Archives: Solution Manual

Stanton Enterprises Worksheet 9-39B Analysis of Financial Statements and Audit Planning Worksheet 12/31/2016 BALANCE SHEET Preliminary Audited % 12/31/16 % 12/31/15 %Change Cash $243,689 1.4 $133,981 1.1 81.9 Trade accounts receivable 3,544,009 19.7 2,224,921 17.7 59.3 Allowance for uncollectible accounts […]

Stanton Enterprises Worksheet 9-39A Determination of Materiality and Allocation to the Accounts 12/31/2016 DETERMINATION OF MATERIALITY: Income before taxes $8,004,277 Possible adustments – estimated. See Worksheet 9-39B: Increase allowance for uncollectible accounts (220,000) Increase to equal same % of trade […]

2016 2015 2014 2013 Sales (000) 14,211$ 12,916$ 11,462$ 10,351$ Cost of sales (000) 9,223 8,266 7,313 6,573 Gross margin 4,988$ 4,650$ 4,149$ 3,778$ Percent 35.1% 36.0% 36.2% 36.5% Drug Nondrug Drug Nondrug Industry Sales Sales COS COS GM 2016 […]

VANDERVOORT COMPANY Schedule N-1 Date A/C #110 – NOTES RECEIVABLE Prepared by JD 01/21/17 12/31/16 Approved by PP 02/15/17 Account #110 – Notes Receivable Interest Date Interest Made/ Rate/ Face Value of Balance Balance Receivable Receivable Maker Due Date Paid […]

MOREHEAD TECHNOLOGIES ANALYTICAL PROCEDURES Audited Balance Preliminary Balance Difference in expected Account 10/31/2015 10/31/2016 Expected Value recorded amounts Reasoning for Expected Value Sales 51,316,234 57,474,182 Executive salaries 546,940 615,970 563,348 -9.34% Executives received 3% raise November 1, 2015. Factory hourly […]

Item Total Amount Current Assets Noncurrent Assets Current Liabilities Noncurrent Liabilities Income Before Tax 1 125000 (125,000) 125,000 2 85,000 (85,000) 60,000 (25,000) 3 44,000 (44,000) (44,000) 4 52,000 52,000 52,000 5 43,000 0 6 Not known 0 0 (129,000) […]

SEA GULL AIRFRAMES, INC. SUMMARY OF INVENTORY MISSTATEMENTS QUANTITY PRICE Amount Per Differ- Per Differ- Recorded Correct of Item No. and Description Inventory Correct ence Inventory Correct ence Amount Amount M/S A. L37 Spars 3000 3000 0 8.00 8.00 0.0000 […]

ALADDIN PRODUCTS SUPPLY COMPANY RATIO CALCULATIONS Part a. DATA ENTRY AREA: 2016 2015 2014 2013 Sales 92,800,000 86,800,000 78,400,000 69,600,000 Cost of sales 68,400,000 67,200,000 60,800,000 54,000,000 Beginning inventory 9,200,000 8,400,000 7,600,000 6,000,000 Ending inventory 11,600,000 9,200,000 8,400,000 7,600,000 RESULTS […]

WARD PUBLISHING COMPANY SECTION V – ATTRIBUTES SAMPLING TABLES SAMPLING DATA SHEET TO DETERMINE SAMPLE SIZE USING A 5 PERCENT ARO Planned Audit Actual Results TER Initial EPER 2345678910 Sample Sample Excep– Exception ——– — — — — — — […]

NONSTATISTICAL SAMPLING EVALUATION WORKSHEET CLIENT AND YEAR-END: Danforth Paper Company PREPARED BY AND DATE: REVIEWED BY AND DATE: A/R RECORDED BALANCE: $2,760,000 RECORDED BALANCE OF ACCOUNTS AUDITED 100% $465,000 RECORDED BALANCE OF ACCOUNTS TO BE SAMPLED: $2,295,000 TOLERABLE MISSTATEMENT $100,000 […]

SOLUTION TO CASE 17-31 Note: The random numbers in column C were set using the RANDBETWEEN function. Because the numbers change, the original formulas no longer appear on this file. GENERATION ORDER ASCENDING ORDER Sample Dollar Sample Dollar Item No. […]

STATISTICAL CALCULATIONS – INVENTORY SAMPLE ITEM VALUES: Misstatement Item Audit Book Misstatement Amount No. Value Value Amount Squared 1 812.50 740.50 -72.00 5184.00 2 12.50 78.20 65.70 4316.49 3 10.00 51.10 41.10 1689.21 4 25.40 61.50 36.10 1303.21 5 600.10 […]

1 $2,728.00 $2,498.00 $230.00 0.084 3 3,890.00 1,190.00 2,700.00 0.694 4 815.00 785.00 30.00 0.037 6 3,215.00 3,190.00 25.00 0.008 Totals $10,648.00 $7,663.00 $2,985.00 (a) (b) ( c = a x b) (d) (e = c x d) TAINTING INTERVAL […]

