As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year

3-44. (Application of Ethical Framework, LO 4) As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year. Due to poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent.

Required
a. Does GAAP require disclosure of this situation? Cite specific applicable standards.
b. Regardless of your answer to part (a), utilize the ethical framework developed in the chapter to determine whether the auditor should require either a recording or disclosure of the transaction. If you conclude that the transaction should be disclosed or recorded, indicate the nature of disclosure and our rationale for it.


Click here for the solution: As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year

A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each

A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows:

Direct Materials..............$18.50
Direct Labor......................$1.20
Variable Manufacturing Overhead.......$8.40

Unit Product Cost= $32.00

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.

Required:
Determine the effect on the company's total net operating income of accepting the special order.


Click here for the solution: A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each