Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 18, Problem 8DQP
a.
To determine
Indicate the adjusting
b.
To determine
Indicate the affect of misreporting of voucher number.
c.
To determine
Indicate the
d.
To determine
Indicate the internal controls that will reduce the likelihood of cutoff misstatement related to purchases.
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The inventory control clerk examines the inventory records for items that must bereplenished and prepares a two-part purchase requisition. Copy 1 of the requisition issent to the purchasing department and Copy 2 is filed.Upon receipt of the requisition, the purchase clerk selects a supplier from the validvendor journal (reference file) and prepares a three-part purchase order. Copy 1 is sentto the supplier, Copy 2 is sent to the accounts payable department where it is filedtemporarily, and Copy 3 is filed in the purchasing department.A few days after the supplier ships the order, the goods arrive at the receivingdepartment. They are inspected and the receiving clerk prepares a three-part receivingreport describing the number and quality of the items received. Copy 1 of the receivingreport accompanies the goods to the warehouse, where they are secured and thereceiving report is filed. Copy 2 is sent to inventory control, where the clerk posts to theinventory records (journal) and files…
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…
The following describes the expenditure cycle manual procedures for a hypothetical company.The inventory control clerk examines the inventory records for items that must be replenished andprepares a two-part purchase requisition. Copy 1 ofthe requisition is sent to the purchasing department,and Copy 2 is filed.Upon receipt of the requisition, the purchasingclerk selects a supplier from the valid vendor file (reference file) and prepares a three-part purchase order.Copy 1 is sent to the supplier, Copy 2 is sent to theAP department where it is filed temporarily, andCopy 3 is filed in the purchasing department.A few days after the supplier ships the order, thegoods arrive at the receiving department. They areinspected, and the receiving clerk prepares a threepart receiving report describing the number andquality of the items received. Copy 1 of the receivingreport accompanies the goods to the stores, wherethey are secured. Copy 2 is sent to inventory control,where the clerk posts it to…
Chapter 18 Solutions
Auditing And Assurance Services
Ch. 18 - List five asset accounts, three liability...Ch. 18 - Prob. 2DQPCh. 18 - Prob. 3DQPCh. 18 - Prob. 4DQPCh. 18 - Prob. 5DQPCh. 18 - Prob. 6DQPCh. 18 - Prob. 7DQPCh. 18 - Prob. 8DQPCh. 18 - Prob. 9DQPCh. 18 - Prob. 10DQP
Ch. 18 - Prob. 11DQPCh. 18 - Prob. 13DQPCh. 18 - Prob. 14DQPCh. 18 - Prob. 15DQPCh. 18 - Prob. 16.1MCQCh. 18 - Prob. 16.2MCQCh. 18 - Prob. 16.3MCQCh. 18 - Prob. 17.1MCQCh. 18 - Prob. 17.2MCQCh. 18 - Prob. 17.3MCQCh. 18 - Prob. 18.1MCQCh. 18 - Prob. 18.2MCQCh. 18 - Prob. 18.3MCQCh. 18 - Prob. 19DQPCh. 18 - Prob. 20DQPCh. 18 - Prob. 21DQPCh. 18 - Prob. 22DQPCh. 18 - The following misstatements are included in the...Ch. 18 - Prob. 24DQPCh. 18 - Prob. 25DQPCh. 18 - Prob. 26DQPCh. 18 - Prob. 27DQPCh. 18 - Prob. 28DQPCh. 18 - Prob. 30C
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- Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2019 (unless otherwise indicated), are as follows: During May, the last month of the fiscal year, the following transactions were completed: Instructions 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section and place a check mark () in the Posting Reference column. Journalize the transactions for May, starting on Page 20 of the journal. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). 5. (Optional) Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. Insert the new balance in the owners capital account. 10. Prepare a post-closing trial balance.arrow_forwardGrimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and income tax purposes. At the end of 2019, the following information was obtained from the inventory records: Required: 1. Prepare the necessary adjusting journal entry assuming that Grimstad converts the accounts to LIFO at the end of 2019. 2. Indicate how Grimstad would disclose the inventory value on its comparative balance sheets prepared at the end of 2019. 3. Next Level By how much would Grimstads cost of goods sold differ in 2019 if it used FIFO for external reporting?arrow_forwardAssume that in an annual audit of Cullumber 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. 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 $3,220 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 $3,910…arrow_forward
