Mylab Accounting With Pearson Etext -- Access Card -- For Auditing And Assurance Services (17th Edition)
Mylab Accounting With Pearson Etext -- Access Card -- For Auditing And Assurance Services (17th Edition)
17th Edition
ISBN: 9780135176115
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
Question
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Chapter 7, Problem 37DQP

a.

To determine

Determine the expected value from the given information.

a.

Expert Solution
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Explanation of Solution

Audit Evidence: The piece of evidence provided by the audit team to prove their opinion with respect to the audit is known as audit evidence. It includes accounting information related to the evidence and their source.

Determine the expected value.

AccountExpected value
Executive salaries=(Sales of adjusted balance×103%)=$546,940×103%=$563,348
Factory hourly payroll

Increase due to 3% pay rate increase:

=((Factory hourly payroll in audit balance)×Increase in pay rate )=($10,038,877×3%)=$301,166

Increase due to 8% increased production:

=((Factory hourly payroll in audit balance)+Increase due to pay rate  )×108%=($10,038,877+$301,166)×108%=$10,340,043×1085=$11,167,246

Factory supervisors’ salaries=((Factory supervisors' salariesin audited balance)×103%)=$785,825×103%=$809,400
Office salaries=((Office salariesin audited balance)×103%)=$1,990,296×103%=$2,050,005
Sales commissions

Increase in commissions due to increased sales:

=(Sales commission ×Sales earned)=(3%×$4,618,461)=$230,923

=((Sales commission in audited balance)+Increase in commission)=$2,018,149+$230,923=$2,249,072

Table (1)

b.

To determine

Compute the difference between the own expectation and client’s recorded amounts as percentage.

b.

Expert Solution
Check Mark

Explanation of Solution

Compute the difference between the expectation and client’s recorded amounts as percentage.

AccountDIFFERENCEIN EXPECTEDAND RECORDED
Executive salaries=((Expected value of executive salaries)Executive salariesin preliminary balance)(Expected value of executive salaries)=($563,348$615,970)$563,348=9.34%
Factory hourly payroll=((Expected value of factory hourly payroll)Factory hourly payrollin preliminary balance)(Expected value of factory hourly payroll)=($11,167,246$11,476,319)$11,167,246=2.77%
Factory supervisors’ salaries=((Expected value of factory supervisors'salaries)Factory supervisors'salaries in preliminary balance)(Expected value of factory supervisors'salaries)=($809,400$810,588)$809,400=0.15%
Office salaries=((Expected value of office salaries)Office salaries in preliminary balance)(Expected value of office salaries)=($2,050,005$2,055,302)$2,050,005=0.26%
Sales commissions=((Expected value of Sales commission)Sales commission in preliminary balance)(Expected value of Sales commission)=($2,249,072$2,367,962)$2,249,072=5.3%

Table (2)

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Innovative Consulting Co. has the following accounts in its ledger: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, Retained Earnings, Dividends, Fees Earned, Rent Expense, Advertising Expense, Utilities Expense, Miscellaneous Expense. Journalize the following selected transactions for October 2012 in a two-column journal. Journal entry explanations may be omitted. If an amount box does not require an entry, leave it blank. Oct. 1. Paid rent for the month, $2,500. 4. Paid advertising expense, $1,000. 5. Paid cash for supplies, $1,800. 6. Purchased office equipment on account, $11,500. 12. Received cash from customers on account, $7,500. 20. Paid creditor on account, $2,700. 27. Paid cash for miscellaneous expenses, $700. 30. Paid telephone bill for the month, $475. 31. Fees earned and billed to customers for the month, $42,400. 31. Paid electricity bill for the month, $900. 31. Paid dividends, $1,500.
Cash Accounts Receivable Supplies Prepaid Insurance Equipment Notes Payable Accounts Payable Debit Balances Credit Balances 20,350 37,000 1,100 200 171,175 36,000 26,000 Common Stock 50,000 Retained Earnings 94,150 Dividends 15,000 Fees Earned 429,850 Wages Expense 270,000 Rent Expense 63,000 Advertising Expense 25,200 Miscellaneous Expense 5,100 608,125 636,000
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