Question: AccountABC LLC manufactures and sells paper envelopes. Thestock of envelopes was included in the closing inventoryas of December 31, 2005, at a cost of $50 each per pack.During the final audit, the auditors noted that thesubsequent sale price for the inventory at January 15,2006, was $40 each per pack. Furthermore, inquiry revealsthat during the physical stock take, a water leakage hascreated damages to the paper and the glue. Accordingly, inthe following week, ABC LLC spent a total of $15 per packfor repairing and reapplying glue to the envelopes.The net realizable value and inventory write-down (loss)amount to:(a) $40 and $10 respectively.(b) $45 and $10 respectively.(c) $25 and $25 respectively.(d) $35 and $25 respectively.(e) $30 and $15 respectively.23

Given Information:Cost per pack (as of December 31, 2005): $50 per packSubsequent sale price (as of…

Answered: Question: Account ABC LLC manufactures…

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 90RSCQ

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ABC LLC manufactures and sells paper envelopes. The stock of envelopes was included in the closing inventory as of December 31, 2005, at a cost of $50 each per pack. During the final audit, the auditors noted that the subsequent sale price for the inventory at January 15, 2006, was $40 each per pack. Furthermore, inquiry reveals that during the physical stock take, a water leakage has created damages to the paper and the glue. Accordingly, in the following week, ABC LLC spent a total of $15 per pack for repairing and reapplying glue to the envelopes. The net realizable value and inventory write-down (loss) amount to: (a) $40 and $10 respectively. (b) $45 and $10 respectively. (c) $25 and $25 respectively. (d) $35 and $25 respectively. (e) $30 and $15 respectively.23
In an annual audit at December 31, 2013, you find the followingtransactions near the closing date:1. Merchandise costing $625 was received on December 28, 2013, and the invoice wasnot recorded. You located it in the hands of the purchasing agent; it was marked“on consignment.”2. A packing case containing products costing $816 was standing in the shipping roomwhen the physical inventory was taken. It was not included in the inventory becauseit was marked “Hold for shipping instructions.” Your investigation revealed that thecustomer’s order was dated December 18, 2013, but that the case was shipped and thecustomer billed on January 10, 2014. The product was a stock item of your client.3. Merchandise received on January 6, 2014, costing $720 was entered in the acquisitionsjournal on January 7, 2014. The invoice showed shipment was made FOB supplier’swarehouse on December 31, 2013. Because it was not on hand December 31, it wasnot included in inventory.4. Merchandise costing $1,822 was…
During the course of the Year 2 audit of Chester Co., the auditor discovered potential cutoff problems that may or may not require adjusting journal entries. For each of the potential cutoff problems indicated below, complete the required journal entries. To prepare each required journal entry: 1. The company shipped merchandise with a carrying amount of $75,000 FOB destination on December 23, Year 2, and recorded the sale and relief of inventory on that date. The customer received the merchandise on December 31, Year 2. The merchandise has a gross profit margin of 10%. Record the necessary Year 2 adjustments, if any. 2. The company shipped merchandise with a carrying amount of $45,000 to a consignee on December 24, Year 2, and recorded the sale and the relief of inventory on that date. The consignee had not sold the merchandise as of January 5, Year 3. The merchandise has a gross profit margin of 10%. Record the necessary Year 2 adjustments, if any. 3. At the beginning of Year 2, the…
In an audit of Ingenious Company for the year ended December 31, 2013, the entity took its annual physical inventory on November 30, 2013, the entity's inventory which includes raw material and work in process is on a perpetual basis and FIFO pricing is used. There are no finished goods. The physical inventory on November 30, 2013 revealed that the book inventory of P6,057,00 was understated by P300,00. To avoid distorting the interim financial statements, the entity decided not to adjust the book inventory until year-end except for obsolete items. Data pertaining to the November 30, 2013 inventory are: A. Pricing test showed that the physical inventory was onverstated by P220,000 B. footing and extension errors resulted in a P15,000 understatement of physical inventory. C. Direct labor included in the physical inventory amounted to P1,000,000. Overhead was applied at 200% of direct labor. D. The physical inventory included obsolete materials recorded at P25,000 During December these…
So, owner of a trading company engaged your services as auditor. There is a discrepancy between the company’s income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following: The physical taken on December 31, 2018 under your observation showed that cost was P26,500. The inventory on January 1, 2018 showed cost of P39,000. The accounts receivable as of January 1, 2018 were P13,500. During 2018, accounts receivable written off amounted to P1,000. Accounts receivable as of December 31, 2018 were P37,500. Outstanding purchase invoices amounted to P30,000 at the end of 2018. At the beginning of 2018, they were P37,500. Receipts from customers during 2018 amounted to P300,000. Disbursement to merchandise creditors amounted to P200,000. The average gross profit rate was 40% of net sales. Required: Total Sales Total Purchases Inventory Shortage
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…
Detection of Errors and Fraud. For each of the following independent events, indicate the (1) effect of the error or fraud on the financial statements and (2) what auditing procedures could have detected the misstatement resulting from error or fraud.a. The physical inventory count of J. Payne Enterprises, which has a December 31 year-end, was conducted on August 31 without incident. In September, the perpetual inventory was not reduced for the cost of sales.b. Holmes Drug Stores counted its inventory on December 31, which is its fiscal year-end. The auditors observed the count at 20 of Holmes’s 86 locations. The company falsified the inventory at 20 of the locations not visited by the auditors by including fictitious goods in the counts.c. Pope Automotive inadvertently included in its inventory automobiles that it was holding on consignment for other dealers.d. Peffer Electronics Inc. overstated its inventory by pricing wiring at $200 per hundred feet instead of $200 per thousand…
Based on its physical count of inventory in its warehouse at year-end, December 31, 2014, Madison Company planned to report inventory of $35,300. During the audit, the independent CPA developed the following additional information: a. Goods from a supplier costing $700 are in transit with UPS on December 31, 2014. The terms are FOB shipping point (explained in the “Required” section). Because these goods had not yet arrived, they were excluded from the physical inventory count. b. Madison delivered samples costing $1,740 to a customer on December 27, 2014, with the understanding that they would be returned to Madison on January 15, 2015. Because these goods were not on hand, they were excluded from the inventory count. c. On December 31, 2014, goods in transit to customers, with terms FOB shipping point, amounted to $6,000 (expected delivery date January 10, 2015). Because the goods had been shipped, they were excluded from the physical inventory count. d. On…
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. Ending inventory-as reported $enter a dollar amount 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. enter a dollar amount 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. enter a dollar amount 3. Included in the Inventory account was $18,300 of office supplies that were stored in the…
Problem 11: The GANDA CO is on a calendar year basis. The following data were found during your audit: a. Goods in transit shipped FOB Shipping point on December 28 by a supplier in the amount of P100,000 had been excluded from the inventory, and further testing revealed that the purchase had been recorded. b. Goods costing P30,000 had been received, included in inventory, and recorded as a purchase. However, upon your inspection, the goods were found to de defective and would be immediately returned. c. Materials costing P170,000 and billed on December 30 at a selling price of P264,000 had been segregated in the warehouse for shipment to a customer. The materials had been excluded from inventory as a signed purchase order had been received from the customer, terms FOB destination. d. Goods costing P70,000 was out on consignment with Gandanva, inc. since the monthly statement from Gandanva listed those materials on hand, the items had been excluded from the final inventory and invoiced…
During the course of the audit, the following additional information was obtained: a. The trading securities were acquired on December 31, 2011. The securities have a fair value of P67,000 at December 31, 2012. b. In discussion with the company officials, it was determined that the doubtful accounts expense rate based on net sales should be reduced to 2% from 3%, effective January 1, 2012. c. As a result of errors in the physical count, inventories were overstated by P12,000 at December 31, 2011 and by P17,500 at December 31, 2012. d. On January 1, 2011, the cost of equipment purchased for P30,000 was debited to repairs and maintenance. PRTC depreciates equipment of this type by the straight-line method over a five-year life with no residual value. e. On July 1, 2012, fully depreciated equipment purchased for P21,000, was sold as scrap for P2,500. The only entry PRTC made was to debit cash and credit property and equipment for the scrap proceeds. The property and equipment (net) had a…

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