Healthy K9 Ltd. is a small online business that sells homemade organic dog food. The cost to make one bag of dog food is $25, and the selling price is $40 per bag. Based on discussions with the owner, you have noted that the inventory is recorded at cost. The owner also tells you that, at year end, she had a significant amount of inventory on hand that would have spoiled, so she sold bags to her friends and family for $20 each.

Based on the information above, what is the possible assertion-level risk of material misstatement?

a) Inventory valuation

b) Inventory accuracy

c) Sales accuracy

d) Sales cutoff

Which of the following scenarios could indicate a going-concern issue?

a) An entity that is economically dependent on the bank as its only source of funding

b) Loss of a customer representing 1% of total sales

c) Loss of a long-time sales manager, replaced by someone with similar experience

d) Discontinuance of dividends, where there is a history of issuance