EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
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Question
Chapter 21, Problem 28DQP
a.
To determine
Indicate the amount of the actual misstatement in each of the four tests and state the consideration that affects the estimate of the misstatement for any item for which the amount cannot be ascertained from the given information.
b.
To determine
Explain the action that can be done about clerical accuracy tests of the inventory in the current year.
c.
To determine
Explain any changes that can be suggested in internal controls and procedures for Company M during the compilation of next year’s inventory to prevent each type of misstatement.
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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 _____________________
2. What piece of information gained during the understanding of the inventory process would be LEAST relevant to the scoping of inventory locations?
A. The company hired a new count supervisor for one of their largest locations
B. Book to physical adjustments were material in the prior year for 2 locations
C. Cycle count accuracy rates have been greater than management's targets in the prior year and current year to date
D. WIP inventory takes longer to count
For each of the independent events listed below, analyze the impact on the indicated items at the end of the current year by selecting the appropriate code letter in the dropdown under each item.
Code: O - item is overstated
U
- item is understated
NA
item is not affected
1. A physical count of goods on hand at the end of the current year resulted in some goods being counted twice.
2. The ending inventory in the previous period was overstated.
Events
3.
4.
Goods purchased on account in December of the current year and shipped FOB destination were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31.
Goods purchased on account in December of the current year and shipped FOB shipping point were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31.
5.
The internal auditors discovered that the ending inventory in the previous…
Chapter 21 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
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. 22DQPCh. 21 - Your client, Ridgewood Heating and Cooling,...Ch. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQP
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- For each of the independent events listed below, analyze the impact on the indicated items at the end of the current year by selecting the appropriate code letter in the dropdown under each item. Code: O - item is overstated U - item is understated NA - item is not affected Events 1. A physical count of goods on hand at the end of the current year resulted in some goods being counted twice. 2. The ending inventory in the previous period was overstated. 3. Goods purchased on account in December of the current year and shipped FOB shipping point were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31. 4. Goods purchased on account in December of the current year and shipped FOB destination were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31. 5. The internal auditors discovered that the ending inventory in the previous…arrow_forwardThe following misstatements are included in the inventory and related records of Westbox Manufacturing Company: 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 manufacturing overhead costs, the manufacturing overhead rate applied to inventory was far greater than actual cost. 7.An inventory item was priced at $12 each instead of at the correct cost of $12 per dozen. Required For each misstatement, state an internal control that should have prevented it from occurring. For each misstatement, state a substantive audit procedure that can be used to uncover it.arrow_forwardQuestion: Considering the year-ending adjusting journal entries for the periodic inventory system. If I miscount my ending inventory, what is the effect on the balance sheet? What is the effect on the income statement? For example, at the year-end inventory count, there is a mistake and I count 30,000 units of inventory when 29,000 actually exist. I make the year-end journal entries with 30,000 as my number of units in inventory. What is the effect on the balance sheet and income statement for that year? Potential Extra Credit: What is true about the balance sheet in year 2 if my ending inventory count is correct in year 2 (after being miscounted in year 1)? What about the income statement in year 2?arrow_forward
- In your audit of Joseph Moore Company, you find that a physical inventory on December 31, 2020, showed merchandise with a cost of $411,580 was on hand at that date. You also discover the following items were all excluded from the $411,580. 1. Merchandise of $60,710 which is held by Moore on consignment. The consignor is the Max Suzuki Company. 2. Merchandise costing $38,360 which was shipped by Moore f.o.b. destination to a customer on December 31, 2020. The customer was expected to receive the merchandise on January 6, 2021. 3. Merchandise costing $46,920 which was shipped by Moore f.o.b. shipping point to a customer on December 29, 2020. The customer was scheduled to receive the merchandise on January 2, 2021. 4. Merchandise costing $82,010 shipped by a vendor f.o.b. destination on December 30, 2020, and received by Moore on January 4, 2021. 5. Merchandise costing $55,300 shipped by a vendor f.o.b. shipping point on December 31, 2020, and received by Moore on…arrow_forwardQ: Which misstatement below is more difficult to detect? Explain.(i)The inventory costing $ 150,000 being ordered by customers before the year end was excluded from the ending inventory balance as they are set aside for delivery after year end. The ending balance of inventory as on the statement of financial position was $ 600,000.(ii) Inventory list shows 40 boxes of rice but only 38 boxes were found in the warehouse.(iii) The inventory has a cost of $600,000 and realizable value of $540,000 as the items are outdated. The ending balance of inventory as on the statement of financial position was $ 600,000.arrow_forwardSales/Inventory Cutoff. Your client took a complete physical inventory count under your observation as of December 15 and adjusted the inventory control account (perpetual inventory method) to agree with the physical inventory. After considering the count adjustments as of December 15 and after reviewing the transactions recorded from December 16 to December 31, you are almost ready to accept the inventory balance as fairly stated. However, your review of the sales cutoff as of December 15 and December 31 disclosed the following items not previously considered: Required:What adjusting journal entries, if any, would you make for each of these items? Explain why each adjustment is necessaryarrow_forward
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