Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account. Strawser did not have a good year and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount.
Instructions Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.
1. Included in the company's count were goods with a cost of $250,000 that the company is holding on consignment. The goods belong to Superior Corporation.
2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Strawser's warehouse until January 3.
3. Included in the inventory account was $17,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of $30,000.The goods were not included in the count because they were sitting on the dock.
5. On December 29 Strawser shipped goods with a selling price of $80,000 and a cost of $60,000 to District Sales Corporation FOB shipping point. The goods arrived on January 3. District Sales had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Strawser had authorized the shipment and said that if District wanted to ship the goods back next week, it could.
6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Strawser's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all."
Click here for the solution: Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account
Showing posts with label review. Show all posts
Showing posts with label review. Show all posts
Sunday, October 4, 2015
Sunday, September 27, 2015
During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation
Problem 12-7 Foreign Currency Risk
During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation, was distressed to notice the company’s transaction loss had been steadily increasing each month. HAL is a publicly held manufacturer of “PC clone” personal computers. Like most manufacturers of its kind, HAL does not manufacture domestically but utilizes lower cost offshore suppliers for components and subcontractors for assembly. As it is HAL’s policy to denominate foreign contracts in U.S. dollars whenever possible, the increase in transaction losses was particularly puzzling. Subsequent conversations with HAL’s controller, Tom Stewart, revealed all new contracts had been denominated in foreign currencies (primarily the South Korean won and Taiwanese dollar) in order to obtain more favorable purchase terms. Further, Mr. Stewart believed that the U.S. dollar would strengthen due to it being an election year. Since these contracts specify delivery and payment at various dates over the next 12 months, tremendous potential for exposure exists for the company if the dollar continues to decline against the major foreign currencies.
Required:
A. Mr. Stewart executed all new foreign contracts in foreign currencies in the belief it would help the company. (1) Do you think he was justified in his actions given the company policy? (2) On what basis did you decide if the controller was justified or not? (3) Was the loss a factor in your decision? Is this appropriate?
B. A substantial amount of foreign denominated contracts already exist for goods and services not yet received. (1) What actions may HAL take to minimize potential losses? (2) What are the advantages and disadvantages of these actions? (3) What implication does each of these scenarios have for financial statement disclosure?
C. Assume that you are Ms. Bell, and you are concerned about how the Board of Directors and the stockholders may react. Additionally, you are about to purchase a new home and are planning to sell some HAL stock for the down payment. (1) After carefully considering all of your options, what action do you decide to take? (2) Did concern over the Board, stockholders, or HAL’s stock price enter into your decision? Why or why not?
Click here for the solution: During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation
During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation, was distressed to notice the company’s transaction loss had been steadily increasing each month. HAL is a publicly held manufacturer of “PC clone” personal computers. Like most manufacturers of its kind, HAL does not manufacture domestically but utilizes lower cost offshore suppliers for components and subcontractors for assembly. As it is HAL’s policy to denominate foreign contracts in U.S. dollars whenever possible, the increase in transaction losses was particularly puzzling. Subsequent conversations with HAL’s controller, Tom Stewart, revealed all new contracts had been denominated in foreign currencies (primarily the South Korean won and Taiwanese dollar) in order to obtain more favorable purchase terms. Further, Mr. Stewart believed that the U.S. dollar would strengthen due to it being an election year. Since these contracts specify delivery and payment at various dates over the next 12 months, tremendous potential for exposure exists for the company if the dollar continues to decline against the major foreign currencies.
Required:
A. Mr. Stewart executed all new foreign contracts in foreign currencies in the belief it would help the company. (1) Do you think he was justified in his actions given the company policy? (2) On what basis did you decide if the controller was justified or not? (3) Was the loss a factor in your decision? Is this appropriate?
B. A substantial amount of foreign denominated contracts already exist for goods and services not yet received. (1) What actions may HAL take to minimize potential losses? (2) What are the advantages and disadvantages of these actions? (3) What implication does each of these scenarios have for financial statement disclosure?
C. Assume that you are Ms. Bell, and you are concerned about how the Board of Directors and the stockholders may react. Additionally, you are about to purchase a new home and are planning to sell some HAL stock for the down payment. (1) After carefully considering all of your options, what action do you decide to take? (2) Did concern over the Board, stockholders, or HAL’s stock price enter into your decision? Why or why not?
Click here for the solution: During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation
Sunday, September 13, 2015
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
12-46 Overview and Objectives of Audit Procedure
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts. The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts. The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
12-46 (Overview and Objectives of Audit Procedures) The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts.The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.
Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts.The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.
Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas
Sunday, September 6, 2015
You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
Auditing P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule.
AND SO ON
Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.
Click here for the solution: You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
AND SO ON
Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.
Click here for the solution: You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
Wednesday, July 15, 2015
Werth Company asks you to review its December 31, 2010, inventory values and prepare the necessary adjustments to the books
E8-5 (Inventoriable Costs—Error Adjustments) Werth Company asks you to review its December 31, 2010, inventory values and prepare the necessary adjustments to the books. The following information is given to you.
1. Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2010.
2. Not included in the physical count of inventory is $10,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbey on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Bubbey received it on January 3.
4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5. Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6. Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel Industries.
7. Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $11,520, and Sims received the merchandise on January 5.
8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
Instructions
(a) Determine the proper inventory balance for Werth Company at December 31, 2010.
(b) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2010. Assume the books have not been closed.
Click here for the solution: Werth Company asks you to review its December 31, 2010, inventory values and prepare the necessary adjustments to the books
1. Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2010.
2. Not included in the physical count of inventory is $10,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbey on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Bubbey received it on January 3.
4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5. Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6. Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel Industries.
7. Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $11,520, and Sims received the merchandise on January 5.
8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
Instructions
(a) Determine the proper inventory balance for Werth Company at December 31, 2010.
(b) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2010. Assume the books have not been closed.
Click here for the solution: Werth Company asks you to review its December 31, 2010, inventory values and prepare the necessary adjustments to the books
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