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 14, Problem 30QRA
To determine
Provide a possible explanation for the trends described, especially the decrease in accounts payable while sales and inventory were constant and gross profit increased. Explain fully the relationships involved.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent.
Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager’s representation?a. Perform additional inquiries with sales personnel.b. Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.c. Send confirmations asking customers about unit prices paid for product.d. Vouch vender invoices to payments made after year-end.
Farley Bains, an auditor with Nolls CPAs, is performing a review of Ryder Company’s Inventory account. Ryder Company did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount.
Included in the company’s count were goods with a cost of $228,000 that the company is holding on consignment. The goods belong to Nader Corporation.
The physical count did not include goods purchased by Ryder Company with a cost of $40,000 that were shipped FOB shipping point on December 28 and did not arrive at Ryder Company’s warehouse until January 3.
Included in the Inventory account was $17,000 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year.
The company received an order on December 29 that was boxed and was sitting on the…
Kari Downs, an auditor with Wheeler CPAs, is performing a review of Waterway Company’s inventory account. Waterway did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $747,000. However, the following information was not considered when determining that amount.
Chapter 14 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 14 - If a corporation overstates its earnings, are its...Ch. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - List the major responsibilities of an accounts...Ch. 14 - Prob. 10RQ
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Prob. 16RQCh. 14 - Prob. 17RQCh. 14 - Whitehall Company records its liabilities in an...Ch. 14 - Prob. 19RQCh. 14 - Prob. 20RQCh. 14 - Prob. 21RQCh. 14 - Prob. 22RQCh. 14 - What is the purpose of the auditors review of cash...Ch. 14 - Prob. 24RQCh. 14 - Prob. 25RQCh. 14 - Prob. 26RQCh. 14 - Prob. 27QRACh. 14 - Prob. 28QRACh. 14 - Prob. 29QRACh. 14 - Prob. 30QRACh. 14 - Prob. 31QRACh. 14 - Prob. 32QRACh. 14 - Which of the following procedures is least likely...Ch. 14 - Prob. 33BOQCh. 14 - Which of the following is the best audit procedure...Ch. 14 - Prob. 33DOQCh. 14 - Prob. 33EOQCh. 14 - Prob. 33FOQCh. 14 - Prob. 33GOQCh. 14 - Prob. 33HOQCh. 14 - Ordinarily, the most significant assertion...Ch. 14 - Prob. 33JOQCh. 14 - Prob. 33KOQCh. 14 - Prob. 33LOQCh. 14 - Prob. 34OQCh. 14 - Prob. 35OQCh. 14 - Prob. 36OQCh. 14 - Prob. 37OQCh. 14 - Prob. 38PCh. 14 - Prob. 39PCh. 14 - Prob. 40PCh. 14 - Prob. 41PCh. 14 - Prob. 42PCh. 14 - Prob. 43ITC
Knowledge Booster
Similar questions
- Suppose that an audit of Prime Sports Gear encountered the following two errors: a. Inventory totaling 4,500 should have been written off as worthless at the end of the year. Year-end inventory should be only 195,600. Net income is reduced to 117,110. b. Checks totaling 20,000 for some of the salaries payable at year-end had in fact been written and mailed out on December 31, 2013. Thus, both the cash account and the salaries payable account are overstated at year-end. Correct both errors on the worksheet. Save your completed file as CASHFLOW4. Print the worksheet when done. What impact did each of these adjustments have on cash flow for 2013?arrow_forwardZaheer Abbas, an auditor with Saeed CPAs, is performing a review of K Company’s inventory account. K Company did not have a good year and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $37,000. However, the following information was not considered when determining that amount.1. Included in the company’s count were goods with a cost of $125,000 that the company is holding on consignment. The goods belong to S Corporation. 2. The physical count did not include goods purchased by K Company with a cost of $20,000 that were shipped FOB destination on December 28 and did not arrive at K Company’s warehouse until January 3. 3. Included in the inventory account was $8,500 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year. 4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting…arrow_forwardSandra: We are beginning our audit of Imex and have prepared ratio analyses to determine if there have been significant changes in financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 5 to 2.8 and the accounts receivable turnover has decreased from 12 to 8. I was wondering if you could explain this change in operations. Travis: There is little need for concern. The inventory represents computers that we were unable to sell during the holiday buying season. We are confident, however, that we will be able to sell these computers as we move into the next fiscal year. Sandra: What gives you this confidence? Travis: We will increase our advertising and provide some very attractive price concessions to move these machines. We have no choice. Newer technology is already out there, and we have to unload this inventory. Sandra: …and the receivables? Travis: As you may be aware, the company is under tremendous pressure…arrow_forward
