Question
In an annual audit of Festival Walk Company at 31 December 20X5, you find the following transactions near the closing date. 1. A special machine,
In an annual audit of Festival Walk Company at 31 December 20X5, you find the following transactions near the closing date.
1. A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on 31 December 20X5. The customer was billed on that date although the machine was shipped on 4 January 20X6.
2. Merchandise costing $2,800 was received at reception on 3 January 20X6, and the related purchase invoice was recorded on 5 January 20X6. The invoice showed the shipment was made on 29 December 20X5, f.o.b. purchaser's office.
3. A packing case containing a product costing $3,400 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked "Hold for shipping instructions". Your investigation revealed that the customer's order was dated 18 December 20X5, but the case was shipped and the customer was billed on 10 January 20X6. The product was a stock item of your client.
4. Merchandise received on 6 January 20X6, costing $680 was entered in the purchase journal on 7 January 20X6. The invoice showed shipment was made f.o.b. supplier's warehouse on 31 December 20X5. Because it was not on hand at 31 December 20X5, it was not included in inventory.
5. Merchandise costing $720 was received on 28 December 20X5, and the invoice was not recorded. You located the invoice was in the hands of the purchasing agent; it was marked "on consignment".
REQUIRED: As an auditor of Festival Walk Company, assuming each of the amounts is material, state whether the merchandise should be included in Festival Walk's inventory as at 31 December 20X5. Give your reasons for your decision on each of them.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started