EBK AUDITING AND ASSURANCE SERVICES
16th Edition
ISBN: 9780134067117
Author: Hogan
Publisher: VST
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Chapter 19, Problem 16.2MCQ
To determine
Indicate the analytical procedure results that might suggest certain repair and maintenance expenses which have been inappropriately capitalized.
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Which one of the following statement about encumbrance is correct?
a.
Encumbrances are equivalent to expenditures and encumbrances outstanding at the end of a year should be reported as assets
b.
None of the options
c.
Encumbrances are equivalent to expenditures and encumbrances outstanding at the end of a year should be reported as liabilities
d.
Encumbrances are recorded at the estimated cost of goods ordered or services contracted for. The subsequent amount recognized as expenditures upon receipt of the goods and services may differ from the encumbered amount.
Classify each of the following accounting practices as conservative or aggressive. 1. Increase the allowance for uncollectible accounts. 2. When costs are rising, change from LIFO to FIFO. 3. Change from declining-balance to straight-line depreciation in the second year of an asset depreciated over 20 years.
John Smith mistakenly expensed the cost of a long-term tangible fixed asset. Specifically, he charged the cost of a truck to a delivery expense account. How will this error affect the income statement and the balance sheet in the year in which the mistake is made?
Chapter 19 Solutions
EBK AUDITING AND ASSURANCE SERVICES
Ch. 19 - Identify three asset accounts, three expense...Ch. 19 - Explain the relationship between substantive tests...Ch. 19 - Prob. 3RQCh. 19 - Prob. 4RQCh. 19 - Prob. 5RQCh. 19 - Prob. 6RQCh. 19 - Prob. 7RQCh. 19 - Prob. 8RQCh. 19 - Prob. 9RQCh. 19 - Which documents will be used to verify accrued...
Ch. 19 - Prob. 11RQCh. 19 - Prob. 12RQCh. 19 - Prob. 13RQCh. 19 - Prob. 14RQCh. 19 - Prob. 15.3MCQCh. 19 - Prob. 15.1MCQCh. 19 - Prob. 15.2MCQCh. 19 - Prob. 16.1MCQCh. 19 - Prob. 16.2MCQCh. 19 - Prob. 16.3MCQCh. 19 - Prob. 17.1MCQCh. 19 - Prob. 17.3MCQCh. 19 - Prob. 17.2MCQCh. 19 - Prob. 18.1MCQCh. 19 - Prob. 18.2MCQCh. 19 - Prob. 18.3MCQCh. 19 - Prob. 19DQPCh. 19 - Prob. 20DQPCh. 19 - Prob. 21DQPCh. 19 - Prob. 22DQPCh. 19 - Prob. 23DQPCh. 19 - Prob. 24DQPCh. 19 - You are auditing the financial statements of...Ch. 19 - Prob. 29DQPCh. 19 - Prob. 26DQPCh. 19 - Prob. 27DQPCh. 19 - Prob. 28DQP
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- Miller Co. discovered that in the prior year, it failed to report $40,000 of depreciation related to a newly constructed building. The depreciation was computed correctly for tax purposes. The tax rate for the current year was 40%. What was the impact of the error on Miller’s financial statements for the prior year? Understatement of net income of $24,000. Understatement of accumulated depreciation of $40,000. Understatement of depreciation expense of $24,000. Understatement of accumulated depreciation of $24,000.arrow_forwardHolt Co. discovered that in the prior year, it failed to report P40,000 of depreciation related to a newly constructed building. The depreciation was computed correctly for tax purposes. The tax rate for the current year was 20%. How should Holt report the correction in the error in the current year -as an increase in accumulated depreciation of P40,000 -as an increase of depreciation expense of P40,000 -as an increase in depreciation expense of P32,000 -as an increase in accumulated depreciation of P32,000arrow_forwardWhich of the following is NOT correct? i. Initial allowance is claimable in the year the qualifying expenditure is incurred; however, it can be deferred to another year. ii. Annual allowance is not given in the year of disposal. iii. Annual allowance may be granted if a qualifying asset is temporarily out of use. iv. Capital allowance is granted instead of depreciation for all assets.arrow_forward
