5 PTS Arlington Supplies Ltd. manufactures and sells cardboard boxes.The stock of boxes was included in the closing inventory as ofDecember 31, 2010, at a cost of $65 each per bundle.During the final audit, the auditors noted that the subsequentsale price for the inventory on January 20, 2011, was $50 perbundle. Additionally, an inquiry revealed that during the physicalstock take, a storage issue led to minor water damage, affectingthe structural integrity of the boxes. As a result, ArlingtonSupplies Ltd. spent $18 per bundle for drying and reinforcing theboxes.The net realizable value and inventory write-down (loss) amountto:(a) $50 and $15 respectively.(b) $47 and $18 respectively.(c) $32 and $33 respectively.(d) $40 and $25 respectively.(e) $35 and $30 respectively.

Explanation of Cost Method: The cost method represents the original amount Arlington Supplies Ltd.…

Answered: Arlington Supplies Ltd. manufactures…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter15: Audit Reports For Financial Statement Audits

Section: Chapter Questions

Problem 19RQSC

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(Error Correction Entries) The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:1. At the beginning of 2016, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years.2. At the end of 2017, the company failed to accrue sales salaries of $45,000.3. A tax lawsuit that involved the year 2016 was settled late in 2018. It was determined that the company owed an additional $85,000 in taxes related to 2016. The company did not record a liability in 2016 or 2017 because the possibility of loss was considered remote, and charged the $85,000 to a loss account in 2018.4. Gingrich Company purchased a copyright from another…
Each of the following situations occurred during 2018 for one of your audit clients:1. The write-off of inventory due to obsolescence.2. Discovery that depreciation expenses were omitted by accident from 2017’s income statement.3. The useful lives of all machinery were changed from eight to five years.4. The depreciation method used for all equipment was changed from the declining-balance to the straight-linemethod.5. Restructuring costs were incurred.6. The Stridewell Company, a manufacturer of shoes, sold all of its retail outlets. It will continue to manufactureand sell its shoes to other retailers. A loss was incurred in the disposition of the retail stores. The retail storesare considered a component of the entity.7. The inventory costing method was changed from FIFO to average cost.Required:1. For each situation, identify the appropriate reporting treatment from the list below (consider each event to bematerial):a. As an unusual gain or lossb. As a prior period adjustmentc. As a…
The first audit of the books of Marin Company was made for the year ended December 31, 2021. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2019, the company purchased a machine for $468,000 (salvage value of $46,800) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2020, the company failed to accrue sales salaries of $50,000. 3. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $80,000 in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $80,000 to a loss account in 2021. 4. Marin Company purchased a copyright from another company early in 2019…
The first audit of the books of Sweet Company was made for the year ended December 31, 2021. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2019, the company purchased a machine for $534,000 (salvage value of $53,400) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2020, the company failed to accrue sales salaries of $42,000. 3. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $90,000 in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $90,000 to a loss account in 2021. 4. Sweet Company purchased a copyright from another company early in 2019…
The auditor established the following information relating to the inventory count and product lines of JBU. There was no product movement on the day of the count. The loading dock is part of Warehouse A for the purposes of the count. All product lines within each storage area are on the warehouse maps. The warehouse map is reflective of the warehouse on the day of the count. Inventory values in the perpetual inventory listing are the most recent purchase price. Materiality for year-end audit $8,000 Performance materiality: $5,000 Complete the inventory tasks below by using the information provided in the exhibits: In column B, quantify the required adjustment, if any, to the product line in the perpetual inventory system. Enter increases to the perpetual inventory listing as positive whole dollars. Enter decreases to the perpetual inventory listing as negative whole do If no adjustment to the perpetual inventory listing is required, enter a zero (0).
In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $350,000 cost of a machine purchased on January 1, 2015. The machine's useful life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Ignoring income taxes, prepare the journal entry PKE will use to correct the error. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Event 1 1 Equipment Accumulated depreciation Retained earnings Answer is not complete. General Journal Debit Credit 350,000
Morena Co. uses the calendar year basis of accounting. The following date were found during your audit. Goods in transit shipped FOB Destination by a supplier in the amount of P20,000 had been excluded from the inventory, and further testing revealed that the purchase had been recorded. Goods costing P1,000 had been received, included in the inventory and recorded as a purchase. However, upon inspection the goods were found to be defective and would be immediately returned. Materials costing P55,000 and billed on December 30 at a selling price of P64,000 had been segregated in the warehouse for shipment to a customer. the material had been excluded from inventory as a signed purchase order had been received from the customer. Term, FOB Destination. Goods costing P41,000 was out on consignment with JRS. Since the monthly statement from JRS listed those materials as on hand, the items had been excluded from the final inventory and invoiced on Dec 31 at P16,000. The sale of P30,000 worth…
The first audit of the books of Windsor Company was made for the year ended December 31, 2021. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2019, the company purchased a machine for $528,000 (salvage value of $52,800) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2020, the company failed to accrue sales salaries of $49,000. 3. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $81,000 in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $81,000 to a loss account in 2021. 4. Windsor Company purchased a copyright from another company early in…
The first audit of the books of Headland Company was made for the year ended December 31, 2021. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2019, the company purchased a machine for $555,000 (salvage value of $55,500) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2020, the company failed to accrue sales salaries of $49,000. 3. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $87,000 in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $87,000 to a loss account in 2021. 4. Headland Company purchased a copyright from another company early in…
Ana Dinh used 0.5 to 5 percent of gross profit in determining materiality of $70,000 in her audit of XYZ Inc., a company that builds replacement engines for tractors and combines. She used the $70,000 amount as her planning materiality, identifying account balances and transactions to be tested. She also used materiality as a guide when deciding on the appropriate audit opinion in her report.Suppose Ana initially reviewed parts inventory account #102641–1 and found that none of the account transactions exceeded $45,000. Does this mean that none of these transactions should be selected for examination, based on her materiality decision of $70,000? Explain your answer.
The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2021. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2019, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2020, the company failed to accrue sales salaries of $45,000. 3. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $85,000 in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $85,000 to a loss account in 2021. 4. Gingrich Company purchased a copyright from another company early in 2019 for…
The first audit of the books of Ayayai Company was made for the year ended December 31, 2021. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2019, the company purchased a machine for $468k (salvage value of $46,800) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2020, the company failed to accrue sales salaries of $50k. 3. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $80k in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $80k to a loss account in 2021. 4. Ayayai Company purchased the copyright from another company early in 2019 for $51k. Ayayai had not…

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