One of the practical problems confronting the auditors is that of determining whether adjusting journal entries or

Question:

One of the practical problems confronting the auditors is that of determining whether adjusting journal entries or other corrective actions are warranted for misstatements, omissions, and inconsistencies. The following items were noted by the auditors during their year-end audit of a small manufacturing partnership having net sales of approximately \$1.6 million; net income of approximately $\$ 40,000$; total assets of nearly $\$ 2$ million; and total partners' capital of $\$ 300,000$.

(1) Proceeds of $\$ 250$ from the sale of fully depreciated office equipment were credited to Miscellaneous Revenue rather than to Gain and Loss on Sales of Equipment, a ledger account that had not been used for several years.

(2) The Trade Accounts Receivable control account showed a balance of $\$ 79,600$. The individual accounts comprising this balance included three with credit balances of $\$ 320, \$ 19$, and $\$ 250$, respectively.

(3) Several debits and credits to general ledger accounts had been made directly without use of journal entries. The amounts involved did not exceed $\$ 500$.

(4) Credit memoranda were not serially numbered or signed, but a file of duplicates was maintained.

(5) General journal entries did not include explanations for any but unusual transactions.

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image text in transcribed (6) Posting references were occasionally omitted from entries in general ledger accounts.
(7) An expenditure of $\$ 200$ for automobile repairs was recorded as a December expense, although shown by the invoice to be a November charge.
(8) The auditors' count of petty cash disclosed a shortage of $\$ 20$.
(9) Expenditures for advertising amounting to $\$ 8,000$ were charged to the Advertising Expense account; other advertising expenses amounting to $\$ 3,000$ had been charged to Miscellaneous Expense.
(10) On September 12, the client borrowed $\$ 288,000$ from First Bank by signing a 120-day note payable in the face amount of $\$ 300,000$. The note matures on January 10 . The client's accountant had charged the entire $\$ 12,000$ interest included in the face amount of the note to the interest expense of the current year. He stated that he did not consider deferring part of the interest to the following year to be warranted by the dollar amounts involved.
Required:
You are to state clearly the position the auditors should take with respect to each of the above items during the course of an annual audit. If adjusting journal entries are necessary, include them in your solution.