- Please solve this ASAP! Which of the following is NOT correct? i. Initial allowance is claimable in the year the qualifying expenditure is incurred; however, it can be deferred to another year. ii. Annual allowance is not given in the year of disposal. iii. Annual allowance may be granted if a qualifying asset is temporarily out of use. iv. Capital allowance is granted instead of depreciation for all assets a. iiand iv b. i only c. i, and iv d. ii and iiiarrow_forwardFor each of the following independent scenarios, determine if each event is an accounting change, error, or neither. For each accounting change or error determine the method that should be used to account for the change or error in the current year financial statements: retrospective adjustment, prospective, or prior period adjustment. Change from LIFO to FIFO Inventory Method. - NEITHER Change in useful life of equipment from 10 years to 7 years. Accounting Error Change in depreciation method from Double Declining Balance to Straight Line. Write-down of inventory due to obsolescence. Settlement of lawsuit and receipt of damages from 5 years prior. Write-off of patent due to competing product. Prior year costs were recorded as expenses instead of Property, Plant and Equipment. Change in Allowance for Uncollectible Accounts due to increase in unpaid Accounts Receivable, changes estimate from 4% of credit sales to 6%.arrow_forwardThere are various types of accounting changes, each of which is required to be reported differently.Required:1. What type of accounting change is a change from the sum-of-the-years’-digits method of depreciation to thestraight-line method for previously recorded assets as a result of new information related to production patterns? Under what circumstances does this type of accounting change occur?2. What type of accounting change is a change in the expected service life of an asset arising because of moreexperience with the asset? Under what circumstances does this type of accounting change occur?arrow_forward
- In subsequent years: Assuming that the asset is depreciable, the absence of depreciation charges in future years will increase the reported profit of those years so that the company's total profits over the entire useful life of the asset will in fact be unaffected by the error. Is that correct?arrow_forward3) b) Profit before tax for Juventus is estimated at $3,000,000 for the year ended June 30, 2019, during the audit, the team has identified the following errors,i. An error of $3,000 was found in the audit of depreciation expense of the warehouse purchased in January 2019. The management of Juventus have indicated that they do not wish to amend the financial statements.ii. An error of $350,000 in the valuation of work in progress was found as a number of the assumptions contain out of date information. The management of Juventus have indicated that they do not wish to amend the financial statements.Calculate Performance Materiality and utilize this to discuss the appropriate treatment of the above two errors.arrow_forwardFor each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end.2. Introduction of a new product line.3. Loss of assembly plant due to fire.4. Sale of a significant portion of the company’s assets.5. Retirement of the company president.6. Issuance of a significant number of ordinary shares.7. Loss of a significant customer.8. Prolonged employee strike.9. Material loss on a year-end receivable because of a customer’s bankruptcy.10. Hiring of a new president.11. Settlement of prior year’s litigation against the company (no loss was accrued).12. Merger with another company of comparable size.arrow_forward
- identify whether it is treated as a prior period adjustment or change in accounting estimate. After using an expected useful life of seven years and no salvage value to depreciate its office equipment over the preceding three years, the company decided early this year that the equipment will last only two more years.arrow_forwardAn annual report of Costco Wholesale Corporation, the large discount company, contained the following statement:“The Company periodically evaluates long-lived assets for impairment when circumstances occur that may indicate the carrying amount of the asset group may not be fully recoverable”. Why would the concept of impairment be referred to as a conservative accounting approach?arrow_forwardProfit before tax for Juventus is estimated at $3,000,000 for the year ended June 30, 2019, during the audit, the team has identified the following errors:i. An error of $3,000 was found in the audit of depreciation expense of the warehouse purchased in January 2019. The management of Juventus have indicated that they do not wish to amend the financial statements. Calculate Performance Materiality and utilize this to discuss the appropriate treatment of the above error.arrow_forward
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