Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 24DQP
a.(1)
To determine
Explain the validity of quantity of inventory tested during the
a.(2)
To determine
Describe the consequences of counting errors during the inventory test
b.
To determine
Explain the steps that are to be taken for inclusion of obsolete inventory.
c.
To determine
Explain the significance of the action to be taken for incorrect physical inventory.
d.
To determine
The steps to be followed for the arrival of shipments during physical inventory count.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your cilents. You arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack ar the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds "We are not going to include the contents in the inventory."
Later in the day, you ask the bookkeeper for the invoive on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload of goods in the car was $35,300. The frieght bill called for a payment of $1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in January.
a. Does your cilent have a liability that should be recorded at December 31? Discuss.
b. Prepare a journal entry(ies), if required,…
Assume that in an annual audit of Wildhorse Inc. at December 31, 2025, you find the following transactions near the closing date.
Assuming that each of the amounts is material, state whether the merchandise should be included in the client's inventory.
1.
2.
3.
4.
5.
Transactions
A special machine, fabricated to order for a customer, was finished and specifically segregated in the
back part of the shipping room on December 31, 2025. The customer was billed on that date and the
machine excluded from inventory although it was shipped on January 4, 2026.
Merchandise costing $5,880 was received on January 3, 2026, and the related purchase invoice
recorded January 5. The invoice showed the shipment was made on December 29, 2025, f.o.b.
destination.
A packing case containing a product costing $7,140 was standing in the shipping room when the
physical inventory was taken. It was not included in the inventory because it was marked "Hold for
shipping instructions." Your investigation revealed…
Late in the year, Software City began carrying WordCrafter, a new word processing software program. At December 31, Software City's perpetual inventory records included the following cost layers in its inventory of WordCrafter programs:
Purchase Date
Quantity
10
November 14
Unit Cost
$420
330
Total Cost
$4,200
7,260
December 12
22
32
Total available for sale at December 31
$ 11,460
Required:
a. At December 31, Software City takes a physical inventory and finds that all 32 units of WordCrafter are on hand. However, the current replacement cost (wholesale price) of this product is only $260 per unit.
1. Prepare the entries to record the write-down of this inventory to the lower-of-cost-or-market at December 31. (Company policy is to charge LCM adjustments of less than $2,000 to Cost of Goods Sold and larger amounts to a separate loss account.)
2. Prepare the entries to record the cash sale of 26 WordCrafter programs on January 9, at a retail price of $380 each. Assume that Software City…
Chapter 21 Solutions
Auditing And Assurance Services
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 21DQPCh. 21 - Prob. 22DQPCh. 21 - Prob. 23DQPCh. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQPCh. 21 - Prob. 30C
Knowledge Booster
Similar questions
- (Inventoriable Goods and Costs) You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, “We are not going to include the contents in the inventory.”Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in…arrow_forwardYou have been working with the Humber Room Restaurant to determine the best method to value physical inventory. The following information is taken from the Humber Room Restaurant from the inventory records for the month of January: 1/1 Opening inventory 12 units @ $2.05 each 1/5 Purchased 22 units @ $2.75 1/12 Purchased 16 units @$1.75 1/19 Purchased 10 units @ $2.10 On January 31, the physical inventory indicated that 12 units remained on the shelf. The value on the shelf was 6 cans priced at $2.10 and 6 cans priced at $1.75 a.Determine the value of the closing inventory using the following methods 1.Actual purchase price method 2.FIFO 3.Last purchase price method 4.Weighted-average purchase price methodLast purchase price method 5.LIFO b.After analyzing the physical inventory based on the five methods in part a, what method would be "best suited" for the Humber Room Restaurant? Explain your answer in full sentencesarrow_forwardAn auditor is examining the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution centre and in two public warehouses. An electronic inventory file is maintained on a computer disk, and at the end of each business day the file is updated. Each record of the inventory file contains the following data: · Item number. · Location of item. · Description of item. · Quantity on hand. · Cost per item. · Date of last purchase. · Date of last sale. · Quantity sold during year. The auditor plans to observe the distributor's physical count of inventory as of a given date. The auditor will have available a computer tape of the data on the inventory file on the date of the physical count and a generalized audit software package. Required: The auditor is planning to perform basic inventory-auditing procedures. Identify the basic inventory-auditing procedures and describe…arrow_forward
- The management of Bartleby Graduate Co. has engaged you to assist in the preparation of year-end (December 31) financial statements. You are told that on November 30, the correct inventory level was 145,730 units. During the month of December, sales totaled 138,630 units including 40,000 units shipped on consignment to Course Hero Certification Corp. A letter received from Course Hero indicates that as of December 31, it has sold 11,000 units and was still trying to sell the remainder. A review of the December purchase orders to various suppliers shows the following. Bartleby Graduate Co. uses the "passing of legal title" for inventory recognition. Purchase Invoice Date Quantity in Date Shipped Date Received Terms Order Date Units 12/31/20 12/05/20 12/06/20 12/18/20 12/22/20 01/02/21 01/02/21 01/03/21 12/20/20 01/05/21 01/07/21 01/02/21 12/17/20 01/05/21 12/29/20 01/04/21 4,200 01/05/21 12/22/20 01/07/21 01/02/21 01/06/21 01/07/21 FOB Destination 3,600 FOB Destination FOB Shipping…arrow_forwardOn January 2nd as an audit assistant at a local accounting firm, you are assigned to finish off the workpapers of an inventory audit observation