1. Why are the long-lived assets and inventory assertions of existence said to have an inherent risk of material misstatement that is higher than that of the account payable?

2. Do you think the blank confirmation is included in the positive or negative confirmation? Also explain what the advantages and disadvantages of each type of confirmation are, along with what kind of situation it is suitable to use!

3. Why is a cash account said to have a high inherent risk of possible fraud? Explain some of the controls related to cash accounts!

4. You are an auditor at a public accounting firm. You are conducting an audit for the financial year ending December 31, 2019. Your client has go public. This client is a property development company. Your client builds property in the form of apartment units, housing / real estate and also property investment products in the form of lots ready to build. In addition, this client also has a project development cooperation with its customers. The client is bound by a contract signed by both parties before a notary for the construction of a project with this customer. The project has not been completed 100%, however, the client says that the project has been completed 60% and the client acknowledges 60% of the development as revenue in the 2019 financial year.
Question:
a. In your opinion, as an auditor, what account should the client classify the apartment and housing / real estate complex be? Explain your answer!
b. What is the audit procedure that you will apply to ensure the recognition of revenue that is 60% of the project!
c. What audit evidence will you examine and what are the related assertions? Explain your answer!

5. You are an auditor at a public accounting firm. You and your team are entrusted by Partner to handle clients engaged in the home appliance retail business. Your client is a company that has go public. The client's financial statement in the previous year reported a loss, however this year reported a material gain. After you check, it turns out that the client reports income that is not much different from the previous year, however, there can be a profit due to the decrease in Cost of Goods Sold (COGS). The client reports that the amount of inventory has increased drastically, even though sales have not increased and the account payable balance is almost the same as in previous years, this has led to suspicion of a double counting scheme in the client's inventory. In addition, when a random check was carried out incidentally at one of the client's warehouses, it was found that many inventory were out of date but the client did not make adjustments.
Question:
a. If you wanted to perform an analytical procedure to check the suspected occurrence of this double counting scheme, what ratio would you calculate? Explain your answer!
b. What assertions are related to the above case? Explain your answer!

6.Your client Corp A is a company engaged in the production of heavy equipment and markets its products on a business to business (B2B) basis. Goods produced by Corp A are heavy equipment such as: Excavators, Bulldozers, Mobile Cranes, Motor Scrapers, etc. There are also a number of finished products in the form of heavy equipment which are self-used by Corp A. After several years of self-use, that heavy equipment is sold, which is in the fiscal year that you are currently auditing. Corp A recorded it as sales revenue which is increased their operating profit.
Question:
a. Do you think that recognize it as sales revenue is correct? Explain your answer!
b. What audit objectives relate to the above case! Explain your answer!

Entity A sold Product C to Entity B for many years. In order to expand its market, recently, Entity A promoted a new product, i.e. Product D. On 1 January 2020, Entity A sold 20,000 units of Product D to Entity B at a price of $88 per unit. Cash was received when control of products transferred to Entity B.

According to the contract between Entity A and Entity B, Entity A agreed with Entity B returning unused products at full price within 2 months, i.e. on or before 29 February 2020.  The costs of each Product C and Product D are $55 and $48 respectively.

Entity A learnt much experience in selling Product C with different customers and estimated that 6% of Product C was commonly returned by Entity B. However, Product D is a new product, therefore Entity A did not have such experience on selling Product D. Based on the good business relationship with Entity B, Entity A estimated the return rate of Product D as a triple of the return rate of Product C.

On 29 February 2020, Entity B returned 1,600 units of Product D to Entity A. Due to a cash shortage, Entity A only repaid $50,000 back to Entity B and promised to settle the unpaid balance on or before 31 March 2020. Finally, Entity A only settled 80% of the unpaid balance on 31 March 2020.

REQUIRED:

Provide journal entries for Product D from 1 January 2020 to 31 March 2020 in accordance with relevant accounting standards.

