Question

In: Accounting

The following events occurred during 2018 for various audit clients of your firm. Consider each event...

The following events occurred during 2018 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material.

A manufacturing company recognized a loss on the sale of investments.

An automobile manufacturer sold all of the assets related to its financing component. The operations of the financing business is considered a component of the entity.

A company changed its depreciation method from the double-declining-balance method to the straight-line method.

Due to obsolescence, a company engaged in the manufacture of high-technology products incurred a loss on the write-down of inventory.

One of your clients discovered that 2017’s depreciation expense was overstated. The error occurred because of a miscalculation of depreciation for the office building.

A cosmetics company decided to discontinue the manufacture of a line of women’s lipstick. Other cosmetic lines will be continued. A loss was incurred on the sale of assets related to the lipstick product line. The operations of the discontinued line is not considered a component of the entity.

Required:

Discuss the 2018 financial statement presentation of each of the above events. Do not consider earnings per share disclosures

Solutions

Expert Solution

A. Loss on sale of investment is not main activity of manufacturing company but the loss is significant so it has a material effect on financial statement We as an auditor should ensure that

1. The Loss is measured accurately

2. The loss is disclosed in financial statement appropriately ie Loss from activities other than ordinary activities.

We will include the matter in auditor report by stating the event in “Emphasis on other matter paragraph”.

B. The automobile manufacturer sold its component we will as an auditor will check

1. Whether it’s discontinuity of operations of financing business ie the cash flows from business will be discontinued totally or not. it is not clear that liabilities were settled or not. Also The process may be cover more than one accounting periods so the disposal of component may be in progress at the end of reporting period.

2. If it’s discontinuing operations, it will have special treatment in financial statement

3 The sell price will be compared with cost and profit and loss on disposal will be reported accordingly.

4.If the event is an indication of entity ‘s disability to continue as a going concern The fact should be highlighted.

C. Changing the method of depreciation is changing in accounting policy as per rules it can be done to improve the reliability of FS or because of regulatory requirements.

1. The change will be retrospective and entity has to disclose the impact of change on all prior period FS and cooperatives unless it’s impracatical.

2 The entity has to disclose the reasons of change the impact of change in FS.

D.It is a loss from extra ordinary events it should be present as an extraordinary loss in financial statement. Also the inventory should be impaired accordingly.

E. The depreciation amount in this case is a prior period item.it should rectify as a commission error in current period or disclose as prior period item. If it has impact on current year figures of depreciation and building the impact should be disclosed and amount should be rectified.


Related Solutions

The following events occurred during 2021 for various audit clients of your firm. Consider each event...
The following events occurred during 2021 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material. 1.) A manufacturing company recognized a loss on the sale of investments. 2.) An automobile manufacturer sold all of the assets related to its financing component. The operations of the financing business is considered a component of the entity. 3.) A company changed its depreciation method from the double-declining-balance method to the...
Each of the following situations occurred during 2021 for one of your audit clients:
Each of the following situations occurred during 2021 for one of your audit clients:  1. An inventory write-down due to obsolescence.  2. Discovery that depreciation expenses were omitted by accident from 2020’s income statement.  3. The useful lives of all machinery were changed from eight to five years.  4. The depreciation method used for all equipment was changed from the declining-balance to the straight-line method.  5. Restructuring costs were incurred.  6. The Stridewell Company, a manufacturer of shoes, sold all of...
The following situation occurred during 2016 for one of your audit clients, The Stride Well Company:...
The following situation occurred during 2016 for one of your audit clients, The Stride Well Company: Discovery that depreciation expenses were omitted by accident from 2015’s income statement. 1.) Select one situation from above, and identify the appropriate reporting treatment from the list below (consider each event to be material): As an unusual gain or loss. As a prior period adjustment. As a change in accounting principle. As a discontinued operation. As a change in accounting estimate. As a change...
The following events occurred in independent cases, but in each instance, the event happened after the...
The following events occurred in independent cases, but in each instance, the event happened after the close of the fiscal year under the audit but before the financial statements were authorised for the issue, which is also the audit report date. For each case, state what impact, if any, you would expect on the financial statements (and notes). The balance sheet in each instance is December 31, 2019. Case1. On December 31, the commodities handled by the company had been...
The following transactions and events that occurred in the village of Kowitt Gorge during the calendar...
The following transactions and events that occurred in the village of Kowitt Gorge during the calendar year 2019: 1. The village commissioners adopted the following budget: Estimated revenues: Property taxes $1,850,000 All other revenues 300,000 Total revenues $2,150,000 Appropriations: All departments other than police $1,000,000 Police—salaries 600,000 Police—fringe benefits 450,000 Police—supplies 80,000 Total appropriations $2,130,000 2. The village received, in cash, property taxes of $1,840,000 and all other revenues of $295,000. 3. The village made cash payments, charging the following...
Consider the following independent situations relating to the audit of five different audit clients for year...
Consider the following independent situations relating to the audit of five different audit clients for year ended 30 June 20X8. Assume that all the situations are material. A new client has changed its valuation method of property, plant and equipment. It has adopted the Fair Value Revaluation Model to replace the Historic cost measurement method. Whilst the auditor does not object to the change in the valuation model, the new method has a material effect on the financial statements and...
Alejandro Associates is an accounting firm that provides audit and tax services to its clients. Each...
Alejandro Associates is an accounting firm that provides audit and tax services to its clients. Each tax return is considered a "job" for the firm, just like a manufacturing company considers a customer order as a "job." Alejandro has direct costs related to Tax Return 8405 as follows: 8 hours of staff labor @ $123 per hour 6 hours of assembly labor @$168 per hour $62 of materials In addition, Alejandro Associates estimates its overhead related to the manufacture of...
Put the following events in the order they occur during translation. One event is NOT part...
Put the following events in the order they occur during translation. One event is NOT part of translation, do NOT include it in your sequence. The finished polypeptide, mRNA, and ribosomal subunits separate. A peptide bond is catalyzed between the first and second amino acids. The ribosome moves so that the third codon is in the A site. A second tRNA with brings in the second amino acid. The small ribosomal subunit associates with the mRNA and moves to the...
Dribnor Ltd entered into the following transactions and events during 2018. Do these transactions and events...
Dribnor Ltd entered into the following transactions and events during 2018. Do these transactions and events meet the Framework 2014 definitions of assets, liabilities, equity, income or expenses? Give reasons. (a) Dribnor entered into a contract with Melbourne Metal Manufacturers Ltd to purchase capital equipment at a cost of $1 million. Dribnor paid a 10% deposit, which was non refundable. (b) Dribnor has a regular program of maintaining its plant and equipment. In order to provide for this program, it...
Prepare journal entries to record the following transactions and events that occurred in Marilyn County during...
Prepare journal entries to record the following transactions and events that occurred in Marilyn County during calendar year 2019: 1. The legislature adopted the following budget: Estimated revenues and other sources: Property taxes $1,740,000 Sales taxes 1,000,000 Use of fund balance 10,000 Total $2,750,000 Appropriations: General government—salaries $ 420,000 General government—supplies 30,000 Parks department—salaries 2,000,000 Parks department—plants and supplies 300,000 Total $2,750,000 2. The Parks department placed PO 2019-1 for shrubbery in the amount of $52,000 and PO 2019-2 for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT