unqualified report. In addition to a report on the overall financialstatements, the company needs a special audited report on three specific accounts: sales,net fixed assets, and inventory valued at FIFO. The report is to be issued to Sarack’s lessor,who bases annual rentals on these three accounts. Jones was not aware of the need for thereport on the three specific accounts until after the overall audit was completed.a. Explain why Jones is unlikely to be able to issue the audit report on the three specificaccounts without additional audit tests.b. What additional tests are likely to be needed before the report on the three specificaccounts can be issued?c. Assuming that Jones is able to satisfy all the requirements needed to issue the reporton the three specific accounts, write the report. Make any necessary assumptions.arrow_forwardRayan Company, a CPA firm, conducted an audit for the 2020 financial statements of Tia Corporation. During the course of the audit, the auditors noticed that repairs and maintenance expenses were recorded as an addition to fixed assets to decrease expenses amount in the financial statements. Which one of the following assertions was violated? Occurrence Completeness Existence Accuracy None of the abovearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College PubAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning