GEN COMBO LL PRINCIPLES OF AUDITING & OTHER ASSURANCE SERVICES; CONNECT AC
21st Edition
ISBN: 9781260427202
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 12, Problem 45RDC
Western Trading Company is a sole proprietorship engaged in the grain brokerage business. On December 31, 20X0, the entire grain inventory of the company was stored in outside bonded warehouses. The company’s procedure of pricing inventories in these warehouses includes comparing the actual cost of each commodity in inventory with the market price as reported for transactions on the commodity exchanges at December 31. A write-down is made on commodities in which cost is in excess of market. During the course of the 20X0 audit, the auditors verified the company’s computations. In addition to this, they compared the book value of the inventory with market prices at February 15, 20X1, the last day of fieldwork. The auditors noted that the market prices of several of the commodities had declined sharply subsequent to year-end, until their market price was significantly below the commodities’ book values.
The inventory was repriced by the auditors on the basis of the new market prices, and the book value of the inventory was found to be in excess of market value on February 15 by approximately $21,000. The auditors proposed that the inventories be written down by $17,000 to this new market value, net of gains on the subsequent sales. The management protested this suggestion, stating that in their opinion the market decline was only temporary and that prices would recover in the near future. They refused to allow the write-down to be made. Accordingly, the auditors qualified their audit opinion for a departure from generally accepted accounting principles.
Required:
- a. Were the auditors justified in issuing a qualified opinion in this situation? Discuss fully, including alternative courses of action.
- b. State your opinion as to the course of action that was appropriate this situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
On June 10, Cullumber Company purchased $7,300 of merchandise from Oriole Company, terms 3/10, n/30. Cullumber Company pays the freight costs of $360 on June 11. Goods totaling $500 are returned to Oriole Company for credit on June 12. On June 19, Cullumber Company pays Oriole Company in full, less the purchase discount. Both companies use a perpetual inventory system.
Prepare separate entries for each transaction for Oriole Company. The merchandise purchased by Cullumber Company on June 10 cost Oriole Company $2,400, and the goods returned cost Oriole Company $210. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
choose a transaction date
enter…
Blue Spruce Ltd. took a physical inventory count on December 31 and determined that goods costing $3,900 were on hand. This
amount included $560 of goods held on consignment for Woods Corporation. Not included in the physical count were $780 of goods
purchased from Timmons Corporation, f.o.b. shipping point, and $190 of goods sold to Myers Ltd. for $340, f.o.b. destination. Both the
Timmons purchase and the Myers sale were in transit at year end.
What amount should Blue Spruce report as its December 31 inventory?
December 31 inventory
$
Levchenko Company purchased inventories from a vendor for $16,000 on July 1. The purchase was financed through a $10,000 note with the remainder paid in cash. The vendor charged an additional $400 for
shipping, on account. Levchenko paid a moving company $700 cash to move the inventory to a different warehouse. Interest on the note totaled $50, payable in August.
a. Determine the cost to be assigned to the inventory. $
b. Record the transactions using the financial statement effects template.
Note: Use negative signs with your answers, when appropriate. Select "N/A" as your answer if a part of the accounting equation is not affected.
Transaction
a. Inventory purchase
b. Shipping charge
c. Moving cost
d. Interest incurred
Totals
Cash Asset
♦
◆
◆
◆
0
+
Noncash
Asset
◆
◆
◆
◆
0
Balance Sheet
Liabilities
◆
◆
◆
0
Contributed
+ Capital +
Earned
Capital
♦
◆
♦
♦
0
Revenues
Income Statement
Expenses
◆
◆
◆
0
Net
= Income
0
Chapter 12 Solutions
GEN COMBO LL PRINCIPLES OF AUDITING & OTHER ASSURANCE SERVICES; CONNECT AC
Ch. 12 - Prob. 1RQCh. 12 - Explain the significance of the purchase order to...Ch. 12 - What segregation of duties would you recommend to...Ch. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - When perpetual inventory records are maintained,...
