Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 21, Problem 29DQP
a.
To determine
Calculate the adjustments that must be made to the client’s physical inventory at December 31, 2016.
b.
To determine
Prepare a worksheet of
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In conducting your audit of Blue Lagoon Corporation, a company engaged
in import and wholesale business, for the fiscal year ended June 30, 2021,
you determined that its internal control system was good. Accordingly, you
observed the physical inventory at an interim date, May 30, 2021 instead
of at June 30, 2021.
You obtained the following information from the company's general
ledger.
Sales for eleven months ended May 31, 20121 (before
audit adjustments)
Sales for the fiscal year ended June 30, 2021 (before
audit adjustments)
Purchases for eleven months ended May 31, 2021
(before audit adjustments)
Purchases for the fiscal year ended June 30, 2021
(before audit adjustments)
Inventory, July 1, 2020
Physical inventory, May 30, 2021
P1,615,000
1,843,000
1,296,000
1,536,000
170,200
264,000
Your audit disclosed the following additional information.
a. Shipments costing P12,000 were received in May and included in the
physical inventory but recorded as June purchases.
b. Deposit of P4,000…
You are an audit senior of Hassan& Co and are in the process of reviewing the inventory system documentation for your audit client, Lemon Juice Co (Lemon) which manufactures computer equipment. The company’s factory and warehouse are based on one large site, and their year end is 30 June 2016. Lemon is planning to undertake a full inventory count at the year end of its raw materials, work in progress and finished goods and you will be attending this count. In preparation you have been reviewing the inventory count instructions for finished goods provided by Lemon.
The count will be undertaken by 15 teams of two counters from the warehouse department with Lemon’s financial controller providing overall supervision. Each team of two is allocated a number of bays within the warehouse to count and they are provided with sequentially numbered inventory sheets which contain product codes and quantities extracted from the inventory records. The counters move through each allocated bay…
You are engaged to perform an audit of the Nadir Corporation for the year ended December 31, 2021. You have decided
to perform the following cutoff test for payables and accruals. Select all items greater than P25,000 for two business days
before and after year-end from the purchases journal and ensure that all transactions are recorded in the proper period.
During your firm's observation of Nadir's physical inventory you obtained the following cutoff information: the last receiving
report number in 2021 was 49745. Your audit work identified the following items for further investigation:
Selections from the December 2021 Purchase Journal
Vendor Name
Date
RR#
49472
Amount
Explanation
P 29,875 Chemicals purchased for manufacturing process.
P 45,000 Payment for consulting services for the three-month
period beginning December 1, 2021. The P45,000
was charged to consulting expenses.
P205,000 Raw materials used in the manufacturing process.
12/30
12/31
Jeff Chemicals
None
Abed Consulting…
Chapter 21 Solutions
Auditing and Assurance Services (16th Edition)
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- You are an audit senior of Hassan& Co and are in the process of reviewing the inventory system documentation for your audit client, Lemon Juice Co (Lemon) which manufactures computer equipment. The company’s factory and warehouse are based on one large site, and their year end is 30 June 2016. Lemon is planning to undertake a full inventory count at the year end of its raw materials, work in progress and finished goods and you will be attending this count. In preparation you have been reviewing the inventory count instructions for finished goods provided by Lemon. The count will be undertaken by 15 teams of two counters from the warehouse department with Lemon’s financial controller providing overall supervision. Each team of two is allocated a number of bays within the warehouse to count and they are provided with sequentially numbered inventory sheets which contain product codes and quantities extracted from the inventory records. The counters move through each allocated bay…arrow_forwardIn conducting your audit of Mangatarem Corporation, a company engaged in import and wholesale business, for the fiscal year ended June 30, 2006, you determined that its internal control system was good. Accordingly, you observed the physical inventory at an interim date, May 31, 2006 instead of at June 30, 2006. You obtained the following information from the company's general ledger: Sales for eleven months ended May 31, 2006 (before audit adjustments) P1,615,000 Sales for the fiscal year ended June 30, 2006 (before audit adjustments) 1,843,000 Purchases for eleven months ended May 31, 2006 (before audit adjustments) 1,296,000 Purchases for the fiscal year ended June 30, 2006 1,536,000 Inventory, July 1, 2005 170,200 Physical inventory, May 31, 2006 264,000 Your audit disclosed the following additional information. 1) Shipments costing P12,000 were received in May and included in the physical inventory but recorded as June purchases. 2) Deposit of P4,000 made with vendor and charged…arrow_forwardDuring the course of the Year 2 audit of Chester Co., the auditor discovered potential cutoff problems that may or may not require adjusting journal entries. For each of the potential cutoff problems indicated below, complete the required journal entries. To prepare each required journal entry: 1. The company shipped merchandise with a carrying amount of $75,000 FOB destination on December 23, Year 2, and recorded the sale and relief of inventory on that date. The customer received the merchandise on December 31, Year 2. The merchandise has a gross profit margin of 10%. Record the necessary Year 2 adjustments, if any. 2. The company shipped merchandise with a carrying amount of $45,000 to a consignee on December 24, Year 2, and recorded the sale and the relief of inventory on that date. The consignee had not sold the merchandise as of January 5, Year 3. The merchandise has a gross profit margin of 10%. Record the necessary Year 2 adjustments, if any. 3. At the beginning of Year 2, the…arrow_forward
