The first audit of the books of Whispering Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:

Prepare the journal entries necessary in 2018 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.

As an audit supervisor in an international public accounting firm, you are in charge of the audit of several firms with 31 March year-ends. The financial statements of these firms are prepared in compliance with U.S GAAP, and are expected to be authorized for issue in early June 2017. Your audit juniors on the job have approached you for advice on the following case:

Auto Arrow (AA) does not maintain a proper accounting system. A main bulk of its existing source documents were destroyed in a fire. Based on available records and contacts with its customers and also with reference to its 2015/2016 financial statements, it managed to provide the following information for the 2016/2017 financial year:

A additional information

1. Sales returns during the year amounted to $6,000.
2. Cash received from its customers = $920,000 of which $50,000 related to an advance payment made by Customer L for goods to be delivered in the financial year 2017/2018.
3. $30,000 of Bad Debt Expense is recognized in the financial year 2016/2017 profit and loss.

The accountant is unsure of how to determine the gross sales revenue for the year. Assume all sales are on credit.

Required: Determine the gross sales revenue for the financial year 2016/2017.

Lori Matlock operates a graphic arts business. A trial balance on June 30, 2016, before recording any adjusting entries, appears as follows: Lori Matlock UNADJUSTED TRIAL BALANCE June 30, 2016 ACCOUNT TITLE DEBIT CREDIT 1 Cash 7,000.00 2 Prepaid Rent 18,000.00 3 Supplies 15,210.00 4 Office Equipment 46,120.00 5 Accumulated Depreciation-Equipment 4,000.00 6 Accounts Payable 1,800.00 7 Notes Payable 2,000.00 8 Capital Stock 50,000.00 9 Retained Earnings 24,350.00 10 Dividends 8,400.00 11 Revenue 46,850.00 12 Utilities Expense 2,850.00 13 Salaries Expense 19,420.00 14 Advertising Expense 12,000.00 15 Totals 129,000.00 129,000.00 Other Data a. The monthly rent is $600. b. Supplies on hand on June 30, 2016, amount to $1,290. c. The office equipment was purchased on June 1, 2015. On that date, it had an estimated useful life of ten years and a salvage value of $6,120. d. Interest owed on the note payable but not yet paid amounts to $50. e. Salaries of $620 are owed but unpaid to employees at the end of the month.

Required: 1. Prepare in general journal form the necessary adjusting entries at June 30, 2016. 2. Note that the unadjusted trial balance reports a credit balance in Accumulated Depreciation—Equipment of $4,000. Explain why the account contains a balance of $4,000 on June 30, 2016.

Assume Deloitte & Touche, the accounting firm, advises Deep Sea Seafood that their financial statements must be changed to confirm with GAAP. At December 31, 2016, Deep Sea Seafood accounts include the following:

Deloitte & Touche advised Deep Sea Seafood that:

Cash includes $20,000 that is deposited in a compensating balance account that is tied up until 2018.

The fair value of the short-term trading investments is $17,000. Deep Sea Seafood purchased the investments a couple of weeks ago.

Deep Sea Seafood has been using the direct write-off method to account for uncollectible receivables. During 2016, Deep Sea Seafood wrote off bad receivables of $7,000. Deloitte & Touche determines that bad debt expense for the year should be 2.5% of sales revenue, which totaled $600,000 in 2016.

Deep Sea Seafood reported net income of $92,000 in 2016.

Restate Deep Sea Seafood’s current accounts to conform to GAAP.

Compute Deep Sea Seafood’s current ratio and acid-test ratio before and after your corrections.

Determine Deep Sea Seafood’s correct net income for 2016.

At year-end 2016, Wallace Landscaping’s total assets were $1.5 million, and its accounts payable were $360,000. Sales, which in 2016 were $2.5 million, are expected to increase by 30% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $440,000 in 2016, and retained earnings were $340,000. Wallace has arranged to sell $145,000 of new common stock in 2017 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2017. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 4%, and 40% of earnings will be paid out as dividends.

1. What was Wallace's total long-term debt in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $  
   What were Wallace's total liabilities in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $  
   
2. How much new long-term debt financing will be needed in 2017? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar.
   $

QUESTION 2 DISPOSAL OF FIXED ASSETS (20) REQUIRED Answer the following questions from the information given below. All workings must be shown. MICROSOFT EXCEL PACKAGE TO BE USED FOR ANSWER 2.1 Calculate the depreciation for the current financial year on the vehicle that was sold. (2) 2.2 Prepare the Fixed Asset Realisation account in the general ledger to reflect the disposal of the vehicle on 31 August 2016. (4) 2.3 Calculate the depreciation for the current financial year on the new vehicle acquired. (2) 2.4 Calculate the total cost price of the vehicles on 28 February 2017. (2) 2.5 Prepare the Accumulated Depreciation on Vehicles account in the general ledger to reflect all the entries up to the end of the financial year. (5) 2.6 Prepare the following note to the financial statements (amount column for Vehicles only) as at 28 February 2017: Property, plant and equipment (5) INFORMATION Steers Enterprises owns a fleet of motor vehicles. The following balances appeared in the general ledger on 01 March 2016, the beginning of the financial year: Vehicles at cost Accumulated depreciation on vehicles R1 000 000 R400 000 Additional information ■ On 31 August 2016, a vehicle that cost R200 000 was sold for R32 000 cash. The accumulated depreciation on this vehicle was R165 000 on 01 March 2016. ■ On 01 December 2016 a new vehicle was purchased for R250 000 cash. ■ Deprecation is provided for on vehicles at 20% per annum on the diminishing balance.

The change in Bob Evans operational performance from 2016 to 2017 was due mainly to ______________________.

1.    profit margin (ROS)

2. asset turnover ratio (ATO)

3. interest burden ratio

4. tax burden ratio

*2. Bob Evan's return on assets (ROA) was ____ in 2016 and ______ in 2017.

1. .123, .151

2. .124, .167

3. .121, .159

4. 1.62, 1.59

*3. The use of debt (leverage) had _________ affect on Bob Evan's financial performance in 2017 versus 2016.

a) a positive

b) a negative

c) no  

d) a mixed

2. Plant, Property and Equipment

On January 2, 2016, SaulGroup purchased equipment at a cost of $5 million. The equipment has a five-year life, no residual value, and is depreciated on a straight- line basis. On January 2, 2018, the fair value of the equipment (net of any accumulated depreciation) is determined as $6 million.

a. If the revaluation model is applied for measurement subsequent to initialrecognition under IFRS, what is the impact the equipment has on SaulGroup’s

income in Years 2016 – 2020 using (1) IFRS and (2) U.S. GAAP?
b. How would you explain the difference in income, total assets, and total

stockholders’ equity using IFRS and U.S. GAAP over the period of Years2016 to 2020?

3. Research and Development

In 2016, SaulGroup spent $1 million in developing Product Y. Of this amount, 30% related to development cost (IAS 38 criteria had been met for recognition of the development costs as an intangible asset). The development of Product Y was complete, and the product was available for sale on January 2, 2017. Sales of the product are expected to continue for five years. Straight-line method is used.

a. What is the impact the research and development costs have on SaulGroup’sin 2016 and 2017 income under (1) IFRS and (2) U.S. GAAP?

b. How would you explain the difference in income, total assets, and totalstockholders’ equity related to Product Y using IFRS and U.S. GAAP over the year 2016 and 2017?