You have been engaged for the audit of Y Company for the year ended December 31, 2014.
Question:
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You have been engaged for the audit of Y Company for the year ended December 31, 2014. The Y Company is engaged in the wholesale chemical business and makes all sales at 25% over cost. Following are portions of the client?s sales and purchases accounts for the calendar year 2014:
SALES
BALANCE FORWARD
Date Reference Amount Date Reference Amount
______________________________________________________________________________
12-31 Closing entry $699,860 $658,320
12-27 *SI#965 5,195
12-28 SI#966 19,270
12-28 SI#967 1,302
12-31 SI#969 5,841
12-31 SI#970 7,922
12-31 SI#971 2,010
$699,860 $699,860
PURCHASES BALANCE FORWARD
Date Reference Amount Date Reference Amount
$360,000 12-31 Closing entry $385,346
12-28 +RR#1059 3,100
12-30 RR#1061 8,965
12-31 RR#1062 4,861
12-31 RR#1063 8,120
$385,346 $385,346
- SI ? sales invoice
+ RR ? receiving report
You observed the physical inventory of goods in the warehouse on December 31, 2014, and were satisfied that it was properly taken.
When performing a sales and purchases cutoff test, you found that at December 31, 2014, the last receiving report that had been used was no. 1063 and that no shipments have been made on any sales invoices with numbers larger than no. 968. You also obtained the following additional information:
- Included in the warehouse physical inventory at December 31, 2014, were chemicals that had been purchased and received on receiving report no. 1060 but for which an invoice was not received until 2015. Cost was $2,183.
- In the warehouse at December 31, 2014, were goods that had been sold and paid for by the customer but which were not shipped out until 2015. They were all sold on sales invoice no. 965 and were not inventoried.
- On the evening of December 31, 2014, railroad car AR38162 was on the Y company siding. It was unloaded on January 2, 2015, and received on receiving report no. 1063. The freight was paid by the vendor.
- En route to the Y Company on December 31, 2014, was a truckload of material that was received on receiving report no. 1064. The material was shipped FOB destination and freight of $75 was paid by the Y Company. However, the freight was deducted from the purchase price of $975.
- Included in the physical inventory were chemicals exposed to rain in transit and deemed unsalable. Their invoice cost was $1,250, and freight charges of $350 had been paid on the chemicals.
REQUIRED:
Determine if any audit adjustments are required for the above items, and if so, prepare the necessary adjustments.
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