ACCOUNT NAMES FOR INPUT:

| Road roller | Plant | Machine | Motor van | Land | Building | Inventory | Intangible assets |

| Bank | Payable | Receivable | Other income | Other expense | Interest expense | Interest revenue |

| Depreciation | Accum. depreciation | Impairment loss | Reversal of impairment loss | Goodwill |

| Loss on disposal | Gain on disposal | Restoration liability | Revaluation surplus | Revaluation deficit |

| Asset for product to be returned | Commission expense | Commission revenue | Revenue |

| Cost of sales | Refund liability | Contract asset | Contract liability | Retained earnings | No entry |

ANSWERS:

Journal Entries:

Chapter 3:  The Adjusting Process (Continued)

1. Please explain what accrued expenses are and let us know why these adjustments are necessary. Please provide an example of an adjusting entry for an accrued expense.

2. Please explain what accrued revenues are and let us know why these adjustments are necessary. Please provide an example of an adjusting entry for accrued revenues.

3. Please explain what an Unearned Revenue account is and why an adjustment may be necessary for Unearned Revenue. Please provide an example of an adjusting entry for Unearned Revenue.

Twenty-one mature flowers of a particular species were dissected, and the number of stamens and carpels present in each flower were counted.

(a) Is there sufficient evidence to claim a linear relationship between these two variables at α = .05?
(i) Find r. (Give your answer correct to three decimal places.)

(iii) State the appropriate conclusion.

Reject the null hypothesis, there is not significant evidence to claim a linear relationship.Reject the null hypothesis, there is significant evidence to claim a linear relationship.    Fail to reject the null hypothesis, there is significant evidence to claim a linear relationship.Fail to reject the null hypothesis, there is not significant evidence to claim a linear relationship.

(b) What is the relationship between the number of stamens and the number of carpels in this variety of flower?. (Give your answers correct to two decimal places.)

(c) Is the slope of the regression line significant at α = .05?(i) Find t. (Give your answer correct to two decimal places.)


(ii) Find the P-value. (Give your answer bounds exactly.)
< p <
(iii) State the appropriate conclusion.

Reject the null hypothesis, there is not evidence of a significant slope.Reject the null hypothesis, there is evidence of a significant slope.    Fail to reject the null hypothesis, there is evidence of a significant slope.Fail to reject the null hypothesis, there is not evidence of a significant slope.

(d) Find the 98% prediction interval for the number of carpels that one would expect to find in a mature flower of this variety if the number of stamens were 45. (Give your answers correct to one decimal place.)

2. Every day, Chung-Li buys a scratch-off lottery ticket with a 40% chance of winning some prize. He noticed that whenever he wears his red shirt he usually wins. He decided to keep track of his winnings while wearing the shirt and found that he won 6 out of 9 times.

• Let's test the null hypothesis that Chung-Li's chance of winning while wearing the shirt is 40% as always versus the alternative that the chance is somehow greater.
• The table at right sums up the results of 1000 simulations, each simulating 9 lotteries with a 40%, percent chance of winning.
• According to the simulations, what is the probability of winning 6 times or more out of 9?
• 74/1000 = .00074
• Let's agree that if the observed outcome has a probability less than 1% under the tested hypothesis, we will reject the hypothesis.
• What should we conclude regarding the hypothesis?
  • We cannot reject the null hypothesis.
  • We should reject the null hypothesis.

A small-town restaurant owner understands that she needs to meet or exceed customers' expectations. Therefore, she must first:

Group of answer choices know where customers live. know how often consumers buy their products.

determine what those expectations are.

recognize that expectations are tangible.

empower customers to meet their own expectations.

2. If a product's sales are rising, profits are rising rapidly, and there are a small but increasing number of competitors, this product is most likely in the ________ stage of the product life cycle.

Toyota started making one type of Camry (car). When they started adding different colors, features and styles of Camry, this was best thought of as:

Group of answer choices

extending product mix breadth

line extension

brand extension

a new product category

A start-up company in Silicon Valley is developing new educational video games. The company has employees try it out on various systems to see if the games work. At this stage, they are involved in:

Group of answer choices

test marketing.

product launch.

beta testing.

alpha testing.

