Question

In: Accounting

Assume that you are auditing the financial statements of Agee Corporation. During the course of the...

Assume that you are auditing the financial statements of Agee Corporation. During the course of the audit, you discover the following circumstances.

1. Management of Agee has decided to discontinue the production of consumer electronics, which represents a moderately large line of business for the company.

2. In auditing facility rent expense, you note that the amount is about 30 percent less than in the prior year. When you discuss the matter with management, you are informed that the company previously had leased the building on a 12-month lease. However, the company entered into a 10-year building lease agreement at the beginning of the year (about nine months ago), which provided for no lease payments for the first 4 months of the lease. Therefore, rent expense was less than for the prior year.

3. Management has provided you with the following information about a test of impairment of the company’s clothing and apparel reporting unit and a large piece of equipment used in the consumer products division of the company. The Clothing and Apparel reporting unit has $1,200,000 in goodwill associated with it.

Clothing and Apparel Reporting Unit

Carrying value of the unit $12,600,000

Discounted value of estimated future cash flows 12,200,000

Market value of the unit 11,500,000

Equipment

Carrying value of the equipment $1,200,000

Undiscounted estimated future cash flows 1,250,000

Discounted value of estimated future cash flows 1,000,000

Market value of the equipment 975,000

Required: Describe the implications of each of these circumstances, including any additional information or evidence that the auditors might require to resolve the issues identified.

Expert Solution

Solutuon:

here is the soluton,thank you

ekkarill92 answered 1 year ago

During the course of his audit of the financial statements of a corporation for the purpose...

During the course of his audit of the financial statements of a corporation for the purpose of expressing an opinion on the statements, a CPA is refused permission to inspect the minutes of board of directors' meetings that document significant decisions of the board. The corporation secretary instead offers to give the CPA a certified copy of all resolutions and actions involving accounting matters. a. State the condition (either change in accounting principle, failure to follow GAAP, none, reporting involving...

During the course of your examination of the financial statements of the Hales Corporation for the...

During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2018, you discover the following: a. An insurance policy covering three years was purchased on January 1, 2018, for $6,600. The entire amount was debited to insurance expense and no adjusting entry was recorded for this item. b. During 2018, the company received a $850 cash advance from a customer for merchandise to be manufactured and shipped in 2019. The...

You have been engaged to review the financial statements of Tamarisk Corporation. In the course of...

You have been engaged to review the financial statements of Tamarisk Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1. Year-end wages payable of $3,590 were not recorded because the bookkeeper thought that “they were immaterial.” 2. Accrued vacation pay for the year of $33,400 was not recorded because the bookkeeper “never heard that you had to...

While auditing the financial statements of Petty Corporation, ...a. What control procedures could Petty Corporation have employed to ..

While auditing the financial statements of Petty Corporation, the certified public accounting firm of True Blue and Smith discovered that its client’s legal expense account was abnormally high. Further investigation of the records indicated the following: • Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip. • Swindle, Fox, and Kreip were not Petty Corporation’s attorneys. • A review of the canceled checks showed that they had...

You are auditing the financial statements of the ATLAS Company, a small manufacturing firm that has...

You are auditing the financial statements of the ATLAS Company, a small manufacturing firm that has been your client for many years. Because you were busy working on another engagement, you sent a second-year accountant to begin the audit, with the suggestion that he start with accounts receivable. Using the prior year’s working papers as a guide, the auditor prepared a trial balance of the accounts, aged them, prepared and mailed positive confirmation requests, examined underlying support for charges and...

You are auditing the December 31, 2018, financial statements of Atlantic, Inc., a manufacturer of water...

You are auditing the December 31, 2018, financial statements of Atlantic, Inc., a manufacturer of water toys. During your inspection of the company garage, you discovered that a used truck not listed in the equipment subsidiary ledger is parked there. You ask the plant manager, about the vehicle, and she tells you that the company did not list the truck because the company was only leasing it. The lease agreement was entered into on January 1, 2018, with Rent-a-Truck Center....

Not all statements that are made by a buyer or a seller during the course of...

Not all statements that are made by a buyer or a seller during the course of negotiations end up as terms in the ultimate agreement between them. Outline the rules that the Australian courts do use when they are asked to determine if a statement made during negotiations is a term in the contract. Please illustrate your answer with applicable case law examples.

You are auditing XYZ Company's calendar 2019 financial statements. On January 21, 2020 while you were...

You are auditing XYZ Company's calendar 2019 financial statements. On January 21, 2020 while you were still completing your fieldwork, XYZ Company successfully launched a hostile takeover of ABC, Inc. The takeover increased XYZ's net assets by 35%. XYZ had not changed their financial statements from when they drafted them on January 15, 2020. What action would you take and why?

In auditing a firm's financial statements, an auditor will assess the operating effectiveness of the accounting...

In auditing a firm's financial statements, an auditor will assess the operating effectiveness of the accounting system. The auditor frequently relies on a random sample of actual transactions. Use Excel to select a random sample of 5 transactions from the list below. 3/09/19 Dillon's #9056 $19.91 3/10/19 Attitudes Dancewear $73.88 3/10/19 Dillon's #9056 $13.75 3/15/19 Apl*iTunes $3.98 3/17/19 Dillon's #0056 $27.83 3/18/19 Dillon's #0056 $4.27 3/19/19 Dillon's #0042 $35.75 3/19/19 Dillon's #0042 $6.06 3/19/19 QT 389 $10.71 3/19/19 WM Supercenter...

You are engaged in the audit of the financial statements of Holman Corporation for the year...

You are engaged in the audit of the financial statements of Holman Corporation for the year ended December 31, 20X6. The accompanying analyses of the Property, Plant, and Equipment and related accumulated depreciation accounts have been prepared by the chief accountant of the client. You have traced the beginning balances to your prior year’s audit working papers. HOLMAN CORPORATION Analysis of Property, Plant, and Equipment and Related Accumulated Depreciation Accounts Year Ended December 31, 20X6 Final Assets Per Ledger Description...