lliams-Santana Incorporated is a manufacturer of high-tech industrial parts that was started in 2012 by two talented engineers with le business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following ts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries were prepared. A five-year casualty insurance policy was purchased at the beginning of 2022 for $30,500. The full amount was debited to insurance expense at the time. Effective January 1, 2024, the company changed the salvage value used in calculating depreciation for its office building. The building cost $574,000 on December 29, 2013, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $110,000. Declining real estate values in the area indicate that the salvage value will be no more than $27,500. On December 31, 2023, merchandise inventory was overstated by $20,500 due to a mistake in the physical inventory count using the periodic inventory system. The company changed inventory cost methods to FIFO from LIFO at the end of 2024 for both financial statement and income tax purposes. The change will cause a $915,000 increase in the beginning inventory on January 1, 2025. At the end of 2023 the company failed to accrue $14.600 of sales commissions earned hy employees during 2023 The evnence No 1 2 3 4 5 6 7 8 9 Transaction a(1) a(2) b(1) b(2) c(1) c(2) d(1) d(2) (1) Prepaid insurance Retained earnings Insurance expense Prepaid insurance No journal entry required Depreciation expense Accumulated depreciation Retained earnings Inventory No journal entry required Inventory Retained earnings No journal entry required General Journal Retained earnings Inventory • • • • • • • • • • Ⓒ x Debit 30.500 € 30,500 ✪ 464,000 20.500 915.000 20,500 Credit 30.500 € 30,500 € 464,000 20,500 915,000 20.500
lliams-Santana Incorporated is a manufacturer of high-tech industrial parts that was started in 2012 by two talented engineers with le business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following ts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries were prepared. A five-year casualty insurance policy was purchased at the beginning of 2022 for $30,500. The full amount was debited to insurance expense at the time. Effective January 1, 2024, the company changed the salvage value used in calculating depreciation for its office building. The building cost $574,000 on December 29, 2013, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $110,000. Declining real estate values in the area indicate that the salvage value will be no more than $27,500. On December 31, 2023, merchandise inventory was overstated by $20,500 due to a mistake in the physical inventory count using the periodic inventory system. The company changed inventory cost methods to FIFO from LIFO at the end of 2024 for both financial statement and income tax purposes. The change will cause a $915,000 increase in the beginning inventory on January 1, 2025. At the end of 2023 the company failed to accrue $14.600 of sales commissions earned hy employees during 2023 The evnence No 1 2 3 4 5 6 7 8 9 Transaction a(1) a(2) b(1) b(2) c(1) c(2) d(1) d(2) (1) Prepaid insurance Retained earnings Insurance expense Prepaid insurance No journal entry required Depreciation expense Accumulated depreciation Retained earnings Inventory No journal entry required Inventory Retained earnings No journal entry required General Journal Retained earnings Inventory • • • • • • • • • • Ⓒ x Debit 30.500 € 30,500 ✪ 464,000 20.500 915.000 20,500 Credit 30.500 € 30,500 € 464,000 20,500 915,000 20.500
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter14: Activities Required In Completing A Quality Audit
Section: Chapter Questions
Problem 87RSCQ
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