AUDITING+ASSURANCE 12MONTH ACCESS CARD
17th Edition
ISBN: 9780135635131
Author: ARENS
Publisher: WILEY
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Question
Chapter 21, Problem 20DQP
a.
To determine
Indicate an internal control that should have prevented the misstatement from occurring.
b.
To determine
Indicate a substantive
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The following misstatements are included in the inventory and related records of Westbox Manufacturing Company:
1.When raw material acquisitions were recorded, the improper unit price was included in the perpetual inventory master file. Therefore, the inventory valuation was misstated because the physical inventory was priced by referring to the perpetual records.
2.In taking the physical inventory, the last shipments for the day were excluded from inventory and were not included as a sale until the subsequent year.
3.The clerk in charge of the perpetual inventory master file altered the quantity on an inventory tag to cover up the shortage of inventory caused by its theft during the year.
4.After the auditor left the premises, several inventory tags were lost and were not included in the final inventory summary.
5.During the physical count, several obsolete inventory items were included.
6.Because of a significant increase in volume during the current year and excellent control over…
A portion of the raw materials inventory was misclassified as finished goods on the balance sheet. Please indicate which
of the following management assertions regarding inventory is being violated.
O Existence and Occurrence
O Completeness
O Valuation or accuracy
O Rights and obligations
O Presentation and disclosures
1.
Please provide the type of audit procedures that was performed in the following actions or procedures:
Inquire of management whether they have properly identified obsolete inventory as at the balance sheet date ___________
Re-compute the unit sales price multiplied by the number of units for a sample of duplicate sales invoices, and compare the totals to the client’s calculations _____________________
Chapter 21 Solutions
AUDITING+ASSURANCE 12MONTH ACCESS CARD
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 21DQPCh. 21 - Prob. 22DQPCh. 21 - Prob. 23DQPCh. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQPCh. 21 - Prob. 30C
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- Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?a. Supplies of relatively little value are expensed when purchased.b. The cycle basis is used for physical counts.c. The warehouse manager is responsible for maintenance of perpetual inventory records.d. Perpetual inventory records are maintained only for items of significant valuearrow_forwardFor companies that use a perpetual inventory system, all of the following are reasons for taking a physical inventory except to determine losses due to employee theft. to determine ownership of the goods. to check the accuracy of the records. to determine the amount of wasted raw materials.arrow_forwardWhich one of the following statements is not true? a. A company using the periodic system does not maintain a continuous record of the physical quantities (or costs) of inventory on hand. b. In the periodic system, the costs of acquisition of inventory are not debited directly to an inventory account. c. In the perpetual inventory system, recording in detailed subsidiary records can be in units only-not in dollar costs. d. When the perpetual system is used, a physical count does not need to be made periodically.arrow_forward
- 1. On which of the following instances is cost estimation not permitted? A. Estimating the cost of inventory destroyed by fire or other natural calamities. B. Presenting the value of inventory in an interim financial statement. C. Reporting of inventory at the Statement of Financial Position at year-end. D. Estimating the value of inventory missing because of theft. 2. Under the gross profit method, if the gross profit rate is based on cost, the cost of sales is computed as A. Gross sales times cost ratio B. Net sales divided by sales ratio C. Net sales times cost ratio D. Gross sales divided by sales ratio 3. In computing cost ratio, the conservative/conventional retail method should A. Exclude mark-up but not markdown B. Include mark-up and markdown C. Exclude mark-up and markdown D. Include mark-up but not markdownarrow_forwardThe DENR RO5 operates a perpetual inventory system and performs quarterly physical inventory counts to reflect actual quantities counted. During the auditor interim visit, the result of the last physical count is reviewed. It appears that several numbers of high-value items included in the records were not counted. Also, returns to the supplier are deducted from the physical inventory but are not recorded in the inventory records. Required: State the points of concern in your report to management with respect to the control issues and comment on their possible impact on your year-end audit work by identifying: a) weaknesses b) risks, and c) give recommendations.arrow_forwardManagement decided to undertake a physical inventory count in resolving a perceived weakness in the Company’s inventory control process. You have been appointed as the auditor of Small Limited.Required: Itemise the duties of the auditor in relation to inventories count under the following headings: Before the count, During the count After the countarrow_forward
- Perpetual inventory valuation system does not require.... a. physical count or measurement of inventory b. suspension of receipts and issue in the entire factory c. maintenance of inventory records d. suspension of receipts and issue in the entire factory, maintenance of inventory records and physical count or measurement of inventory.arrow_forward20.The gross profit method of estimating inventory would NOT be useful when a. a periodic system is in use and inventories are required for interim statements. b. inventories have been destroyed or lost by fire, theft or other casualty and the specific data required for inventory valuation are not available. c.the validity of inventory obtained by physical count is being established. d. the relationship between gross profit and sales continue to be unstable over time.arrow_forwardItems Included in Inventory The following are several items that Golosow Companys controller has questioned regarding their inclusion in inventory: a. An invoice has been received for goods ordered. The goods were shipped FOB destination but have not been received. b. Purchases have been ordered and received (shipping terms were FOB destination), but no invoice has arrived. c. Product was shipped to a customer today, FOB destination, and the invoice mailed. d. Purchases are in the receiving department, but they are damaged and will be returned. e. Product is in the shipping department, and the invoice has not been mailed to the customer. Shipping terms are FOB shipping point. f. Golosow has inventory in its possession from Tate Company. The inventory is to be sold by Golosow under a consignment arrangement with Tate. Required: 1. For each of the preceding items, indicate whether Golosow should include them in inventory. Justify your answer. 2. Next Level Describe the basic criterion for including items in inventory.arrow_forward
- Errors in Ending Inventory From time to time, business news will report that the management of a company has misstated its profits by knowingly establishing an incorrect amount for its ending inventory. Required: Explain how a misstatement of ending inventory can affect profit.arrow_forwardThe following are independent errors made by a company that uses a periodic inventory system: a. failure to record a purchase of inventory on credit (however, inventory was properly counted at the end of the period) b. expensing the purchase of a machine c. failure to accrue wages d. failure to record an allowance for uncollectibles e. including collections in advance as revenue f. including payments in advance as expenses g. failure to accrue warranty costs h. discount on a note payable issued for purchase of a machine is ignored i. failure to record depreciation expense on assets purchased during the year Required: Next Level Indicate the effect of each of the preceding errors on the companys assets, liabilities, shareholders equity, and net income in the year in which the error occurs. State whether the error causes an overstatement (+), an understatement (), or no effect (NE).arrow_forwardWhich of the following would cause periodic ending inventory to be overstated? A. Goods held on consignment are omitted from the physical count. B. Goods purchased and delivered, but not yet paid for, are included in the physical count. C. Purchased goods shipped FOB destination and not yet delivered are included in the physical count. D. None of the abovearrow_forward
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