that the accounting firm took part in on December 31st. The client is a retailer selling clothing, small appliances and other small electronic devices. The Accounting Manager has shared with you detailed schedules of the inventory on hand at December 31st, as well as other information about inventory transactions that have taken place within the last week which support the determination that a good inventory cutoff calculation was done as it relates to goods in transit. You are satisfied with the accuracy of the count and the determination of the balances at December 31st. While you are finishing up your inventory workpapers the Accounting Manager shared with you that the company is very careful to evaluate the NRV of its inventory at year-end to determine if any write-downs may be necessary. The company uses the lower-of cost or market…arrow_forwardLate in the year, Software City began carrying WordCrafter, a new word processing software program. At December 31, Software City's perpetual Inventory records included the following cost layers in its Inventory of WordCrafter programs. Purchase Date Nov. 14 Dec. 12 Total available for sale at Dec. 31 Quantity 10 28 38 Unit Cost $ 400 320 $ Total Cost $ 4,000 8,960 $12,960 a. At December 31, Software City takes a physical Inventory and finds that all 38 units of WordCrafter are on hand. However, the current replacement cost (wholesale price) of this product is only $250 per unit. 1. Prepare the entries to record this write-down of the Inventory to the lower-of-cost-or-market at December 31. (Company policy is to charge LCM adjustments of less than $2,000 to Cost of Goods Sold and larger amounts to a separate loss account.) 2. Prepare the entries to record the cash sale of 32 WordCrafter programs on January 9, at a retail price of $380 each. Assume that Software City uses the FIFO flow…arrow_forward
- Sheridan Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2025. Jim Alcide, controller for Sheridan, has gathered the following data concerning inventory. At May 31, 2025, the balance in Sheridan's Raw Materials Inventory account was $493,680. Alcide summarized the relevant inventory cost and market data at May 31, 2025, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Sheridan's May 31, 2025, financial statements for inventory under the lower-of-cost-or-market rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Consider the following expanded data at May 31, 2025. Assume Sheridan uses LIFO inventory costing. Cost…arrow_forwardInventory Procedures Using Computer-Assisted Audit Techniques (CAATs). You are conducting an audit of the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution center and in two public warehouses. A perpetual inventory computer database is maintained on a computer disk. The database is updated at the end of each business day. Each record of the perpetual inventory database contains the following data:Item number.Location of item.Description of item.Quantity on hand.Cost per item.Date of last purchase.Date of last sale.Quantity sold during year.You are planning to observe the distributor’s physical count of inventories as of a given date. The client will provide a computer file of the preceding items taken from its database as of the date of the physical count. Your firm has a computer audit plan that will be ideal for analyzing the inventory…arrow_forwardN Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2025. Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2025, the balance in Garcia's Raw Materials Inventory account was $408,000. Alcide summarized the relevant inventory cost and market data at May 31, 2025, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia's May 31, 2025, financial statements for inventory under the lower-of-cost-or-market rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Consider the following expanded data at May 31, 2025. Assume Garcia uses LIFO inventory costing. F5 Aluminum siding…arrow_forward
- You are auditing Martha’s Prison Clothes Incorporated as of December 31, 2023. The inventory for orange jumpsuits shows 1,263 suits at $782 for a total of $987,666. When you look at the invoices for the jumpsuits, you see the following: Inventory Number Date Quantity Unit Price Total 12732 11/22/23 1,000 $ 765 $ 765,000 12844 12/03/23 800 777 621,600 12905 12/28/23 600 782 469,200 Required: Determine the adjusting entry, if any, for the cost of inventory at December 31, 2023 assuming the FIFO method of inventory pricing. Determine the adjusting entry, if any, for the cost of inventory at December 31, 2023 assuming the FIFO method of inventory pricing if you saw a sale posted on January 9, 2024 for 500 suits at a net amount of $750?arrow_forwardUmatilla Bank and Trust is considering giving Whispering Winds Corp. a loan. Before doing so, it decides that further discussions with Whispering Winds's accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $300,800. Discussions with the accountant reveal the following. 1. 2. 3. 4. 5. Whispering Winds shipped goods costing $44,300 to Hemlock Company FOB shipping point on December 28. The goods are not expected to reach Hemlock until January 12. The goods were not included in the physical inventory because they were not in the warehouse. The physical count of the inventory did not include goods costing $93.500 that were shipped to Whispering Winds FOB destination on December 27 and were still in transit at year-end. Whispering Winds received goods costing $22.500 on January 2. The goods were shipped FOB shipping point on December 26 by Yanice Co. The goods were not included in the physical count. Whispering Winds shipped…arrow_forwardFancy Iron began August with 45 units of iron inventory that cost $24 each. During August, the company completed the following inventory transactions: Requirement 1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method. Start by entering the beginning inventory balances. Enter the transactions in chronological order, calculating new inventory on hand balances after each transaction. Once all of the transactions have been entered into the perpetual record, calculate the quantity and total cost of merchandise inventory purchased, sold, and on hand at the end of the period. (Enter the oldest inventory layers first.) - X Cost of Goods Sold Inventory on Hand Requirements Unit Cost Unit Cost Purchases Unit Date Quantity Cost Aug. 1 3 81 21 30 Totals Total Cost Quantity Total Cost Quantity C Total Cost 1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method. 2. Prepare a perpetual…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