3. You have found during the audit of sales transactions that several transactions recorded by theFont Company were orders from customers on the last few days of the year. However, due totyphoon at the year end, the good delivery was delayed and started immediately on the first fewdays of the next year. The transactions amounted to $10,000. The company has a net income of$250,000.4. Your client, Harrison Automotive, has changed from straight-line to sum-of-the years' digitsdepreciation. The effect on this year's income is material. You believed the change aligns withchange in usage pattern of the automobile.Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for theopinion.

The objective of the question is to determine the most appropriate type of audit opinion that should…

Answered: 3. You have found during the audit of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2. Grill's Flooring Limited had credit sales of $400,000 in 2007 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2007, $120,000 of accounts receivable remains uncollected. The credit manager of Grill's Flooring prepared an aging schedule of accounts receivable and estimates that $5,000 will prove to be uncollectible. /5 marks On March 4, 2008 the credit manager authorizes a write-off of the $1,000 balance owed by A. Ludwig. Instructions a. Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2007. b. Show the balance sheet presentation of accounts receivable on December 31, 2007. On March 4, 2008 assume the balance of Accounts Receivable account is $160,000 and the balance of Allowance for Doubtful Accounts is a credit of $3,000, before the write- С. off. Make the appropriate entry to record the write-off of the Ludwig account. Also calculate the net realizable value of accounts receivable before and…
Historically, your company has calculated bad debts using an aging of accounts receivable. Near the end of the fiscal year, the company is in a cash crunch and needs to borrow money from the bank, using accounts receivable as collateral. The owner of the company knows that many of the accounts receivable are more than 90 days past due, resulting in net receivables equal to only 80% of total receivables. The owner asks you to change the method of estimating bad debts to a flat 3% of receivables. What should you do?
Q. A staff internal auditor was assigned to audit one of the company’s wholesale distribution locations. The staff auditor returned to the office after a week and said that everything was fine. The senior auditor reviewed the staff auditor’s working papers and noted that there was a year-end adjustment in excess of US $100,000—a debit to sales and a credit to accounts receivable. “To adjust the general ledger accounts receivable account to the accounts receivable subsidiary ledger” is how the description read. The senior asked the staff auditor how an error that big could have happened. He told her the location manager said there had been some problems installing the accounting system at the new store. Initially, the senior auditor thought the adjustment was proper since the general ledger balance was now in agreement with the subsidiary ledger. However, a short time later she was reviewing the analytical procedures performed by the staff auditor and noted that the gross margin…
By the end of its first year of operations, Previts Corporation has credit sales of $690,000 and accounts receivable of $290,000. Given it’s the first year of operations, Previts’ management is unsure how much allowance for uncollectible accounts it should establish. One of the company’s competitors, which has been in the same industry for an extended period, estimates uncollectible accounts to be 2% of ending accounts receivable, so Previts decides to use that same amount. However, actual write-offs in the following year were 25% of the $290,000 (= $72,500). Previts’ inexperience in the industry led to making sales to high credit risk customers. Required: 1. Record the adjustment for uncollectible accounts at the end of the first year of operations using the 2% estimate of accounts receivable. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Journal entry worksheet Record the adjusting…
During the current fiscal year, the L Corp. has added $6,000 to inventories. The net income is $10,000, but the cash has only risen by $4,000. The CEO comes to to you in a rage and demands that you clarify how the firm might have generated $10,000 as there is only $4,000 in the bank.
Compare Two Methods of Accounting for Uncollectible Receivables Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 2% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Year Sales 1st 2nd 3rd 4th Written Off 1st $1,200,000 $1,100 $1,100 2nd 1,720,000 2,900 1,350 $1,550 3rd 2,690,000 11,700…
Required information [The following information applies to the questions displayed below.] Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter. a. During January, the company provided services for $44,000 on credit. b. On January 31, the company estimated bad debts using 1 percent of credit sales. c. On February 4, the company collected $22,000 of accounts receivable. d. On February 15, the company wrote off a $150 account receivable. e. During February, the company provided services for $34,000 on credit. f. On February 28, the company estimated bad debts using 1 percent of credit sales. g. On March 1, the company loaned $2,200 to an…
In the first year of operations, Ralph's Repair Service recognized $482,000 of service revenue earned on account. The ending accounts receivable balance was $88,900. Ralph estimates that 2% of sales on account will not be collected. During the year, Ralph wrote off a $200 receivable that was determined to be uncollectible. Assume there were no other transactions affecting accounts receivable. Required: a. What amount of cash was collected in Year 1? b. What amount of uncollectible accounts expense was recognized In Year 1? c. What will be Ralph's net realizable value of receivables on the December 31, Year 1 balance sheet? a. Cash collected b. Uncollectible accounts expense c. Net realizable value of receivables
By the end of its first year of operations, Previts Corporation has credit sales of $690,000 and accounts receivable of $290,000. Given it’s the first year of operations, Previts’ management is unsure how much allowance for uncollectible accounts it should establish. One of the company’s competitors, which has been in the same industry for an extended period, estimates uncollectible accounts to be 2% of ending accounts receivable, so Previts decides to use that same amount. However, actual write-offs in the following year were 25% of the $290,000 (= $72,500). Previts’ inexperience in the industry led to making sales to high credit risk customers. 3. Should Previts prepare new financial statements for the first year of operations to show the correct amount of uncollectible accounts? Yes No
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