- An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?a. The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management.b. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.c. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales.d. The auditor should review period-end compensation to determine whether bonuses were paid to meet earnings goals.arrow_forwardYou are analyzing ABC Company, a computer manufacturer. You notice that inventory turnover this year is significantly lower than in prior years. You also notice that accounts receivable turnover is significantly lower this year when compared to previous years. Provide three explanations that would be consistent with your observation for inventory turnover and include an explanation of whether these would be of concern to you, as well as what the effect might be on the next period's financial results. In addition, provide three explanations that would be consistent with your observation of the accounts receivable turnover, and explain whether these would be of concern to you.arrow_forwardYou have performed preliminary analytical procedures on one of your audit engagements and observed the following independent situations: The allowance for obsolete inventory increased from the prior year, but the allowance as a percentage of inventory decreased from the prior year. Long-term debt increased from the prior year, but total interest expense decreased as a percentage of long-term debt. The dollar amount of operating income is consistent with the prior year although the entity was more profitable on a net income basis. The quick ratio decreased from the prior year, although the amount of cash and net accounts receivable is almost the same as the prior year. Required: Below are possible explanations for each of the observed changes in the financial statement amounts and ratios. For each observed change, select the most likely explanation(s) from the list below. Note: There may be more than one explanation for a given observed change, and an explanation…arrow_forward
- Farley Bains, an auditor with Nolls CPAs, is performing a review of Teal Mountain Inc.’s Inventory account. Teal Mountain Inc. did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $808,200. However, the following information was not considered when determining that amount. Ending inventory-as reported $enter a dollar amount 1. Included in the company’s count were goods with a cost of $224,170 that the company is holding on consignment. The goods belong to Nader Corporation. enter a dollar amount 2. The physical count did not include goods purchased by Teal Mountain Inc.with a cost of $38,530 that were shipped FOB shipping point on December 28 and did not arrive at Teal Mountain Inc.’s warehouse until January 3. enter a dollar amount 3. Included in the Inventory account was $18,300 of office supplies that were stored in the…arrow_forwardRachel Warren, an auditor with Laplante CPAs, is performing a review of Skysong, Inc.’s inventory account. Skysong, did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $748,000. However, the following information was not considered when determining that amount.Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with a negative sign preceding the number , e.g. -15,000, or parenthesis e.g. (15,000). Enter 0 if there is no effect.) Ending inventory-as reported $enter a dollar amount 1. Included in the company’s count were goods with a cost of $337,000 that the company is holding on consignment. The goods belong to Harmon Corporation. enter a dollar amount 2. The physical count did not include goods purchased by Skysong, with a cost of $47,000 that were shipped FOB…arrow_forwardMarilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these: Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Purchases of equipment occurred relatively evenly throughout the year. Based on her knowledge of…arrow_forward
- Which of the following would best explain an decrease in the company's inventory turnover? A. Due to problems with obsolescent inventory last year, the company wrote off a large amount of its inventory at the beginning of the period B. The company installed a new inventory management system allowing more efficient inventory management C. The company installed a new inventory management system but experienced some operational difficulties resulting in duplicate orders being placed with suppliersarrow_forwardBulldogs Inc. has recently calculated the inventory turnover for the currently year to be 30. In prior years, the same ratio was always lower. Which of the following statements would be the best interpretation for the reason for the ratio’s change? The company had less sales in the current year than in prior years. The company purchased less inventory in the current year than in prior years. The company took more days to sell its inventory in the current year than in prior years. The company took fewer days to sell its inventory in the current year than in prior years.arrow_forwardAn analyst observes a decrease in a company’s inventory turnover. Which of the following would most likely explain this trend? B . Due to problems with obsolescent inventory last year, the company wrote off a large amount of its inventory at the beginning of the period.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher: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
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning