3.Assess the preliminary materiality based on the policy provided (WP 1-13), and complete WP 3-5, assuming moderate risk and satisfactory results of the analytical procedures.

4.Complete the audit of the accounts receivables:

a.Calculate the sample size for A/R confirmation by following steps in WP 25-2.

b.Assume that you received answers for all of the confirmations and only one of them indicated that the balance is wrong.The balance recorded is $598,000, but the correct amount is $589,000. an adjusting entry on WP 25-5.

c.Complete the A/R lead sheet WP 25-1, and complete the conclusions box by stating whether this account is fairly stated or not. (Ignore the allowance for doubtful accounts).

d.Assuming that all other tests came to be satisfactory, an audit report (dated 2/21/2017) assuming that:

1.The client made the suggest adjusting entry.

2.The client did not do the adjusting entry (only if different from the above one).

1.Comparative income statements and balance sheets are provided.

2.Make sure to initial every document. [If you are from the morning (evening) class group # 1, your initial will be MG1 (EG1)].

3.In the analytical procedure section, do not explain the ratios, rather provide the conclusions that you arrived to base on the results of the ratio analysis.

WP 1-13

ACTG 307 & ASSOCIATES, CPAs

POLICY STATEMENT

Professional judgment is to be used at all times in setting and applying materiality guidelines. As a general guideline, the following policies are to be applied:

1.The combined total of misstatements in the financial statements exceeding 10 percent is normally considered material, less than 5 percent is presumed to be immaterial in the absence of qualitative factors. Between 5 percent and 10 percent require the greatest amount of professional judgment to determine their materiality.

2. The 5 percent to 10 percent must be measured in relation to the appropriate base. Many times there is more than one base to which misstatements should be compared. The following guides are recommended in selecting the appropriate base:

a.Income statement. Combined misstatements in the income statement should ordinarily be measured at 5 percent to 10 percent of operating income before taxes. A guideline of 5 percent to 10 percent may be inappropriate in a year in which income is unusually large or small.

b.Balance sheet. Combined misstatements in the balance sheet should originally be evaluated for current assets, current liabilities, and total assets. For current assets and current liabilities, the guidelines should be between 5 percent and 10 percent. For total assets, the guidelines should be between 3 percent and 6 percent.

3. Qualitative factors should be carefully evaluated on all audits.

WP 3-1

XYZ Corp.

Ratio Analysis

12/31/2016

Liquidity Ratios:20162015

Current ratio

current assets / current liabilities

Quick ratio

(current assets - inventory) / current liabilities

Number of days sales in A/R

net ending receivables / (net sales / 365)

Inventory turnover

cost of sales / average inventory

Profitability Ratios:

Gross profit margin %

gross profit / net sales

Income before tax / owner's equity

net income before taxes / owner's equity

Income before tax / Total Assets

net income before taxes / total assets

Sales / Total Assets

net sales / total assets

Sales / Working Capital

net sales / (current assets - current liabilities)

Solvency Ratios:

Owner's equity / total assets

Owner's equity / total assets

Current liability / Owner's equity

Current liability / Owner's equity

Total liability / Owner's equity

Total liability / Owner's equity

WP 3-2

XYZ Corp.

Preliminary Analytical Procedures - Conclusions of Ratio Analysis

12/31/2016

Liquidity:

conclusions and comments on the client liquidity ratios here.

Profitability:

conclusions and comments on the client profitability ratios here.

Solvency:

conclusions and comments on the client Solvency ratios here.

Going concern:

conclusions and comments on the client's ability to continue as a going concern based on the above ratio analysis here.

WP 3-5

XYZ Corp.

Preliminary materiality Judgment

Measurement base

(e.g., income, revenue, assets)

Percentage Applied

Preliminary materiality

$

(put the name of the base here)

%

$(rounded)

WP 25-1

XYZ Corp.

Accounts Receivable Lead sheet

Account name and NumberUnadjustedAdjusted

BalanceAdjustmentsBalance

100-101 Accounts receivable jQuery224036464850705642027_1592449508715jQuery22404026624536746466_1592449638729??

Conclusions:

The accounts receivable account is ????? (fairly on NOT fairly stated)

WP 25-2

XYZ Corp.

Calculation of Sample Size

Book value of recorded population= $26,388,000 (150 accounts)

Book value for individual material accounts= $ 17,462,207(20 accounts)

(test all of them)

Book value for all remaining accounts= $8,925,793

(test only a sample)

Performance materiality= $393,000

Confidence factor= ??

(From table above assuming ROIA of 10%

and Ratio of expected to material misstatement

of 5%)

Sample size*= ?? accounts (round up)

Total accounts to be confirmed= ?? accounts

[*Sample size = confidence factor / (Performance materiality / Population value)]

Hint: population value in the equation above is the population value that you selected a sample from.

WP 25-5

XYZ Corp.

Adjusting Entries

Account

Dr.

Cr.