PROBLEM 17-26 COMPUTER GENERATION OF RANDOM NUMBERS Selection of 10 sample items: 204229 153774 189978 120315 140353 85371 68657 196629 105030 78612 PROBLEM 17-26 SYSTEMATIC SELECTION OF NUMBERS Population 207295 Sample size 10 Start = 1857 11857 222,586 343,315 464,044 […]

Recorded Confirmation Value Response Misstatement Acct. 147 24,692$ 22,486$ 2,206$ Pricing error Acct. 228 183,219 157,216 26,003 Cutoff error Acct. 278 7,546 5,546 – Timing difference Acct. 497 15,319 – – Timing difference Acct. 564 8,397 7,858 539 Error in […]

requirements d, e, and f Misstatement in Related Accounts Difference: Other Books Timing Misstatement Balance Income Balance Amount Over (Under) Difference: in Accounts Sheet Statement Per Confirmed Amount No Payable Misstatement Misstatement Brief Vendor Books by Vendor Confirmed Misstatement o/s […]

Client: Pinnacle Manufacturing Audit Area: Tests of Controls and Substantive Test of Transactions–Acquisitions. Define the Objective(s): Examine vendors’ invoices, receiving reports, purchase orders, and other related documents to determine whether the system has functioned as intended and as described in […]

PROBLEM 15-28 COMPUTER GENERATION OF RANDOM NUMBERS Illustration of first 10 sample items: 33394 19128 17152 25100 14682 12481 13824 17406 22138 30950

PROBLEM 15-27 GENERATION OF RANDOM SAMPLES SALES BILL OF INVOICE LADING CUSTOMER RANGE 1 – 18221 – Pg. 1-20 8274 29427 Ln. 1-50 SAMPLE ITEM 13975 24066 7 – 8 26585 18874 18 –17 31306 28176 6 – 38 4792 […]

Acquisitions Substantive Tests of Transactions More than one audit procedure is listed for certain objectives even though the requirement is for only one procedure. Transaction-Related Audit Objective Substantive Audit Procedures Occurrence Compare prices on vendor invoices with approved price limits […]

# a. Key Internal Control b. Transaction Related Audit Objectives c. Test of Control d. Substantive Test of Transaction 1. Segregation of the purchasing, receiving, and cash disbursements functions. Recorded acquisitions are for goods and services actually received (occurrence). Discuss […]

PINNACLE MANUFACTURING AUDIT – PART IV CONTROL RISK MATRIX – ACQUISITIONS TRANSACTION- Recorded Existing Recorded Recorded Acquisition Acquisition RELATED AUDIT acquisitions acquisition acquisition acquisition transactions transactions OBJECTIVES are for goods transactions transactions transactions are properly are recorded and services are […]

9-20 9–39 (continued) Bank Loan Payable It seems somewhat strange for the Company to have an outstanding balance on its bank loan payable at the end of 2016 given its excellent operating results. This may be attributable to the growth […]

9-11 9–30 (continued) assessment, the auditor should revise the risk assessment and modify planned audit procedures or perform additional procedures in response to the revised risk assessments. 9–31 a. Several of the recent developments at Highland Bank and Trust may […]

9-1 Chapter 9 Assessing the Risk of Material Misstatement  Concept Checks P. 268 1. The risk of material misstatement exists at two levels: the overall financial statement level and at the assertion level for classes of transactions, account balances, […]

8-28 8-40 (continued) (part of requirement e.) Pinnacle Manufacturing Company Income Statement – Welburn Division For the Year Ended December 31 2016 $ Value 2016 % of Div. Sales 2015 $ Value 2015 % of Div. Sales 2014 $ Value […]

8-21 8–38 (continued) d. By allocating 75% of the preliminary estimate to accounts receivable, inventories, and accounts payable, there is far less materiality to be allocated to all other accounts. Given the total dollar value of those accounts, this may […]

8-11  Discussion Questions And Problems 8–29 AUDIT ACTIVITIES RELATED PLANNING PROCEDURE 1. Review accounting principles unique to the client’s industry. (2) Understand the client’s business and industry 2. Determine the likely users of the financial statements. (1) Accept client […]

8-1 Chapter 8 Audit Planning and Materiality  Concept Checks P. 234 1. The eight major steps in planning audits are: 1. Accept client and perform initial planning 2. Understand the client’s business and industry 3. Perform preliminary analytical procedures […]

7-35 Here are expected values for each account except sales and the calculated difference between the expected value and actual recorded balance: ACCOUNT EXPECTED VALUE DIFFERENCE IN EXPECTED AND RECORDED REASONING TO SUPPORT EXPECTED VALUE Executive salaries $563,348 ($546,940 x […]

