Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 7, Problem 24.2MCQ
To determine
Identify the situation that has best chance of being detected.
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Since it started its operations in 2019, Valdo Co. carried no allowance for doubtful accounts.
Uncollectible receivables were expensed as written off and recoveries were credited to
income as collected. On March 1, 2023(after the financial statements were issued),
management recognized that Valdo accounting policy with respect to doubtful accounts was
not correct, and determined that an allowance for doubtful accounts was necessary.
Data for the five years follow:
2019
2020
2021
2022
2023
Credit sales
2,100,000
1,850,000
2,050,000
2,000,000
2,000,000
Accounts written off
20,000
40,000
130,000
22,000
113,000
The year-end balance of accounts receivable are as follows:
December 31, 2022 - P1,000,000
December 31, 2023 P1,200,000
Recoveries
15,000
20,000
5,000
20,000
40,000
Bad debts are provided for as a percentage of sales.
a) The percentage to be used to compute for the allowance for bad debts on
December 31, 2023 would be
b) How much would be the doubtful accounts expense for 2023?
c)…
Ingalls Corporation is in the process of negotiating a loan for expansion purposes. The books and records have never been audited, and the bank has requested that an audit be performed. Ingalls has prepared the following comparative financial statements for the years ended December 31, 2020 and 2019:
1. Prepare the journal entries to correct the books at December 31, 2020. The book s for 2020 have not been closed. Ignore income taxes. 2. Prepare a schedule showing the computation of corrected net income for the years ended December 31, 2020 and 2019, assuming that any adjustments are to be reported on comparative statements for the 2 years. The first items on your schedule should be the net income for each year. Ignore income taxes. (Do not prepare financial statements.)
The Richards Company paid for a five-year extended warranty on all of
their equipment on March 1, 2019 costing $540,000 that went into effect
immediately. The fiscal year is the calendar year.
what if Richards mistakenly or purposely charged the entire total as an expense
in 2019? Assuming that all other accounting during the year had been
performed correctly, i.e. in a consistent manner under GAAP (Generally
Accepted Accounting Principles), in what ways would this error affect overall
totals for 2019 of the six items below.
No dollar figures are required in this table. Just place one check mark in each
column to identify the impact of this misclassification on that category.
Impact On Reported Figures For 2019 if the total payment had been expensed when paid.
(Place One Check Mark in Each Column Below)
Owners'
Assets Liabilities
Equity
(Retained
Earnings)
Impact
Revenues
Expenses
Income
Overstated
Understated
No Effect
Chapter 7 Solutions
Auditing And Assurance Services
Ch. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Prob. 10RQ
Ch. 7 - Prob. 11RQCh. 7 - Prob. 12RQCh. 7 - Prob. 13RQCh. 7 - Prob. 14RQCh. 7 - Prob. 15RQCh. 7 - Prob. 16RQCh. 7 - Prob. 17RQCh. 7 - Prob. 18RQCh. 7 - Prob. 19RQCh. 7 - Prob. 20RQCh. 7 - Define what is meant by a tick mark. What is its...Ch. 7 - Prob. 22RQCh. 7 - Prob. 23.1MCQCh. 7 - Prob. 23.2MCQCh. 7 - Prob. 23.3MCQCh. 7 - Prob. 24.1MCQCh. 7 - Prob. 24.2MCQCh. 7 - Prob. 24.3MCQCh. 7 - Prob. 25.1MCQCh. 7 - Prob. 25.2MCQCh. 7 - Prob. 25.3MCQCh. 7 - Prob. 26.1MCQCh. 7 - Prob. 26.2MCQCh. 7 - Prob. 26.3MCQCh. 7 - Prob. 27DQPCh. 7 - Prob. 28DQPCh. 7 - Prob. 29DQPCh. 7 - Prob. 30DQPCh. 7 - Prob. 31DQPCh. 7 - Prob. 32DQPCh. 7 - Prob. 33DQPCh. 7 - Prob. 34DQPCh. 7 - Prob. 36DQPCh. 7 - Prob. 37DQPCh. 7 - Prob. 40DQP
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- Noren Company uses the balance sheet aging method to account for uncollectible debt on receivables. The following is the past-due category information for outstanding receivable debt for 2019. To manage earnings more favorably, Noren Company considers changing the past-due categories as follows. A. Complete each table by filling in the blanks. B. Determine the difference between totals uncollectible. C. Complete the following 2019 comparative income statements for 2019, showing net income changes as a result of the changes to the balance sheet aging method categories. D. Describe the categories change effect on net income and accounts receivable.arrow_forwardDetermine the net