- You have been assigned to the audit of Carter Brandon Co (CBC), and you are drafting the audit for payables and accruals for the year ended 31 December 20x7. The company operates from a site in West Wendon. All raw materials are received in the stores and all deliveries are checked to the delivery note and purchase order. The stores supervisor raises a goods received note and is also responsible for raising credit requests if there are any problems with the raw materials delivered.When the purchase ledger department staff receive the purchase invoices, they match them to the relevant goods received notes and purchase orders, and post them to the computerised purchase ledger. Suppliers are paid on the last day of each month. Other payables and accruals consist of tax, wages and other statutory deductions, accruals and time- apportioned expenses such as electricity and telephone.a. Assess the audit work you will carry out to compare suppliers' statements with balances recorded on the…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_forwardYou are the audit senior on the audit of Harmony Pty Ltd, a large manufacturing company, for the year ended 30 June 20X7. It is now 25 August, 20X7 and you are reviewing the audit working papers prepared by the audit assistant, Susan Jones, and notice the following matters: (a) Susan attended the stocktake on 30 June and observed that the client followed the stocktake instructions. She selected numerous items for test inventory from the client’s inventory sheets and all were found to be correct. Cut-off details were noted and subsequently checked and found to be correctly treated. Susan concluded that inventory was fairly stated. Required: For each of the two scenarios presented above, indicate whether you believe that sufficient appropriate audit evidence has been obtained to support the conclusions reached. Give reasons for your decision.arrow_forward
- You are working as a summer intern for AAA Auditing, Inc. You have been asked to help resolve discrepancies noted in the audit for Dolfin Corporation, a retailer of specialty aquarium supplies.As a retail company, Dolfin Corporation uses the perpetual inventory system. To prepare for this assignment, you have been asked to review your knowledge of salesand purchase transactions by completing the following table.Consider the effect of each transaction on the three accounts listed, and identify which accounts are debited or credited. If not affected by the transaction, select "No Effect". Inventory Estimated Returns Inventory Cost of Goods Sold Purchase of merchandise for resale Debit Cash sale of merchandise Credit Customer returns Debit Yearly estimate for customer returns Freight paid for merchandise purchased FOB shipping point Debit Return of merchandise purchased for resale Credit Freight paid for sales with FOB destination No Effect Sale on…arrow_forwardYou are the audit senior on the audit of Harmony Pty Ltd, a large manufacturing company, for the year ended 30 June 20X7. It is now 25 August, 20X7 and you are reviewing the audit working papers prepared by the audit assistant, Susan Jones, and notice the following matters: (a) Susan attended the stocktake on 30 June and observed that the client followed the stocktake instructions. She selected numerous items for test inventory from the client’s inventory sheets and all were found to be correct. Cut-off details were noted and subsequently checked and found to be correctly treated. Susan concluded that inventory was fairly stated. (b) Susan selected 20 invoices to test the control that the sales clerk checks that the prices agree with the authorised price list. She found 3 instances where the sales clerk had not signed the “prices checked” box in the invoice. The sales manager explained that the sales clerk always checks the prices but sometimes forgets to sign the box. As the prices on…arrow_forwardMichael Corporation is on a calendar year basis. The following data were found during your audit:1) An excerpt from the client’s trial balance revealed the following account balances:Accounts receivable P 80,000Inventory, per count 1,200,000Accounts payable 790,000Net sales 6,050,000Net purchases 3,300,000Net income 610,0002) The client conducted an inventory count on December 31, 2021. Michael Corporation normally sells at 30% gross profit based on selling price.3) Goods were in transit FOB destination from a supplier in the amount of P120,000. Further testing revealed that the suppliers invoice pertaining to the delivery was received and recorded on December 28, 2021.4) Good costing P70,000 had been received on December 31, and recorded as a purchase. However, upon your inspection, the goods were found to be defective and would be immediately returned.5) Materials costing P224,000, sold and billed on December 30 under a “bill and hold” agreement, had been segregated in the warehouse…arrow_forward
- (Inventoriable Goods and Costs) Assume that in an annual audit of Harlowe Inc. at December 31, 2017, 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, 2017. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2018.2. Merchandise costing $2,800 was received on January 3, 2018, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2017, 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, 2017, but that the case was shipped and the customer billed on…arrow_forwardMichael Corporation is on a calendar year basis. The following data were found during your audit: 1) An excerpt from the client’s trial balance revealed the following account balances:Accounts receivable P 80,000Inventory, per count 1,200,000Accounts payable 790,000Net sales 6,050,000Net purchases 3,300,000Net income 610,000 2) The client conducted an inventory count on December 31, 2021. Michael Corporation normally sells at 30% gross profit based on selling price. 3) Goods were in transit FOB destination from a supplier in the amount of P120,000. Further testing revealed that the supplier's invoice pertaining to the delivery was received and recorded on December 28, 2021. 4) Good costing P70,000 had been received on December 31 and recorded as a purchase. However, upon your inspection, the goods were found to be defective and would be immediately returned. 5) Materials costing P224,000, sold and billed on December 30 under a “bill and hold” agreement, had been segregated in the…arrow_forwardBased on its physical count of inventory in its warehouse at year-end, December 31, 2014, Madison Company planned to report inventory of $35,300. During the audit, the independent CPA developed the following additional information: a. Goods from a supplier costing $700 are in transit with UPS on December 31, 2014. The terms are FOB shipping point (explained in the “Required” section). Because these goods had not yet arrived, they were excluded from the physical inventory count. b. Madison delivered samples costing $1,740 to a customer on December 27, 2014, with the understanding that they would be returned to Madison on January 15, 2015. Because these goods were not on hand, they were excluded from the inventory count. c. On December 31, 2014, goods in transit to customers, with terms FOB shipping point, amounted to $6,000 (expected delivery date January 10, 2015). Because the goods had been shipped, they were excluded from the physical inventory count. d. On…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning