Question
Raintree, CPA, is conducting a training session for you, a staff auditor, regarding the control environment. For each of the factors in the table below,
Raintree, CPA, is conducting a training session for you, a staff auditor, regarding the control environment. For each of the factors in the table below, identify the appropriate internal control component by double-clicking on the shaded cell and selecting the appropriate component from the list provided.
Select item:
control environment, risk assessment, information and communication systems, monitoring, existing control activites.
| Factors | Components |
| Authorization of transactions | |
| participation of those charged with governance | |
| internal audit function | |
| assignment of authority, responsibility and accountability | |
| Adoption of new accounting principles | |
| proper presentation of transactions and related disclosures | |
| new personnel | |
| segregation of duties | |
| human resource policies and practies | |
| incorporation of new technology | |
| pre-numbering of documents | |
| measurement and recording of proper monetary values | |
| the way in which significant events are captured by the accounting system | |
| performance reviews | |
| corporate restructuring |
Logan Inc. is being audited by Wilson, CPA. The auditor determines that both of the following objectives will be part of Logan's audit. Double-click on each shaded cell and select the substantive test that would most likely provide support for the objective. A substantive test may be used once, more than once, or not at all.
| Objective | Substantive Test |
| verify existence of accounts receivable | |
| determine that inventory balance is accurately stated |
Select item:
perform tests of subsequent cash receipts after the balance sheet date, review and assess an aging schedule of account receivable, compare recognized revenue to related industry statistics, tour the storage facility for inventory to determine adequacy of security controls, perform shipping cut-off procedures, review payments to vendors subsequent to year-end.
The table below presents several ratios that were considered significant in the current and prior years audits of Pets and More, Inc., a large supplier of pet supplies. Compare the values for each ratio. Then double-click on each of the shaded spaces in the table and select the most likely explanation for the analytical results. An explanation may be used once, more than once or not at all.
| Ratio | year2 | year1 | explanations |
| days sales in accounts receivable | 40 | 39 | |
| operating profit margin | 22.05% | 34.62% |
Select item:
1)credit terms were restricted on several large accounts during the current year,
2)operating expenses increased at a higher rate than sales revenue, sales revenue increased at a higher rate than operating expenses,
3)a smaller % of sales occurred during the last month of the year, as compared to the prior year,
4)a large % of sales occurred during the last month of the year, as compared to the prior year,
5)sales increased as compared to the prior year.
Use the data in the financial statements located in the Information tab to calculate for Year 2 and Year 1 the analytical ratios indicated in the table below to 2 decimal places. Any formula that you use in the spreadsheet must be preceded by an equal sign (e.g., =A1+B1). (For turnover ratios, year-end balances should be used. All calculations are based on a 365-day year.)
| ratio | year2 | year1 |
| current ratio | ||
| return on equity |
| ||||
| ||||
Below you will find the comparative balance sheet and income statement for Top Chef Inc.
| Top Chef Inc. and Subsidiary | ||||||||
| as of December 31, Year 2 and Year 1 | ||||||||
| BALANCE SHEET | INCOME STATEMENT | |||||||
| Year 2 | Year 1 | Year 2 | Year 1 | |||||
| Assets | Sales | $100,850,000 | $95,600,000 | |||||
| Current assets: | Cost of goods sold | 55,000,000 | 42,500,000 | |||||
| Cash & cash equivalents | $54,280,000 | $42,500,000 | Gross profit on sales | 45,850,000 | 53,100,000 | |||
| Receivables - net | 12,000,000 | 10,000,000 | Expenses: | |||||
| Inventory | 12,000,000 | 10,000,000 | Selling expenses | 17,600,000 | 15,000,000 | |||
| Other current assets | 7,000,000 | 5,000,000 | General and administrative | 6,015,000 | 5,000,000 | |||
| Total current assets | 85,280,000 | 67,500,000 | Interest expense | 1,120,000 | 1,200,000 | |||
| PP&E - net | 23,000,000 | 25,000,000 | Total expense | 24,735,000 | 21,200,000 | |||
| Other assets | 30,000,000 | 30,000,000 | Income before taxes | 21,115,000 | 31,900,000 | |||
| Total assets | $138,280,000 | $122,500,000 | Provision for income taxes | 7,300,000 | 7,500,000 | |||
| Liabilities and Stockholders' Equity | Net income | $13,815,000 | $24,400,000 | |||||
| Current liabilities: | ||||||||
| Accounts payable | $23,000,000 | $20,000,000 | ||||||
| Current portion of long-term debt | 1,000,000 | 1,000,000 | ||||||
| Other current liabilities | 965,000 | 1,000,000 | ||||||
| Total current liabilities | 24,965,000 | 22,000,000 | ||||||
| Long-term debt | 13,000,000 | 14,000,000 | ||||||
| Total liabilities | 37,965,000 | 36,000,000 | ||||||
| Stockholders' equity: | ||||||||
| Common stock | 100,000 | 100,000 | ||||||
| Additional paid-in capital | 9,900,000 | 9,900,000 | ||||||
| Retained earnings | 90,315,000 | 76,500,000 | ||||||
| Total stockholders' equity | $100,315,000 | $86,500,000 | ||||||
| Total liabilities and stockholders' equity | $138,280,000 | $122,500,000 | ||||||
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General Accounting Financial Accounting
Authors: Bbc Kikumbi Mwepu
1st Edition
6206329488, 978-6206329480
