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 Assistant Manager of Ridley Corporation is seeking your advice as the accountant, in dealing with the accounting changes in the company for the year 2020. Prepare a report, indicating the appropriate accounting treatment for the following situations. In your report, indicate the type of accounting change (change in accounting policy or change in estimate) or correction of error and the appropriate accounting treatment (retrospective or prospective).1. It was found in May 2020 that warranty claims for 2019 sales have increased because of a defective component used in manufacturing. The extra costs amounted to $200,000 in excess of the 2019 warranty accrual. 2. In 2020, the company examined its entire policy relating to the depreciation of plant equipment. Plant equipment had normally been depreciated over a 15-year period, but recent experience has indicated that the company was using too short a period in its estimates and that the assets should be depreciated over a 20-year…
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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- Abrat Company failed to accrue an allowance for doubtful accounts of 13,500 in 2019. Upon discovery of this error in 2020 prior to making its estimate of doubtful accounts, what correcting journal entry should Abrat make? Ignore income taxes.arrow_forwardWhat is the allowance for doubtful accounts on December 31, 2020? From inception of operations, Axis Company carried no allowance for doubtful accounts. Uncollectible accounts were expensed as written off and recoveries were credited to income as collected. During 2020, management recognized that the accounting policy with respect to doubtful accounts was not correct and determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on historical bad debts loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed each year based on all available past years up to a maximum of five years. Year Credit sales Writeoffs Recoveries 1,500,000 2,250,000 2,950,000 2016 15,000 38,000 52,000 2017 2,700 2,500 2018 3,300,000 4,000,000 65,000 83,000 2019 4,800 5,0 2020 The entity reported accounts receivable of P1,250,000 on December 31, 2019 and P2,000,000 on…arrow_forwardWhich of the following situations has the best chance of being detected when a CPAcompares 2013 revenues and expenses with the prior year and investigates all changesexceeding a fixed percent?(1) An increase in property tax rates has not been recognized in the company’s 2013accrual.(2) The cashier began lapping accounts receivable in 2013.(3) Because of worsening economic conditions, the 2013 provision for uncollectibleaccounts was inadequate.(4) The company changed its capitalization policy for small tools in 2013.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: a. An unusual occurrence b. A tax liability for the company c. A subsequent event. d. An annual expensearrow_forwardDudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and unearned revenues as expenses and revenues, respectively', in the following year when paid or collected. The reported pretax income was 20,000 in 2018, 25,000 in 2019, and 23,000 in 2020. Required: 1. Compute the correct pretax income for 2018, 2019, and 2020. 2. Prepare the journal entries necessary in 2020 if the errors are discovered at the end of that year. Ignore income taxes. 3. Prepare the journal entries necessary in 2021 if the errors are discovered at the end of that year. Ignore income taxes.arrow_forwardNoren 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_forward
- Harmon, 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_forwardProblem 1. You were engaged for the first time to audit the FS of Bebeko Corporation for the period ended December 31, 2020. The company started its operation in 2018. In reviewing the books, the auditor discovered that certain adjustments had either been overlook or improperly recorded at the end of years to 2020. Omissions and other failures for each year are summarized below: December 31 2018 2019 2020 1. Omissions of the following year-end accruals/deferrals: a. Accrued utilities expense b. Accrued interest income c. Prepaid rent expense d. Unearned royalty income |2. Delivery of merchandise at year-end to customers, recorded as sales upon collection the following year. 3. Receipt of merchandise at year-end from suppliers, recorded as purchases upon payment the following year. 4. Cash received from customers at year-end, recorded as sales deliveries yet to be made the following year. In the year of collection, corresponding 5000 7000 6000 2000 4000 3000 2000 1000 8000 3000 5000…arrow_forward4) Accrued taxes payable of $150,000 were not recorded at December 31, 2020. Office supplies on hand of $95,000 at December 31, 2021 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause retained earnings at December 31, 2021 to be in error by what amount?arrow_forward
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