Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has Identified during the past three years. These misstatements are Immaterial and have related to Isolated matters. In this summary, parentheses Imply that the misstatements would have reduced balances if they had been corrected (e.g., In 2020, the misstatements would have reduced net Income by $82,500, assets by $100,000, liabilities by $17,500, and equity by $82,500 if corrected). Year 2020 2021 2022 Effect on Net Income $ (82,500) (22,000) 30,000 Effect on Assets $ (100,000) (25,500) 30,000 Effect on Liabilities $ (17,500) (3,500) 0 Effect on Equity $ (82,500) (22,000) 30,000 During the most recent audit, Colt concluded that expenses totaling $130,000 were recognized in January 2024 (when Manning pald them) but should have been recognized in 2023. Required: a. What is the dollar Impact of the misstatement Identified in 2023 on each of the following (assume a 21% tax rate for Manning)? Note: Enter amounts to be deducted with a minus sign.

Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has Identified during the past three years. These misstatements are Immaterial and have related to Isolated matters. In this summary, parentheses Imply that the misstatements would have reduced balances if they had been corrected (e.g., In 2020, the misstatements would have reduced net Income by $82,500, assets by $100,000, liabilities by $17,500, and equity by $82,500 if corrected). Year 2020 2021 2022 Effect on Net Income $ (82,500) (22,000) 30,000 Effect on Assets $ (100,000) (25,500) 30,000 Effect on Liabilities $ (17,500) (3,500) 0 Effect on Equity $ (82,500) (22,000) 30,000 During the most recent audit, Colt concluded that expenses totaling $130,000 were recognized in January 2024 (when Manning pald them) but should have been recognized in 2023. Required: a. What is the dollar Impact of the misstatement Identified in 2023 on each of the following (assume a 21% tax rate for Manning)? Note: Enter amounts to be deducted with a minus sign.

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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Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has identified during the past three years. These misstatements are immaterial and have related to isolated matters. In this summary, parentheses imply that the misstatements would have reduced balances if they had been corrected (e.g., in 2020, the misstatements would have reduced net income by $82,500, assets by $100,000, liabilities by $17,500, and equity by $82,500 if corrected). Year 2020 2021 2022 Effect on Net Income $ (82,500) (22,000) 30,000 Effect on Assets $ (100,000) (25,500) 30,000 Effect on Liabilities $ (17,500) (3,500) 0 During the most recent audit, Colt concluded that expenses totaling $130,000 were recognized in January 2024 (when Manning paid them) but should have been recognized in 2023. Required: a. What is the dollar impact of the misstatement identified in 2023 on each of the following (assume a 21% tax rate for Manning)? Note:…
4. Tooele Company's controller estimated bad debt expense using the percentage of accounts receivable method. Total sales for the year were $500,000 of which 250,000 are on account. The ending balance in accounts receivable was $100,000. An examination of the outstanding accounts at the end of the year indicates that approximately 12 percent of these accounts will ultimately prove to be uncollectible. Before any adjusting entries, the balance in the Allowance for Doubtful Accounts is $700 (CREDIT). Which is part of the correct adjusting entry to record bad debt expense for the year? (The Allowance for Doubtful Accounts is also known as the Allowance for Bad Debts or the Allowance for Uncollectible Accounts.) a. CREDIT Allowance for Bad Debts for $11,300 b. DEBIT Allowance for Bad Debts for $11,300 c. CREDIT Allowance for Bad Debts for $12,000 d. CREDIT Allowance for Bad Debts for $12,700 e. DEBIT Allowance for Bad Debts for $14,700
Cory Company's bookkeeper is not familiar with accrual accounting concepts. He determined net income for 2022 to be P 79,800. In your audit of the company you determine the following: Accrued, but unpaid, wages at the end of 2022 amounted to P 45,750 and have not been recorded. Insurance premiums paid in 2022 totaled P 180,000, only 1/3 of which relate to coverage for 2022. The other 2/3 of which relate to coverage in future years. (The complete amount was expensed when paid.) Accounts receivable of P 500,000, which have been properly recorded, are expected to result in losses from uncollectibility of P 30,000. (No specific accounts have been written off as of the end of the year.) Cash of P 115,000, received in late 2022, was recorded as revenue, although the work to be performed under the related contract will take place in 2023. QUESTION: What is the revised net income figure for 2022?