Ch. 12 - What is meant by a bill and hold scheme?Ch. 12 - What charges and credits may be disclosed in the...Ch. 12 - Prob. 13RQCh. 12 - Prob. 14RQCh. 12 - A well-prepared balance sheet usually includes a...Ch. 12 - Darnell Equipment Company uses the LIFO method of...Ch. 12 - Prob. 17RQCh. 12 - Prob. 18RQCh. 12 - Prob. 19RQCh. 12 - Prob. 20RQCh. 12 - Prob. 21QRACh. 12 - Prob. 22QRACh. 12 - Prob. 23QRACh. 12 - Prob. 24QRACh. 12 - Prob. 25QRACh. 12 - Prob. 26QRACh. 12 - Prob. 27QRACh. 12 - Grandview Manufacturing Company employs standard...Ch. 12 - Prob. 29AOQCh. 12 - Prob. 29BOQCh. 12 - The document issued by a common carrier...Ch. 12 - Which of the following should be included as a...Ch. 12 - Prob. 29EOQCh. 12 - Prob. 29FOQCh. 12 - Instead of taking a physical inventory count on...Ch. 12 - Prob. 29HOQCh. 12 - Prob. 29IOQCh. 12 - Prob. 29JOQCh. 12 - Prob. 29KOQCh. 12 - Prob. 29LOQCh. 12 - Prob. 30OQCh. 12 - Adapted AICPA Task-Based Simulation For each of...Ch. 12 - Prob. 32OQCh. 12 - Prob. 33OQCh. 12 - Prob. 34AOQCh. 12 - Prob. 34BOQCh. 12 - Prob. 34COQCh. 12 - Prob. 34DOQCh. 12 - Prob. 34EOQCh. 12 - Prob. 35OQCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43ITCCh. 12 - Prob. 44ECCh. 12 - Western Trading Company is a sole proprietorship...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Selected data on merchandise inventory, purchases, and sales for Jaffe Co. and Coronado Co. are as follows: Instructions 1. Determine the estimated cost of the merchandise inventory of Jaffe Co. on February 28 by the retail method, presenting details of the computations. 2. a. Estimate the cost of the merchandise inventory of Coronado Co. on October 31 by the gross profit method, presenting details of the computations. b. Assume that Coronado Co. took a physical inventory on October 31 and discovered that 366,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during May through October?arrow_forwardOn June 10, Sheffield Corp. purchased $8,700 of merchandise on account from Concord Company, FOB shipping point, terms 3/10, n/30. Sheffield Corp. pays the freight costs of $600 on June 11. Goods totaling $700 are returned to Concord for credit on June 12. On June 19, Sheffield Corp. pays Concord Company in full, less the purchase discount. Both companies use a perpetual inventory system. Prepare separate entries for each transaction on the books of Sheffield Corp.. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.) Rate Account Titles and Explanation ما Debit Creditarrow_forwardBlue Spruce Ltd took a physical inventory count on December 31 and determined that goods costing $3,900 were on hand. This amount included $910 of goods held on consignment for Woods Corporation. Not included in the physical count were $630 of goods purchased from Timmons Corporation, fo.b shipping point, and $220 of goods sold to Myers Ltd. for $320, f.o.b. destination. Both the Timmons purchase and the Myers sale were in transit at year end. What amount should Blue Spruce report as its December 31 inventory?arrow_forward
- On June 10, Oriole Company purchased $6,400 of merchandise from Ivanhoe Company, terms 2/10, n/30. Oriole Company pays the freight costs of $370 on June 11. Goods totaling $500 are returned to Ivanhoe Company for credit on June 12. On June 19, Oriole Company pays Ivanhoe Company in full, less the purchase discount. Both companies use a perpetual inventory system. (a) Prepare separate entries for each transaction on the books of Oriole Company. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Creditarrow_forwardStallman Company took a physical inventory on December 31 and determined that goods costing $200,000 were on hand. Not included in the physical count were $25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and $22,000 of goods sold to Alvarez Company for $30,000, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Stallman report as its December 31 inventory?arrow_forward[The following information applies to the questions displayed below.] Autumn Company began the month of October with inventory of $25,000. The following inventory transactions occurred during the month: The company purchased inventory on account for $37,000 on October 12. Terms of the purchase were 2/10, n/30. Autumn uses the net method to record purchases. The inventory was shipped f.o.b. shipping point and freight charges of $600 were paid in cash. On October 31, Autumn paid for the inventory purchased on October 12 During October inventory costing $19,500 was sold on account for $30,000. It was determined that inventory on hand at the end of October cost $42,360. Assuming Autumn Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. Autumn considers purchase discounts lost as part of interest expense.arrow_forward