7-27 (continued) ACCOUNT NAME FROM WHOM CONFIRMED INFORMATION TO BE CONFIRMED NOTES RECEIVABLE A selected sample of notes receivable outstanding at the balance sheet date. If a note receivable was written off during the year, the balance written off should […]

7-1 Chapter 7 Audit Evidence  Concept Checks P. 192 1. Following are six characteristics that determine reliability of evidence and an example of each. FACTOR DETERMINING RELIABILITY EXAMPLE OF RELIABLE EVIDENCE Independence of provider Confirmation of a bank balance […]

6-11 6–26 (continued) The auditor normally assesses the likelihood of material misappropriation of assets as a part of understanding the entity’s internal control and assessing control risk. Audit evidence should be expanded when the auditor finds an absence of adequate […]

6-1 Chapter 6 Audit Responsibilities and Objectives  Concept Checks P. 152 1. It is management’s responsibility to adopt sound accounting policies, maintain adequate internal control, and make fair representations in the financial statements. The auditor’s responsibility is to conduct […]

5-8 5–19 (continued) 3. Given that the auditors were able to satisfy themselves through alternative procedures that the inventory existed as of the end of the year, their behavior in this instance would be considered nonnegligent. 4. The facts in […]

5-1 Chapter 5 Legal Liability  Concept Checks P. 118 1. Several factors that have affected the increased number of lawsuits against CPAs are:  The growing awareness of the responsibilities of public accountants on the part of users of […]

4-17 4-27 (continued) c. Section 1.320.030.03 indicates that new legislation or evolution of a new form of business transaction are examples of unusual circumstances that may justify a departure from the Accounting Principles Rule. An unusual degree of materiality and […]

4-24 (continued) (a) POTENTIAL THREATS TO INDEPENDENCE (b) POSSIBLE SAFEGUARDS? (c) RULES OF CONDUCT VIOLATED? (d) APPROPRIATE ACTION? 1. The ability to purchase a car at a substantial discount due to Marie’s long-standing audit service may cause Marie to be […]

4-1 Chapter 4 Professional Ethics  Concept Checks P. 85 1. The following is the six-step approach to resolving an ethical dilemma: 1. Obtain the relevant facts. 2. Identify the ethical issues from the facts. 3. Determine who is affected […]

3-11 3–24 (continued) 6. There is no separate scope paragraph that describes what an audit is. 7. The audit was made in accordance with auditing standards generally accepted in the United States of America rather than generally accepted accounting standards. […]

3-1 Chapter 3 Audit Reports  Concept Checks P. 57 1. The standard unmodified opinion audit report for a nonpublic entity contains the following eight parts: 1. Report title: Auditing standards require that the report be titled and that the […]

26-9 26–21 (continued) c. The following certifications are available: 1. CIA (Certified Internal Auditor) 2. CCSA (Certification in Control Self–Assessment) 3. CFSA (Certified Financial Services Auditor) 4. CGAP (Certified Government Auditing Professional) 5. CRMA (Certification in Risk Management Assurance) 6. […]

26-1 Chapter 26 Internal and Governmental Financial Auditing and Operational Auditing  Concept Checks P. 832 1. Internal auditors who perform financial auditing are responsible for evaluating whether their company’s internal controls are designed and operating effectively and whether the […]

25-11 25–24 (continued) d. Additional procedures should be performed when the accountant believes, based on the information obtained through inquiry and analytical procedures, that the financial statements may be materially misstated. Examples where this could be the case are: ■ […]

25-1 Chapter 25 Other Assurance Services  Concept Checks P. 807 1. Preparation is defined in SSARS as a service where the CPA is engaged by the client to prepare or assist in preparing financial statements, but the CPA does […]

24–11 24–22 (continued) d. The search for unknown commitments is typically performed as part of individual audit areas. Three examples of procedures Johnson is likely to perform for the purpose of uncovering commitments are:  As part of the audit […]

24-1 Chapter 24 Completing the Audit  Concept Checks P. 776 1. The auditor is particularly concerned with whether management has disclosed all required information (completeness objective for presentation and disclosure). Auditors often use a disclosure checklist to determine that […]

23-11 23–19 (continued) c. RECONCILING ITEM AUDIT PROCEDURE 1. Deposits in transit Trace to duplicate deposit slip and entry on cutoff bank statement. 2. Erroneous check Examine correction notice in August charge received from bank. 3. Outstanding checks Obtain cutoff […]

23-1 Chapter 23 Audit of Cash and Financial Instruments  Concept Checks P. 748 1. The appropriate tests for the ending balance in the cash accounts depend heavily on the initial assessment of control risk, tests of controls, and substantive […]

22–11 22–23 (continued) c. Procedure 2 is not necessary in light of procedure 3. They both perform the same function and the confirmation is from an independent source. The sample sizes for the procedures are probably appropriate, considering the deficiencies […]