Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud. To state: that the audit risk should be considered at zero level for almost all the audit assignments.

Question

Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $3,000, and Clyde owns the remaining 40 shares with a basis of $12,000. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. Getaway redeems 29 of Bonnie’s shares for $10,000. Getaway has $26,000 of E&P at year-end and Bonnie is unrelated to Clyde.

Answer 1

Question

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

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Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $3,000, and Clyde owns the remaining 40 shares with a basis of $12,000. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. Getaway redeems 29 of Bonnie’s shares for $10,000. Getaway has $26,000 of E&P at year-end and Bonnie is unrelated to Clyde.

Novak supply company a newly formed corporation , incurred the following expenditures related to the land , to buildings, and to machinery and equipment. abstract company's fee for title search $1,170 architect's fee $7,133 cash paid for land and dilapidated building thereon $195,750 removal of old building $45,000 LESS: salvage $12,375 $32,625 Interest on short term loans during construction…

Year Cash Flow 0 -$ 27,000 1 11,000 2 3 14,000 10,000 What is the NPV for the project if the required return is 10 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV $ 1,873.28 At a required return of 10 percent, should the firm accept this project? No Yes What is the NPV for the project if the required return is 26 percent?

Answer 2

Question

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

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Answer 3

Question

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

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Answer 4

Question

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

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Answer 5

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

Answer 6

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

Answer 7

Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

Answer 8

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

Answer 9

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

Answer 10

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

Answer 11

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

Answer 12

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

Answer 13

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

Answer 14

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

Answer 15

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

Answer 16

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

Answer 17

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.

Answer 18

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Ch. 7 - Prob. 1TFQ Ch. 7 - Prob. 2TFQ Ch. 7 - Prob. 3TFQ Ch. 7 - Prob. 4TFQ Ch. 7 - Prob. 5TFQ Ch. 7 - Prob. 6TFQ Ch. 7 - Prob. 7TFQ Ch. 7 - Prob. 8TFQ Ch. 7 - Prob. 9TFQ Ch. 7 - Prob. 10TFQ

Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud. To state: that the audit risk should be considered at zero level for almost all the audit assignments.

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud. To state:that the audit risk should be considered at zero level for almost all the audit assignments.

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization. To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud. To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

Chapter 7 Solutions

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.