Warren Presit was the senior in charge of the audit of Put-on, Inc., a maker of men's fashion shoes. He had instructed his assistant, Stephie Scent, to examine support for every sales invoice recorded during the last week of the year under audit to determine whether these invoices represented legitimate sales for the year.

Stephie compared each sales invoice with a shipping document, noting whether the shipment took place before or after year-end. During the examination, she noted that several sales invoices had no shipping documents. She asked the personnel in the shipping department about this oddity and received a shrug of the shoulders and a somewhat cool response.

Stephie took the sales invoices to Warren who, in turn, took them to the controller asking for an explanation. The controller, looking rather contrite, explained that their practice was to prepare "advance invoices" for customers who regularly purchased the same type and quantity of merchandise each month. When Warren pressed the issue, the controller ex plained that sickness among shipping personnel had put the shipping schedule behind and that these particular shipments would be made soon.

Warren suggested that an adjustment should be made reversing the charge to accounts receivable and the credit to sales for the total amount of these invoices. The controller became irritated and asserted that these invoices were legitimate sales and that the company should not be penalized because of sickness among shipping personnel.

Warren tried to be polite but refused to give in to the demand that the revenue be allowed to remain recorded in this year's financial statements. Finally, the controller calmed down and suggested a compromise. An adjustment would be made taking the revenue out of this year's financial statements, but a footnote would be put in the financial statements stating that \(\$ 100,000\) of revenue were deferred to next year because of scheduling problems in shipping the merchandise. Warren considered the proposal for a few minutes and indicated that he would give the controller an answer later.

Required:

a. Was Warren correct in refusing to accept amounts from these sales invoices as revenue of the accounting period under audit? Why or why not?

b. Would it be acceptable for Warren to agree to this footnote in the financial statements? Why or why not?

c. Assuming that Warren agrees to the footnote, indicate what evidence Warren must gather to validate the revenue on the invoices as legitimate revenue of the next accounting period.

d. Write the footnote, assuming Warren accepts a footnote.