realizable value of accounts receivable on December 31, 2019. Please show solutions along with the answers. Thank you!arrow_forwardHarmon, Inc. uses the aging of receivables method to account for the allowance of doubtful accounts and the recording of bad debt expense. Below is the aging of the accounts receivable along with the associated estimation of uncollectibility. a. Calculate the amount estimated to be uncollectible at the end of 2021. b. Record the year-end entry to record the bad debt expense if there was a credit balance of $12,000 in the Allowance for Doubtful Accounts at the end of 2021 before the year-end entry. c. Record the year-end entry to record the bad debt expense if there was a debit balance of $3,500 in the Allowance for Doubtful Accounts at the end of 2021 before the year-end entry. Harmon, Inc - Accounts Receivable Aging Balances - December 31, 2021 Total 1-30 Days 31-60 Days 61-90 Days 91-120 Days…arrow_forward
- Questions: a. What is the correct bad debt expense for the year assuming that the allowance for doubtful accounts had a balance of P120,500 as of January 1, 2022? b. Your proposed adjusting journal entry to correct the balance of allowance for bad debts would include a net debit or credit of? (just indicate the amount)arrow_forwardLemon company uses the balance sheet/aging approach to estimate uncollectible accounts receivable. Based upon recent collection history, Lemon's accountant has prepared an aging of accounts receivable as of December 31, 2019, and has estimated uncollectible accounts receivable of S81,250 as of that date -ie ending balance of Allowance for Doubtful Accounts (ADA). Additional facts needed for questions 1 and 2 below - The balance in the allowance for doubtful accounts (ADA) on January 1, 2019 (beg. balance) was $38,500. · Accounts written off during 2019 amounted to $3,500 Instructions 1. Prepare the entry to record the write off of $3,500 during 2019 2. Prepare the adjusting entry to record the uncollectible accounts expense for 2019 (considering that the ending balance in ADA is $81,250 as mentioned above). 3. Determine the net accounts receivable (net realizable value) that will appear on Lemon's 12/31/19 balance sheet (statement of financial position), if the (gross) accounts…arrow_forward29. What is the doubtful accounts expense for the year 2021? 30. What is the net realizable value of the accounts receivable on December 31, 2021?arrow_forward
- The XR Company's Financial Year Ended on December 31, 2021. However, before the completion of the audit in February 2023 it was determined the company lost a case that was at court before the end of the financial year, but the outcome was uncertain. The auditor will disclosed this information as: O a. A subsequent event. O b. An unusual occurrence O c. A tax liability for the company O d. An annual expensearrow_forward34.Prior to the year-end adjustments of accounts, an entity's Allowance for Doubtful Accounts has a debit balance resulting from a significant amount of accounts receivable that was written off. Based on aging of the receivables and the entity's experience of the extent of uncollectibles, an amount was determined as the required credit balance in Allowance for Doubtful Accounts at year-end.Which of the following statements is true relating to the above-described situation? a. Doubtful accounts expense is equal to the amount determined by aging and analysis of the receivables. b. Doubtful accounts expense is the total amount determined by aging and analysis of the receivables plus the allowance balance before adjustment. c. Doubtful accounts expense is the amount determined by aging and analysis of the receivables less the allowance balance before adjustment. d. Doubtful accounts expense amount cannot be determined.arrow_forwardFrom inception of operations to December 31, 2025, Kingbird Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Kingbird's usual credit terms are net 30 days. The balance in Allowance for Doubtful Accounts was $126,100 (Cr.) at January 1, 2025. During 2025, credit sales totaled $9,015,500, the provision for doubtful accounts was determined to be $180,310, $90,155 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,470. Kingbird installed a computer system in November 2025, and an aging of accounts receivable was prepared for the first time as of December 31, 2025. A summary of the aging is as follows.…arrow_forward
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