EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
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Textbook Question
Chapter 8, Problem 32DQP
Your comparison of the gross margin percent for Jones Drugs for the years 2013 through 2016 indicates a significant decline. This is shown by the following information:
A discussion with Marilyn Adams, the controller, brings to light two possible explanations. She informs you that the industry gross profit percent in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitable portion of the business, yet the competition from discount drugstores prevents it from expanding as fast as the nondrug items such as magazines, candy, and many other items sold. Adams feels strongly that these two factors are the cause of the decline.
The following additional information is obtained from independent sources and the client's records as a means of investigating the controller's explanations:
Required
- a. Evaluate the explanation provided by Adams. Show calculations to support your conclusions.
- b. Which specific aspects of the client's financial statements require intensive investigation in this audit?
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An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent.
Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager’s representation?a. Perform additional inquiries with sales personnel.b. Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.c. Send confirmations asking customers about unit prices paid for product.d. Vouch vender invoices to payments made after year-end.
Pool Corporation Inc. reported in its recent annual report that the industry experienced some price deflation one year followed by
more normalized price inflation of approximately 2 percent overall despite price deflation for certain chemical products. This suggests
that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some
inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sale
information are presented below. Pool uses a perpetual inventory system.
Transaction
Beginning inventory
Purchases, February 7
Sales, February 28
Purchases, March 16
Sales, April 28
Item A
Item B
FIFO
Inventory Item A
Unit Cost
Cost of Sales
Units
40
80
50
100
110
$6
8
Weighted-Average
99
Inventory Item B
Unit Cost
Required:
1. Compute the cost of sales for each of the two items separately using the FIFO and weighted average cost inventory costing
methods. (Do not…
Pool Corporation, Incorporated, reported in its recent annual report that "In 2010, our industry experienced some price deflation.... In
2011, our industry experienced more normalized price inflation of approximately 2.6 percent overall despite price deflation for certain
chemical products." This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in
many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this
year.
Purchase and sales data are presented below.
Inventory Item A
Inventory Item B
Transaction
Units
Beginning inventory
100
Purchases, February 7
140
Unit Cost
$ 6.6
8.6
Units
Unit Cost
100
$ 6.6
140
Purchases, March 16
Sales, April 28
160
270
9.6
160
270
5.6
3.6
Required:
1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods.
2. Between FIFO and LIFO, which method is preferable in terms…
Chapter 8 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Prob. 6RQCh. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - Prob. 9RQCh. 8 - Prob. 10RQ
Ch. 8 - Prob. 11RQCh. 8 - Prob. 12RQCh. 8 - Prob. 13RQCh. 8 - Prob. 14RQCh. 8 - Prob. 15RQCh. 8 - Your client, Harper Company, has a contractual...Ch. 8 - Prob. 17RQCh. 8 - Prob. 18RQCh. 8 - Prob. 19RQCh. 8 - Prob. 20RQCh. 8 - Prob. 21RQCh. 8 - Prob. 22RQCh. 8 - Prob. 23RQCh. 8 - Prob. 24RQCh. 8 - Prob. 25.1MCQCh. 8 - Prob. 25.2MCQCh. 8 - Prob. 25.3MCQCh. 8 - Prob. 26.1MCQCh. 8 - Prob. 26.2MCQCh. 8 - Prob. 26.3MCQCh. 8 - Which one of the following statements is correct...Ch. 8 - Prob. 27.2MCQCh. 8 - Prob. 27.3MCQCh. 8 - Prob. 28.1MCQCh. 8 - Prob. 28.2MCQCh. 8 - Prob. 28.3MCQCh. 8 - Prob. 29DQPCh. 8 - Prob. 30DQPCh. 8 - Prob. 31DQPCh. 8 - Your comparison of the gross margin percent for...Ch. 8 - Prob. 33DQPCh. 8 - Prob. 34DQPCh. 8 - Prob. 35DQPCh. 8 - Prob. 36DQPCh. 8 - Prob. 37DQPCh. 8 - Following are statements of earnings and financial...
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