The records of Davis Corporation have never been audited. The company is negotiating a large loan for expansion purposes. The bank has requested that an audit of the company be performed. During the course of the audit, the following facts were determined: • The inventory at December 31, 2019, was overstated by P 10,000. • The inventory at December 31, 2020, was overstated by P 20,000. • The property, plant & equipment (an element of Selling Expense) was underdepreciated in 2019 by P 9,000 and in 2020 by P 12,000. • A three-year insurance premium of P 900 paid on January 1, 2019, was debited in full to Administrative Expense at that time.

The records of Davis Corporation have never been audited. The company is negotiating a large loan for expansion purposes. The bank has requested that an audit of the company be performed. During the course of the audit, the following facts were determined: • The inventory at December 31, 2019, was overstated by P 10,000. • The inventory at December 31, 2020, was overstated by P 20,000. • The property, plant & equipment (an element of Selling Expense) was underdepreciated in 2019 by P 9,000 and in 2020 by P 12,000. • A three-year insurance premium of P 900 paid on January 1, 2019, was debited in full to Administrative Expense at that time.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 5C: It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019...

See similar textbooks

Similar questions

You are auditing Army Corporation's financial statements for the period ended December 31, 2021. Army Corporation is engaged in several lines of businesses: developing property for sale; holding real estate property for rental purposes and holding real estate properties for capital appreciation purposes. Four properties are currently classified as investment property. Your audit investigations revealed the following regarding the said properties: o Real Property A was acquired in January of 2020 at P100M. The building's sewerage system was not operating and Army Corporation decided to incur expenditure amounting to P5M to make the sewerage system operational. It also decided to undertake major maintenance on the system at the end of 5 years. The company used the fair market model for this asset and has capitalized the asset at P115M (being the cost of P100M, expenditure of P5M and the present value of the planned expenditure at the end of five years at P10M). Fair value of the property…
You are auditing Army Corporation's financial statements for the period ended December 31, 2021. Army Corporation is engaged in several lines of businesses: developing property for sale; holding real estate property for rental purposes and holding real estate properties for capital appreciation purposes. Four properties are currently classified as investment property. Your audit investigations revealed the following regarding the said properties: Real Property A was acquired in January of 2020 at P100M. The building's sewerage system was not operating and Army Corporation decided to incur expenditure amounting to P5M to make the sewerage system operational. It also decided to undertake major maintenance on the system at the end of 5 years. The company used the fair market model for this asset and has capitalized the asset at P115M (being the cost of P100M, expenditure of P5M and the present value of the planned expenditure at the end of five years at P10M). Fair value of the property…
You are auditing Crown Corporation for the year ended 2022. Its reported net income for the year 2021 and 2022 were P 3,000,000 and P 4,000,000, respectively. During your audit, the following errors were revealed: 1. The inventory at the end of 2022 and 2023 were P 20,000 understated and P 18,000 overstated, respectively. 2. Recalculating the depreciation charges for 2023, you found out it was short by P 4,000. 3. The 15,000 insurance premium for three years was recorded using the income statement approach on January 1, 2021. No expense amount was extracted from the balance at the end 2021 and 2022. 4. An equipment was sold on December 31, 2022 for P 32.000. Its related cost was P 200,000 with zero carrying value on date of sale. The sale transaction was recorded on January 10, 2023. QUESTIONS: 1. What is the correct net income for the year 2022? 2. What is the correct net income for the year 2023?
You were auditing the borrowings of Faith Logistics Corporation for the year ended December 31, 2022. You were able to not the following transaction in your review of the company’s records: On August 1, 2022, the company acquired a service vehicle for a total cash price of P650,000 with Alpha Automobile Trading Company. The terms involved a deferred payment arrangement on the purchase of the service vehicle with Faith paying a down payment of P150,000 and a five-year note payable of P626,140. The note is payable in five (5) equal installments of P125,228 payable beginning August 1, 2023. The annual payments include 8% interest. How much is the amount attributable to the principal portion of the note on the payment made on August 1, 2023?
You were auditing the borrowings of Faith Logistics Corporation for the year ended December 31, 2022. You were able to not the following transaction in your review of the company’s records: On August 1, 2022, the company acquired a service vehicle for a total cash price of P650,000 with Alpha Automobile Trading Company. The terms involved a deferred payment arrangement on the purchase of the service vehicle with Faith paying a down payment of P150,000 and a five-year note payable of P626,140. The note is payable in five (5) equal installments of P125,228 payable beginning August 1, 2023. The annual payments include 8% interest. What is the cost of the equipment to be recorded by Faith Logistics Corporation on August 1, 2022? What is the carrying amount of the note payable on December 31, 2022?
