10-52 a through c please! :) In regards to the comment, how can I clarify?
TUULETUL LULUWS- tions. Assume that each situation is independent of one another. As an illustration, situation 1 has been solved for you. To simplify the problem, in the case of a perpetual inventory, assume that the year-end inventory count did not identify and correct the misstatement(s). Cash Acct. Rec. Inventory CGS Sales Income $2,500 (0) $2,500 (u) eft the cash receipts journal open after year-end day and included January 1 cash receipts in the totals. The company uses a periodic inventory t effect would this have on 20X8? sed the cash receipts journal at 12/29 and reported the of cash receipts in January of 20X9. The company uses ntory system. What effect would this have on 20X8? the sales journal open after year-end for an extra Wed January 1 sales in the December 31 totals. The a periodic inventory system. What effect would X8? the company uses a perpetual inventory system. ed the sales journal at 12/29 and reported the two in January of 20X9. The company uses a perpet- stem. What effect would this have on 20X8? both the sales journal and the cash receipts "ough January 2 and reported the first two days' December of 20X8. The company uses a periodic 7. What effect would this have on 20X8? 10-52. ase -4,5 On October 21, Rand & Brink, a CPA firm, was retained by Suncraft Appliance Corporation to perform an audit for the year ended December 31. A month later, James Minor, president of the corporation, invited the CPA firm's partners, George Rand and Alice Brink, to attend a meeting of all officers of the corporation. Mr. Minor opened the meeting with the following statement: All of you know that we are not in a very liquid position, and our October 31 balance sheet shows it. We need to raise some outside capital in January, and our December 31 financial statements (both balance sheet and income statement) must look reasonably good if we're going to make a favorable impression upon lenders or investors. I want every officer of this company to do apter Ten 31. our financial statements and the reason for some " that our financial statements December that they wouldn't extra orders shipped, it will increase December before the close of shipping department, but we'll e could overship some orders, in't actually ship. we can just label ember 31 sales invoices. Also, there are everything possible during the next month to ensure that, at December 31, our financi look as strong as possible, especially our current position and our earnings I have invited our auditors to attend this meeting so they will understand the reason year-end transactions that might be a little unusual. It is essential that our fina carry the auditors' approval, or we'll never be able to get the financing gestions can you offer? The vice president for sales was first to offer suggestions: I can talk some of our large customers into placing some orders in December ordinarily place until the first part of next year. If we get those extra orders shippe this year's earnings and also increase our current assets. The vice president in charge of production commented: We can ship every order we have now and every order we get during December beton business on December 31. We'll have to pay some overtime in our shipping depan try not to have a single unshipped order on hand at year-end. Also, we could overships and the customers wouldn't make returns until January. The controller spoke next: If there are late December orders from customers that we can't actually ship. the merchandise as sold and bill the customers with December 31 sales invoices. Also, until January--some always some checks from customers dated December 31 that don't reach us until January as late as January 10. We can record all those customers' checks bearing dates of late Dec part of our December 31 cash balance. The treasurer offered the following suggestions: Towe the company $50,000 on a call note I issued to buy some of our stock. I can borrow from my mother-in-law about Christmas time and repay my note to the company. Howe have to borrow the money from the company again early in January because my mother-in-law is buying a condo and will need the $50,000 back by January 15. Another thing we can do to improve our current ratio is to write checks on December 10 Pay most of our current liabilities. We might even wait to mail the checks for a few days or mail them to the wrong addresses. That will give time for the January cash receipts to cover the December 31 checks. The vice president of production made two final suggestions: Some of our inventory, which we had tentatively identified as obsolete, does not represent an open-and-shut case of being unsalable. We could defer any write-down until next year. Another item is some machinery we have ordered for delivery in December. We could instruct the manu- facturer not to ship the machines and not to bill us before January. checks bearing dates of late December as my note to the company. However, I'll After listening to these suggestions, the president, James Minor, spoke directly to Rand and Brink, the auditors. You can see I'm doing my best to give you full information and cooperation. If any of these sug- gested actions would prevent you from giving a clean bill of health to our year-end statements, I want to know about it now so we can avoid doing anything that would keep you from issuing an unqualified audit report. I know you'll be doing a lot of preliminary work here before December 31, but I'd like for you not to bill us before January. Will you please give us your reactions as to what has been said in this meeting? a. Put yourself in the role of Rand & Brink, CPAs, and evaluate separately each suggestion made in the meeting. What general term is applicable to most of the suggested actions?! b. Could you assure the client that an unqualified audit report would be issued if your recom- mendations were followed on all the matters discussed? Explain. c. Would the discussion in this meeting cause you to withdraw from the engagement? Today you had lunch with your friend Sarah Teasdale. Sarah has worked with 7nind Be 10-53. CDA 1
