Question
OnDecember31,2016,ChakaCo.reportedCurrentAssetsofKshs200,000andCurrent LiabilitiesofKshs140,000.Chakawasreviewing severaltransactionsthatinvolved inventoryattheiryear-end.Thecompanyusestheperiodicsystem. Theydiscoverthatthefollowingitemsmayhavebeenrecordedincorrectly: 1.GoodspurchasedcostingKshs12,000wereshippedf.o.b.destinationbyasupplier onDecember26andarrivedonDecember29.Chakahadnotreceivedorrecordedthe invoiceonDecember31althoughthegoodswereincludedintheendinginventory account. 2.GoodsweresoldforasellingpriceofKshs20,000andshippedf.o.b.destinationtoa customeronDecember28.Chakahasamark-uponcostof25%.Chakarecordedthesale onDecember28;thegoodswereexcludedfrom theinventorybecausetheywerenotin thewarehouse.Atyear-end,thegoodswerestillintransit3.GoodsoutonconsignmenttoBeeCompanywereexcludedfrom Chaka'sphysical countofinventory.TheconsignedgoodshadaretailsellingpriceofKshs15,000anda markuponcostof50%. Required: i. Afterallcorrectionsaremade,whataretotalcurrentassets? (2marks) ii. Afterallcorrectionsaremade,whataretotalcurrentliabilities? (2 marks)
OnDecember31,2016,ChakaCo.reportedCurrentAssetsofKshs200,000andCurrent LiabilitiesofKshs140,000.Chakawasreviewing severaltransactionsthatinvolved inventoryattheiryear-end.Thecompanyusestheperiodicsystem. Theydiscoverthatthefollowingitemsmayhavebeenrecordedincorrectly: 1.GoodspurchasedcostingKshs12,000wereshippedf.o.b.destinationbyasupplier onDecember26andarrivedonDecember29.Chakahadnotreceivedorrecordedthe invoiceonDecember31althoughthegoodswereincludedintheendinginventory account. 2.GoodsweresoldforasellingpriceofKshs20,000andshippedf.o.b.destinationtoa customeronDecember28.Chakahasamark-uponcostof25%.Chakarecordedthesale onDecember28;thegoodswereexcludedfrom theinventorybecausetheywerenotin thewarehouse.Atyear-end,thegoodswerestillintransit3.GoodsoutonconsignmenttoBeeCompanywereexcludedfrom Chaka'sphysical countofinventory.TheconsignedgoodshadaretailsellingpriceofKshs15,000anda markuponcostof50%. Required: i. Afterallcorrectionsaremade,whataretotalcurrentassets? (2marks) ii. Afterallcorrectionsaremade,whataretotalcurrentliabilities? (2 marks) iii. IfChaka'soperatingincomebeforeanyadjustmentsforerrorswasKshs200,000, determineChaka'scorrectedoperatingincome.
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Auditing The Art and Science of Assurance Engagements
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Ingrid B. Splettstoesser
12th Canadian edition