Rayan Company, a CPA firm, conducted an audit for the 2020 financial statements of Tia Corporation. During the course of the audit, the auditors noticed that repairs and maintenance expenses were recorded as an addition to fixed assets to decrease expenses amount in the financial statements. Which one of the following assertions was violated? Occurrence Completeness Existence Accuracy None of the above
You were auditing the borrowings of Faith Logistics Corporation for the year ended December 31, 2022. You were able to not the following transaction in your review of the company’s records: On August 1, 2022, the company acquired a service vehicle for a total cash price of P650,000 with Alpha Automobile Trading Company. The terms involved a deferred payment arrangement on the purchase of the service vehicle with Faith paying a down payment of P150,000 and a five-year note payable of P626,140. The note is payable in five (5) equal installments of P125,228 payable beginning August 1, 2023. The annual payments include 8% interest. Based on the given information and the result of your audit, answer the following questions: What is the cost of the equipment to be recorded by Faith Logistics Corporation on August 1, 2022? What is the carrying amount of the note payable on December 31, 2022? How much is the interest expense to be reported by the company for the year ended December 31,…
In the audit of the books of Yellow Corporation for the year 2020, the following items and information appeared in the Production Machine account of the client: Date Particulars Debit Credit 01/01 Balance–Machine 1, 2, 3, and 4 at P180,000 each P 720,000 02/28 Machine 5 Machine 1 396,000 P 6,000 09/01 Machine 6 192,000 12/01 Machine 7 432,000 The Accumulated Depreciation account contained no entries for the year 2020. The balance on January 1, 2020 per your audit, was as follows: Machine 1 P168,750 Machine 2 78,750 Machine 3 67,500 Machine 4 45,000 Based on your further inquiry and verification, you noted the following: 1. Machine 5 was purchased for cash; it replaced Machine 1, which was sold on this date for P6,000. 2. Machine 2 was destroyed by the thickness of engine oil used leading to explosion on December 1, 2020. Machine 7 was to replace Machine 2. 3. Machine 3 was traded in for Machine 6 at an allowance of P24,000; the difference was paid in cash and…
You a partner incharge of the audit for Bargin Ltd, a private company. The completion of the audit report is pending for the income year 2018 and you have recorded some situations where possible action is required They are listed below: Bargin Ltd, carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. Management of Bargin Ltd, refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. You were unable to confirm accounts receivable with Bargin Ltd, customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. One week before the end of fieldwork, you discover that the audit manager on the Bargin Ltd, engagement owns a material amount of Bargin Ltd, common stock. You relied…
It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019 (which will be issued in March 2020). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenports accounts receivable is 50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss for 2019 might be appropriate. Jim replies, Why should we make an adjustment? Ted Travis, the president of Travis Corporation, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2020, so lets wait and see what happens; we can always make an adjustment later this year. Our 2019 income and year-end working capital are not that high; our creditors and shareholders wouldnt stand for lower amounts than they already are. Required: From financial reporting and ethical perspectives, prepare a response to Jim Davenport regarding this issue.
Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2023, year end. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft's interest expense on its long-term debt. Ann has identified the following information: Long-term debt balance confirmed by the bank in prior-year file Long-term debt balance confirmed by the bank in the current year Interest rate per the bank confirmation Balance per the general ledger Performance materiality (a) $1,545,861 $1,427,529 6.25 % $89,525 $7,000 Which of the following are true with respect to this analytic substantive procedure? The balances of the long-term debt and the interest rate are taken from bank confirmations which is external, third party evidence, and therefore highly reliable. There is no need to need to consider the reliability of the underlying data when using analytical procedures. This analytical procedure is a…
The owner of a trading company engaged your services as auditor. There is a discrepancy between the companys 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: 1. Physical inventory, taken December 31, 2019 under your observation, showed that cost was P26,500 and market value, P25,000. The inventory of January 1, 2019 showed cost of P39,000 and market value of P37,500. It is the firms practice to value inventory at lower of cost or market. Any loss between cost and market value is included in Other Expenses. 2. The average gross profit rate was 40% of net sales. 3. The Accounts Receivable as of January 1, 2019 were P13,500. During 2019, Accounts Receivable written off during the year amounted to P1,000. Accounts Receivable as of December 31, 2019 were P37,500. 4. Outstanding purchase invoices amounted to P50,000 at the end of 2019. At the beginning of 2019 they…