- The following describes the expenditure cycle manual procedures for a hypothetical company. The inventory control clerk examines the inventory records for items that must be replenished and prepares a two-part purchase requisition. Copy 1 of the requisitionis sent to the purchasing department, and Copy 2 is filed. Upon receipt of the requisition, the purchasing clerk selects a supplier from the valid vendor file (reference file) and prepares a three-part purchase order. Copy 1 is sent to the supplier, Copy 2 is sent to the accounts pay- able department where it is filed temporarily, and Copy 3 is filed in the purchases department. A few days after the supplier ships the order, the goods arrive at the receiving department. They are inspected, and the receiving clerk prepares a three-part receiving report describing the number and quality of the items received. Copy 1 of the receiving report accompanies the goods to the stores, where they are secured. Copy 2 is sent to inventory control,…arrow_forwardAssume that in an annual audit of Harlowe Inc. at December 31, 2020, you find the following transactions near the closing date. 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. 2. Merchandise costing $2,800 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. 3. A packing case containing a product costing $3,400 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…arrow_forwardA buyer uses a perpetual inventory system, and it purchases merchandise on terms of FOB shipping point. On December 20, the shipping company sends an invoice for $125 to the party responsible for the freight charges, and cash payment is made immediately.arrow_forward
- During your review of the Hearbeat Corporation for the year ended December 31, 2020, you found the following information relating to certain inventory transactions from your observation of the client’s physical count and review of sales and purchases cutoff: a. Goods costing P180,000 were received from a vendor on January 3, 2021. The goods were not included in the physical count. The related invoice was received and recorded on December 30, 2020. The goods were shipped on December 31, 2020, terms FOB shipping point. b. Goods costing P200,000, sold for P300,000, were shipped on December 31, 2020, and were received by the customer on January 2, 2021. The terms of the invoice were FOB shipping point. The goods were included in the ending inventory for 2020 and the sale was recorded in 2021. c. The invoice for goods costing P150,000 was received and recorded as a purchase on December 31, 2020. The related goods shipped FOB destination were received on January 2, 2021 but were included in…arrow_forwardTypically, a significant current asset for a merchandiser is (merchandise inventory) . The safeguarding of merchandise inventory includes taking a(n)________(fical inventory/physical inventory/ inventory record/ inventoru consigment) at least once per year. A ________(purchase order/ receiving report/vendor's invoice) authorizes the purchase of inventory, while a ________(purchase order/ receinving report/vendor's invoice) is issued when the purchase is received into merchandise inventory. A check is issued to the vendor when there is agreement between the purchase order, receiving report, and vendor invoice. Merchandise inventory is maintained in the accounting records under the perpetual inventory method using a ________(subsidiary inventoy ledger/ inventory account/inventory cost flow assumptiom/receiving report) . THANK YOUarrow_forwardYou are engaged to perform an audit of the accounts of the Butterfly Corporation for the year endedDecember 31, 2022, and have observed the taking of the physical inventory of the company onDecember 30, 2022. Only merchandise shipped by Butterfly to customers up to and including December30, 2022 have been eliminated from inventory.The inventory as determined by physical inventory count has been recorded on the books by thecompany’s controller. No perpetual inventory records are maintained. All sales are made on an FOBShipping point basis. You are to assume that all purchase invoices have been correctly recorded.The following lists of sales invoices are entered in the sales books for the months of December 2022 andJanuary 2023, respectively. (See attached image)Requirement: Prepare the necessary adjusting journal entries at December 31, 2022.arrow_forward
- In its annual report, American Eagle Outfitters states that its “e-commerce operation recordsrevenue upon the estimated customer receipt date of the merchandise.” Is this FOB shipping pointor FOB destination? If American Eagle were to change to the other terms of shipment, would itreport its Sales Revenues earlier or later?arrow_forwardThe auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of: audit efficiency. accuracy of the perpetual inventory master files. client convenience. audit staff availability.arrow_forwardOn April 1, 2020, you were hired by Binus Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the company’s records for 2018 and 2019, you discover that no adjustments have yet been made for the items listed below: Merchandise inventory costing $24,000 was in the warehouse at December 31, 2018, but was incorrectly omitted from the physical count at that date. The company uses the periodic inventory method. Explain the problems for each items and prepare journal entries showing the adjustments that are required!arrow_forward
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