AUDITING MULTIPLE CHOICE
1. (TCO 2) If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods, it is appropriate to issue a(n): (Points: 2)
2. (TCO 2) When a client has not applied GAAP consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in GAAP has a material effect on the financial statements, the auditor should issue a(n): (Points: 2)
3. (TCO 2) Which of the following is not an essential condition for issuing the standard unqualified audit opinion? (Points: 2)
4. (TCO 2) An adverse opinion is issued when the auditor believes: (Points: 2)
5. (TCO 11) A principal purpose of a letter of representation from management is to (Points: 2)
6. (TCO 11) A client representation letter is: (Points: 2)
7. (TCO 11) Inquiries of management regarding the possibility of unrecorded contingencies will not be useful in uncovering: (Points: 2)
8. (TCO 11) The audit step most likely to reveal the existence of contingent liabilities is (Points: 2)
9. (TCO 2) The standards which govern the CPA’s association with unaudited financial statements are: (Points: 2)
10. (TCO 2) A CPA firm can issue a compilation report: (Points: 2)
Click here for the solution: If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods
Showing posts with label Effect. Show all posts
Showing posts with label Effect. Show all posts
Thursday, January 14, 2016
Sunday, August 23, 2015
Cedar Corporation has an S corporation election in effect
Cedar Corporation has an S corporation election in effect. During the 2010 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2010, the corporation paid dividends to shareholders in the amount of $120,000. How much taxable income, in total, must the shareholders of the corporation report on their 2010 tax returns? Explain your answer.
Click here for the solution: Cedar Corporation has an S corporation election in effect
Click here for the solution: Cedar Corporation has an S corporation election in effect
Monday, August 17, 2015
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
P 13-7 Various liabilities
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
Wednesday, June 24, 2015
Three different companies each purchased a machine on January 1, 2008, for $42,000
Problem 6-28 Determining the effect of depreciation expense on financial statements
Three different companies each purchased a machine on January 1, 2008, for $ 42,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $2,000. All three machines were operated for 50,000 hours in 2008, 55,000 hours in 2009, 40,000 hours in 2010, 44,000 hours in 2011, and 31,000 hours in 2012. Each of the three companies earned $ 30,000 of cash revenue during each of the five years. Company A uses straight- line depreciation, company B uses double- declining- balance depreciation, and company C uses units- of- production depreciation.
Required Answer each of the following questions. Ignore the effects of income taxes.
a. Which company will report the highest amount of net income for 2008?
b. Which company will report the lowest amount of net income for 2010?
c. Which company will report the highest book value on the December 31, 2010, balance sheet? d. Which company will report the highest amount of retained earnings on the December 31, 2011, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2010 statement of cash flows?
Click here for the solution: Three different companies each purchased a machine on January 1, 2008, for $42,000
Three different companies each purchased a machine on January 1, 2008, for $ 42,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $2,000. All three machines were operated for 50,000 hours in 2008, 55,000 hours in 2009, 40,000 hours in 2010, 44,000 hours in 2011, and 31,000 hours in 2012. Each of the three companies earned $ 30,000 of cash revenue during each of the five years. Company A uses straight- line depreciation, company B uses double- declining- balance depreciation, and company C uses units- of- production depreciation.
Required Answer each of the following questions. Ignore the effects of income taxes.
a. Which company will report the highest amount of net income for 2008?
b. Which company will report the lowest amount of net income for 2010?
c. Which company will report the highest book value on the December 31, 2010, balance sheet? d. Which company will report the highest amount of retained earnings on the December 31, 2011, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2010 statement of cash flows?
Click here for the solution: Three different companies each purchased a machine on January 1, 2008, for $42,000
Upton Company was started on January 1, 2011, when the owners invested $160,000 cash in the business
Problem 8-18 Effect of business structure on financial statements
Upton Company was started on January 1, 2011, when the owners invested $ 160,000 cash in the business. During 2011, the company earned cash revenues of $ 120,000 and incurred cash expenses of $ 82,000. The company also paid cash distributions of $ 15,000.
Required
Prepare a 2011 income statement, capital statement ( statement of changes in equity), balance sheet, and statement of cash flows using each of the following assumptions. ( Consider each assumption separately.)
a. Upton is a sole proprietorship owned by J. Upton.
b. Upton is a partnership with two partners, Dan and Nancy Upton. Dan invested $ 100,000 and Nancy invested $ 60,000 of the $ 160,000 cash that was used to start the business. Nancy was expected to assume the vast majority of the responsibility for operating the business. The partnership agreement called for Nancy to receive 60 percent of the profits and Dan the remaining 40 percent. With regard to the $ 15,000 distribution, Nancy withdrew $ 6,000 from the business and Dan withdrew $ 9,000.
c. Upton is a corporation. The owners were issued 10,000 shares of $ 10 par common stock when they invested the $ 160,000 cash in the business.
