Niosoki

Auto Parts sells new parts for foreign automobiles to auto dealers. Company policy requires that a prenumbered shipping document be issued for each sale. At the time of pickup or shipment, the shipping clerk writes the date on the shipping document. The last shipment made in the fiscal year ended August 31,

2016,

was recorded on document

2167.

Shipments are billed in the order that the billing clerk receives the shipping documents. For late August and early September, shipping documents are billed on sales invoices as follows:

1(Click

the icon to view the list of sales invoices on which the shipping documents were billed.)

The August and September sales journals have the following information included:

2(Click

the icon to view the information included in the August and September sales journals.)Read the

requirements3.

Question content area bottom

Part 1

Requirement a. What are the accounting requirements for a correct sales cutoff?

A.

A shipment should be recorded as a sale when the payment for the merchandise has beeb received by the seller.

B.

A shipment should be recorded as a sale when the merchandise is shipped.

C.

A shipment should be recorded as a sale when the merchandise is received by the purchaser.

D.

A shipment should be recorded as a sale when the risks of ownership transfer to the buyer and collectability is reasonably assured.

Part 2

Requirement b. Which sales invoices, if any, are recorded in the wrong accounting period? Prepare an adjusting entry to correct the financial statement for the year ended August 31,

2016.

Assume that the company uses a periodic inventory system (inventory and cost of sales do not need to be adjusted).

Begin by completing the table below to assess which sales invoices, if any, are recorded in the wrong accounting period. Begin by assessing the amounts that were recorded in the August sales journal, and then do the same for those amounts recorded in the September sales journal.

From August Sales Journal:
	Day of	Sales	Shipping	Amount
	Month	Invoice No.	Document No.	of Sale	Cutoff Issue?
	30	5431	(1)	$726.11	(2)
	30	5434	(3)	4,214.30	(4)
	31	5432	(5)	419.83	(6)
	31	5433	(7)	1,620.22	(8)
	31	5435	(9)	47.74	(10)

Part 3

From September Sales Journal:
	Day of	Sales	Shipping	Amount
	Month	Invoice No.	Document No.	of Sale	Cutoff Issue?
	1	5437	(11)	$2,541.31	(12)
	1	5436	(13)	106.39	(14)
	1	5438	(15)	852.06	(16)
	2	5440	(17)	1,250.50	(18)
	2	5439	(19)	646.58	(20)

Part 4

(Enter the amount to the nearest cent.)

Based on the analysis above, we can conclude that there is currently a net			(21)	in August sales of
$		.

Part 5

Prepare an adjusting entry to correct the financial statement for the year ended August 31,

2016

using the net misstatement you calculated above. Assume that the company uses a periodic inventory system (inventory and cost of sales do not need to be adjusted). (Record debits first, then credits. Exclude explanations from journal entries. Enter amounts to the nearest cent.)

Journal Entry
Date		Accounts	Debit	Credit
Aug	31	(22)
		(23)
		(24)
		(25)

Part 6

Requirement c. Assume that the shipping clerk accidentally wrote "August 31" on shipping documents

2168

through

2172.

Explain how that will affect the correctness of the financial statements. How will you, as an auditor, discover that error?After making the type of cutoff adjustments shown in part b, current year sales would

(26)

if the shipping clerk accidentally wrote August 31 on shipping documents

2168

through

2172.

Part 7

How could you, as an auditor, discover that error?

A.

You, the auditor, could be on hand on the balance sheet date and record in the audit working papers the last shipping document issued in the current period. Later, the auditors can examine shipping documents before and after the balance sheet date to determine if they were correctly dated.

B.

Assuming there are perpetual records, you, the auditor, could follow up differences between physical inventory counts and perpetual record balances to determine if the cause was end of the period cutoff misstatements.

C.

Both A and B are ways that an auditor could discover the error.

D.

Neither A nor B are ways that an auditor would discover the error.

Part 8

Requirement d. Describe, in general terms, the audit procedures you would follow in making sure that cutoff for sales is accurate at the balance sheet date.

The following procedures are usually desirable to test for sales cutoff.

1.	Be present during the physical count on the (27) to determine the (28) in the current year. Record that number in the working papers.

Part 9

2.

During year-end field work, select a sample of (29) preceding and succeeding those selected in procedure 1. Generally, (30) with the same or with a smaller number than the one determined in procedure 1 should be (31) current year sales, however this depends on (32) . Generally, those with document numbers larger than that number should be (33) current year sales.

Part 10

3.	During year-end field work, select a sample of (34) recorded in the last few days of the current period, and a sample of those recorded for the first few days in the subsequent period. Trace recorded (35) to related (36) to make sure that each is (37) .

Part 11

Requirement e. Identify internal controls that will reduce the likelihood of cutoff misstatements. How would you test each control?

The following are effective controls and related tests of controls to help prevent sales cutoff misstatements. (Abbreviation used: docs = documents. Complete all answer boxes. A test of control may be used for more than one control identified in the table below.)

4(Click

the icon to view the possible choices for tests of controls.)

	Test of
Control	Control
(38)	(39)
(40)	(41)
(42)	(43)
(44)	(45)
(46)	(47)

* Depending on shipping terms

1: Data Table

Shipping Document No.			Sales Invoice No.
	2163			5437
	2164			5431
	2165			5432
	2166			5435
	2167			5436
	2168			5433
	2169			5434
	2170			5438
	2171			5440
	2172			5439

2: Data Table

SALES JOURNAL - AUGUST 2016
Day of Month	Sales Invoice No.	Amount of Sale
30	5431	$726.11
30	5434	4,214.30
31	5432	419.83
31	5433	1,620.22
31	5435	47.74

SALES JOURNAL - SEPTEMBER 2016
Day of Month	Sales Invoice No.	Amount of Sale
1	5437	$2,541.31
1	5436	106.39
1	5438	852.06
2	5440	1,250.50
2	5439	646.58