Assume that sales are made evenly through the year; accounts receivable are collected one month after sale.Gross profit to sales has been .40.Sales in year 1 are $1,200,000; actual sales increase 10% from year 1 to year 2.Accounts receivable turnover for year 1 was 12.0.

Relationships between accounts for year 2 are expected to be similar to those of year 1.

A comparison between year 1 and unaudited year 2 data is as follows:

Year 1Year 2 (unaudited)

Sales$ 1,200,000Can be determined

Cost of Goods Sold720,000792,000 (amount seems all right)

Accounts Receivable (end of year)100,000Can be determined

Note:At the beginning of year 1, accounts receivable were $100,000.

Unaudited data for year 2 indicate the following:

Gross profit to sales is .4612244;Accounts receivable turnover is 8.166666

Determine if there seems to be a discrepancy for unaudited Sales for year 2 and Accounts Receivable at the end of year 2.If so, indicate whether it seems a possible overstatement or understatement, and estimate an amount.BRIEFLY DISCUSS AND SHOW CALCULATIONS.

Estimate of Year 2 Recorded Sales, [unaudited] (Discuss briefly)

Estimate of year 2 Actual Sales[Based on your "audit"]Expected discrepancy__________________

{Discuss briefly}(Recorded sales - Actual sales)

Estimate Unaudited Accounts Receivable end year 2 (discuss briefly)

Estimate actual accounts Receivable end year 2 (discuss briefly)

Expected discrepancy in Accounts Receivable _____________

(Unaudited Accounts Receivable - Estimated Actual Accounts Receivable)

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