1. Assume a 30% tax rate, and the Totals per financial statements provided. Complete the following schedule as per Figure 16.4 (p. 718) in the text. Assume that the Totals per financial statements (second to bottom row) have appropriately been entered on this schedule from the financial statements.

figure 16.4 Table Summary: A summary of uncorrected misstatements of Southmade Products Inc. is divided into four columns titled misstatements, assets, liabilities, and income statement.

FIGURE 16.4

Aggregated Misstatements

Southmade Products Inc. Summary of Uncorrected Misstatements December 31, 20X7 Debit (Credit) Misstatements Assets Liabilities Income Statement Type Current Noncurrent Current Noncurrent Revenue Cost of Goods Sold Selling, Gen., Admin. Income Prepaid insurance Factual $(50,000) $50,000 $50,000 Warranty liability Judgmental $(10,000) $(20,000) $30,000 $30,000 Accounts receivable Projected $(130,000) $130,000 $130,000 Total uncorrected $(180,000) $(10,000) $(20,000) $130,000 $30,000 $50,000 $210,000 Tax effect at 40% $84,000 $(84,000) After-tax effect $(180,000) $ $74,000 $(20,000) $130,000 $30,000 $50,000 $126,000 Effect of prior years uncorrected misstatements After-tax and prior years effects $(180,000) $ $74,000 $(20,000) $130,000 $30,000 $50,000 $26,000 Totals per financial statements $42,000,000 $ 22,000,000 $ 8,000,000 $ 63,000,000 $41,500,000 $15,000,000 $ 6,206,000 Percent of uncorrected to financial statements 0.43% 0.34% 0.25% 0.21% 0.07% 0.33% 2.03%

2. Assume that the client does not intend to record any of the above misstatements and that 6 percent of income after taxes is considered a material misstatement. Provide the auditors conclusion in this situation. Only consider the income effect.

3. Assume that the client does intends to record correcting entries for each above misstatement. Provide the auditors conclusion in this situation.

Beta Computer Equipment Company Total Likely Misstatement December 31, 20X3 Debit (Credit) Assets Liabilities Income Statement Non- current Non- current Cost of Selling, Gen. Sales Admin.,Other Current Current Revenue Income Number Type 1 2. 3 4 5 6 Total Uncorrected Tax effect at 30% on current liab. After Tax Effect on Income 9,206,553.00 1,237,543.00 6,239,932.00 2,400,000.00 82,000,000.00 71,000,406.00 8,002,378.00 1,323,839.00 Totals per financial statements Percent of unrecorded to f.s