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Problems 1. UNRECORDED LIABILITIES h. On what date did the buyer recognize the You are auditing the financial statements of a New liability? York City company that buys a product from a manufacturer in Los Angeles. The buyer closes its 2. INVENTORY ORDERING books on June 30. Assume the following details: Terms of trade FOB shipping point ALTERNATIVES June 10, buyer sends purchase order to seller The flowchart for Problem 2 illustrates two al June 15, seller ships goods tive inventory ordering methods. July 5, buyer receives goods July 10, buyer receives seller's invoice Required a. Distinguish between a purchase requisition Required purchase order. a. Could this transaction have resulted in an unre- b. Discuss the primary advantage of alternative corded liability in the buyer's financial over alternative one. Be specific. statements? c. Under what circumstances can you envision management using alternative one rather b. If yes, what documents provide audit trail evi- alternative two? dence of the liability? c. On what date did the buyer realize the liability? 3. SYSTEM FLOWCHART ANALYSI d. On what date did the buyer recognize the Using the Flowchart labeled Problem 3, answe liability? following questions: - New assumption: Terms of trade FOB destination. a. What are the names of Departments X and b. What are the names of the documents that a e. Could this transaction have resulted in an unre- corded liability in identified by letters in the system? Use the fol statements? ing format: Doc A = (Name of document here), for exan f. If yes, what documents provide audit trail evi- dence of the liability? c. What are the processes that are represented letters in the system? 2. On what date did the buyer realize the liability? the buyer's financial