Click here for the solution: Upton Company was started on January 1, 2011, when the owners invested $160,000 cash in the business
Upton Company was started on January 1, 2011, when the owners invested $ 160,000 cash in the business. During 2011, the company earned cash revenues of $ 120,000 and incurred cash expenses of $ 82,000. The company also paid cash distributions of $ 15,000.
Required
Prepare a 2011 income statement, capital statement ( statement of changes in equity), balance sheet, and statement of cash flows using each of the following assumptions. ( Consider each assumption separately.)
a. Upton is a sole proprietorship owned by J. Upton.
b. Upton is a partnership with two partners, Dan and Nancy Upton. Dan invested $ 100,000 and Nancy invested $ 60,000 of the $ 160,000 cash that was used to start the business. Nancy was expected to assume the vast majority of the responsibility for operating the business. The partnership agreement called for Nancy to receive 60 percent of the profits and Dan the remaining 40 percent. With regard to the $ 15,000 distribution, Nancy withdrew $ 6,000 from the business and Dan withdrew $ 9,000.
c. Upton is a corporation. The owners were issued 10,000 shares of $ 10 par common stock when they invested the $ 160,000 cash in the business.
Click here for the solution: Upton Company was started on January 1, 2011, when the owners invested $160,000 cash in the business
Wednesday, June 17, 2015
The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012
Problem 4-20 Effect of Different Inventory Cost Flow Methods on Financial Statements
The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012:
Cash $19,000
Beginning inventory 6,750 (75 units @$90)
Common stock 7,500
Retained earnings 18,250
The following five transactions occurred in 2012:
1. First purchase (cash) 100 units @ $92
2. Second purchase (cash) 175 units @ $100
3. Sales (all cash) 300 units @ $170
4. Paid $15,000 cash for operating expenses.
5. Paid cash for income tax at the rate of 30 percent of income before taxes.
Required
a. Compute the cost of goods sold and ending inventory, assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow.
b. Use a vertical model to prepare the 2012 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.)
Check:
a. Cost of Goods Sold—FIFO $28,450
b. Net Income—UFO: $4,935
Click here for the solution: The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012
The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012:
Cash $19,000
Beginning inventory 6,750 (75 units @$90)
Common stock 7,500
Retained earnings 18,250
The following five transactions occurred in 2012:
1. First purchase (cash) 100 units @ $92
2. Second purchase (cash) 175 units @ $100
3. Sales (all cash) 300 units @ $170
4. Paid $15,000 cash for operating expenses.
5. Paid cash for income tax at the rate of 30 percent of income before taxes.
Required
a. Compute the cost of goods sold and ending inventory, assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow.
b. Use a vertical model to prepare the 2012 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.)
Check:
a. Cost of Goods Sold—FIFO $28,450
b. Net Income—UFO: $4,935
Click here for the solution: The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012
(Effect of a Line of Credit on Financial Statements) Hulse Company has a line of credit with Bay Bank
Problem 7-25 Effect of a Line of Credit on Financial Statements
Hulse Company has a line of credit with Bay Bank. Hulse can borrow up to $250,000 at any time over the course of the 2010 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2010. Hulse agreed pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month.
AND SO ON
Hulse earned $22000 of cash revenue during 2010.
Required
a. Organize the information in accounts under an accounting equation.
b. Prepare an income statements, balance sheet, and statement of cash flows for 2010.
c. Write a memo discussing the advantanges to a business of arranging a line of credit.
Check:
b. Interest Expense: $5,650
Total Assets: $56,350
Click here for the solution: (Effect of a Line of Credit on Financial Statements) Hulse Company has a line of credit with Bay Bank
Hulse Company has a line of credit with Bay Bank. Hulse can borrow up to $250,000 at any time over the course of the 2010 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2010. Hulse agreed pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month.
AND SO ON
Hulse earned $22000 of cash revenue during 2010.
Required
a. Organize the information in accounts under an accounting equation.
b. Prepare an income statements, balance sheet, and statement of cash flows for 2010.
c. Write a memo discussing the advantanges to a business of arranging a line of credit.
Check:
b. Interest Expense: $5,650
Total Assets: $56,350
Click here for the solution: (Effect of a Line of Credit on Financial Statements) Hulse Company has a line of credit with Bay Bank
Awtrey Quilting Company makes blankets that it markets through a variety of department stores
Problem 13-23 Effect of Order Quantity on Special Order Decision
Awtrey Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Awtrey made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.
AND SO ON
Check:
a. Relevant Cost per Unit: $53
Click here for the solution: Awtrey Quilting Company makes blankets that it markets through a variety of department stores
Awtrey Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Awtrey made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.
AND SO ON
Check:
a. Relevant Cost per Unit: $53
Click here for the solution: Awtrey Quilting Company makes blankets that it markets through a variety of department stores
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