Farley Bains, an auditor with Nolls CPAS, is performing a review of Teal Mountain Inc.'s Inventory account. Teal Mountain Inc. 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 $808,200. However, the following information was not considered when determining that amount. Prepare a schedule to determine the correct inventory amount. (Show amounts that reduce inventory with a negative sign or parenthesis e.g. -45 or parentheses e.g. (45).) 808,200 Ending inventory-as reported $4 1. Included in the company's count were goods with a cost of $224,170 that the company is holding on consignment. The goods belong to Nader Corporation. (224,170) 2. The physical count did not include goods purchased by Teal Mountain Inc. with a cost of $38,530 that were shipped FOB shipping point on December 28 and did not arrive at Teal Mountain Inc.'s warehouse until January 3. 38,530 3. Included in the…
Adjusting and Correcting Entries Upon inspecting the books and records for Wernli Company for the year ended December 31, 2013, you find the following data: (a) A receivable of $640 from Hatch Realty is determined to be uncollectible. The company maintains an allowance for bad debts for such losses. (b) A creditor, E. F. Bowcutt Co., has just been awarded damages of $3,500 as a result of breach of contract by Wernli Company during the current year. Nothing appears on the books in connection with this matter. (c) A fire destroyed part of a branch office. Furniture and fixtures that cost $12,300 and had a book value of $8,200 at the time of the fire were completely destroyed. The insurance company has agreed to pay $7,000 under the provisions of the fire insurance policy. (d) Advances of $950 to salespersons have been previously recorded as sales salaries expense. (e) Machinery at the end of the year shows a balance of $19,960. It is discovered that additions to this account during the…
Winstead & Company has accounts receivable of $288,000 and a negative balance of $2,400 in the Allowance for Doubtful Accounts.Two-thirds of the accounts receivable are current and one-third is past due. The firm estimates that two percent of the current accounts and five percent of the past due accounts will prove to be uncollectible.The adjustment to provide for the bad debt expense under the aging method should be for what amount?
During the conduct of the audit of the financial statements of ABC Incorporated dated December 31, 2021, the following information were determined: Inventory on January 1, 2021 is understated by 30,000. On May 1, 2021, sales made to a customer on account was recorded by debiting cash of 500,000 and crediting other income of 500,000. Payment of 100,000 insurance covering 10 months starting June 1, 2021, was not recorded. Inventory on December 31, 2021 is overstated by 40,000 On June 1, 2021, ABC paid 240,000 in payment for 24 months of rent. This was originally charged to an expense account. As of the end of the year, no adjustments were made yet. ABC failed to accrue salaries of their office workers amounting to 38,000. A note was received from a customer amounting to 150,000 on May 1, 2021. The note bears an interest of 15% and will mature after 25 months. No entries were made yet with respect to the accrual of interest. The net income of ABC before reflecting any corrections…
Sandra: We are beginning our audit of Imex and have prepared ratio analyses to determine if there have been significant changes in financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 5 to 2.8 and the accounts receivable turnover has decreased from 12 to 8. I was wondering if you could explain this change in operations. Travis: There is little need for concern. The inventory represents computers that we were unable to sell during the holiday buying season. We are confident, however, that we will be able to sell these computers as we move into the next fiscal year. Sandra: What gives you this confidence? Travis: We will increase our advertising and provide some very attractive price concessions to move these machines. We have no choice. Newer technology is already out there, and we have to unload this inventory. Sandra: …and the receivables? Travis: As you may be aware, the company is under tremendous pressure…
P22-8B (L04) (Comprehensive Error Analysis) On March 5, 2018, you were hired by Miami Hangers Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the company's records for 2016 and 2017, you discover that no adjustments have yet been made for the items listed below. Items 1. Interest income of $6,800 was not accrued at the end of 2016. It was recorded when received in January 2017. 2. Furniture costing $16,000 was expensed when purchased on July 1, 2016. It is expected to have a 10-year life with no salvage value. The company typically uses straight-line depreciation for all fixed assets. 3. Research and development costs of $76,000 were incurred early in 2016. They were capitalized and were to be amortized over a 4-year period. Amortization of $19,000 was recorded for 2016 and $19,000 for 2017. 4. On January 2, 2016, Miami Hangers leased a building for 5 years at a monthly rental of $12,000. On that date, the company paid…
The following information is provided for the audit of Vial-tech. Performance materiality is twice the amount of materiality. There are no other misstatements other than those indicated. Account Accounts receivable Inventory Fixed assets All other accounts (net) Net assets $5,000 $20,000 $25,000 Amount $45,000 1,000,000 2,500,000 2,000,000 1,500,000 7,000,000 Performance Materiality Amount includes projected misstatement and allowance for sampling risk: In testing accounts receivable, the auditor tested $200,000 of receivables and found $5,000 of misstatements. The direct projected misstatement in accounts receivable excluding sampling risk is: O Insufficient information to determine. 40,000 60,000 10,000 40,000 150,000 Estimated Misstatements Overstating Income 45,000 10,000 5,000 5,000
Health Corporation has several current notes receivable on its year-end balance sheet. While collection seems certain, it may be delayed beyond one year. Because of this, the controller wants to re-classify these notes as non-current. Health's treasurer also thinks that collection will be delayed but does not favor re-classification because this will reduce the current ratio from 1.5:1 to 0.8:1. This reduction in current ratio is detrimental to company prospects for securing a major loan. 1. Should the controller re-classify the notes? Give reasoning. 2. Does the treasurers position pose an ethical dilemma for the controller. Explain.