- On June 10, Sunland Company purchased $7,800 of merchandise from Blossom Company, terms 4/10, n/30. Sunland Company pays the freight costs of $370 on June 11. Goods totaling $800 are returned to Blossom Company for credit on June 12. On June 19, Sunland Company pays Blossom Company in full, less the purchase discount. Both companies use a perpetual inventory system (b) Prepare separate entries for each transaction for Blossom Company. The merchandise purchased by Blossom Company on June 10 cost McGiver $3,180, and the goods returned cost Blossom Company $210. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit choose a transaction date…arrow_forwardBlue Company took a physical inventory on December 31 and determined that goods costing $190,900 were on hand. Not included in the physical count were $26,400 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and $23,260 of goods sold to Alvarez Company for $29,460, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Blue report as its December 31 inventory? December 31 inventory $arrow_forwardCoronado Company took a physical inventory on December 31 and determined that goods costing $199,600 were on hand. Not included in the physical count were $23,940 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and $20,700 of goods sold to Alvarez Company for $32,580, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Coronado report as its December 31 inventory?arrow_forward
- The transactions listed below are typical of those involving New Books Incorporated and Readers’ Corner. New Books is a wholesale merchandiser and Readers’ Corner is a retail merchandiser. Assume all sales of merchandise from New Books to Readers’ Corner are made with terms n/30, and the two companies use perpetual inventory systems. Assume the following transactions between the two companies occurred in the order listed during the year ended August 31. New Books sold merchandise to Readers’ Corner at a selling price of $575,000. The merchandise had cost New Books $425,000. Two days later, Readers’ Corner complained to New Books that some of the merchandise differed from what Readers’ Corner had ordered. New Books agreed to give an allowance of $12,500 to Readers’ Corner. Readers’ Corner also returned some books, which had cost New Books $2,500 and had been sold to Readers’ Corner for $4,000. Just three days later, Readers’ Corner paid New Books, which settled all amounts owed.…arrow_forward[The following information applies to the questions displayed below.] Autumn Company began the month of October with inventory of $33,000. The following inventory transactions occurred during the month: The company purchased inventory on account for $49,000 on October 12. Terms of the purchase were 210/210 , n30/�30 . Autumn uses the net method to record purchases. The inventory was shipped f.o.b. shipping point and freight charges of $680 were paid in cash. On October 31, Autumn paid for the inventory purchased on October 12. During October inventory costing $20,700 was sold on account for $31,600. It was determined that inventory on hand at the end of October cost $61,000. 1. Assuming Autumn Company uses a perpetual inventory system, prepare journal entries for the above transactions. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.arrow_forward[The following information applies to the questions displayed below.] Autumn Company began the month of October with inventory of $33,000. The following inventory transactions occurred during the month: The company purchased inventory on account for $49,000 on October 12. Terms of the purchase were 210/210 , n30/�30 . Autumn uses the net method to record purchases. The inventory was shipped f.o.b. shipping point and freight charges of $680 were paid in cash. On October 31, Autumn paid for the inventory purchased on October 12. During October inventory costing $20,700 was sold on account for $31,600. It was determined that inventory on hand at the end of October cost $61,000. Assuming Autumn Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. Autumn considers purchase discounts lost as part of interest expense. Note: If no entry is required for a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
INVENTORY & COST OF GOODS SOLD; Author: Accounting Stuff;https://www.youtube.com/watch?v=OB6RDzqvNbk;License: Standard Youtube License