1. Examine the table below showing the price elasticities of demand for tobacco products.

Source: Onder and Yureki, 2006

Let’s first understand how to use the table by looking at the price elasticity of demand overall for tobacco users, the last row of the table entitled “Total.” The total price elasticity coefficient is -0.87. The coefficient is negative since higher tobacco prices result in less quantity demanded, ceteris paribus. So for example, a 10 % increase in tobacco taxes would reduce the quantity demanded by 8.7% overall. Within this 8.7% reduction in quantity demanded, 4% would quit altogether (Elasticity of Smoking Participation coefficient) while the quantity demanded would fall by 4.7% among those who keep smoking (Conditional Demand Elasticity).

Health advocacy groups during the last session of the Montana Legislature proposed raising the state’s tax on cigarettes by $1.50 per pack to boost it to $3.20 a pack. The purpose of the tax was two-fold; to reduce tobacco use and to raise badly needed tax revenue for programs suffering budget cuts and administered by the Montana Department of Health and Human Services. Also, the price elasticity of demand for tobacco products by youth is -1.2 (not shown).

1. Identify the demographic groups who will most respond to higher tobacco prices and offer an explanation why they respond the way they do.
2. If the primary purpose is to raise badly needed revenue for other programs cut by the Montana Legislature, what demographic will raise the most revenue for the government?
3. If you want to encourage smokers to drop the habit altogether, which demographic group would likely respond the most to the higher price of tobacco products by quitting the habit entirely?
4. How would all elasticities likely change in the long-run? Why?

1) The account title used for recording the payment of rent in advance for an office building is ________.

A) Prepaid Rent

B) Rent Payable

C) Rent Revenue

D) Rent Expense

2) Which of the following is an asset account?

A) Wages Payable

B) Notes Payable

C) Unearned Revenue

D) Accounts Receivable

3) A customer's promise to pay in the future for services or goods sold is called a(n) ________.

A) Accounts Receivable

B) Accounts Payable

C) Unearned Revenue

D) Notes Payable

4) Which of the following is classified as an asset account?

A) Prepaid Insurance

B) Notes Payable

C) Dividends

D) Unearned Revenue

5) ________ represents a debt owed for renting a building.

A) Prepaid Rent

B) Rent Payable

C) Rent Revenue

D) Rent Expense

6) Which of the following is a liability account?

A) Prepaid Advertising

B) Cash

C) Building

D) Unearned Rent

7) Which of the following is a liability account?

A) Accounts Payable

B) Prepaid Expense

C) Salaries Expense

D) Service Revenue

8) A liability created when a business receives cash from customers in advance of providing services or delivering goods is called a(n) ________.

A) notes receivable

B) unearned revenue

C) accrued liability

D) service revenue

9) Which of the following is a liability account?

A) Service Revenue

B) Building

C) Prepaid Rent

D) Unearned Revenue

10) Explain the difference between Accounts Receivable and Accounts Payable.

Answer:   

11) Saturn, Inc. paid the rent for the current month in cash. Which of the following accounts will be used to record the transaction?

A) Prepaid Rent

B) Rent Payable

C) Rent Revenue

D) Rent Expense

12) Amounts earned from delivering goods or services to customers are called ________.

A) notes receivable

B) unearned revenues

C) equity

D) revenues

13) Which of the following is provided in a typical chart of accounts?

A) Account balance

B) Account number

C) Dates of transactions

D) Transaction amounts

14) A listing of all accounts in numerical order is called a(n) ________.

A) Ledger

B) Journal

C) Income statement

D) Chart of accounts

15) Both the chart of accounts and the ledger ________.

A) provide the balance of each account at a specific point in time

B) list the account names and numbers of the business

C) fulfill the task of showing all of the increases and decreases in each account

D) All of the statements are correct.

16) Regarding T-accounts, which of the following statements is correct?

A) A T-account is a more detailed form of an account in the journal.

B) The right side of a T-account is a debit for asset accounts and a credit for equity accounts.

C) Debits are posted on the right side of the vertical line.

D) A T-account is a summary device with credits posted on the right side of the vertical line.

17) Which of the following accounts decreases with a debit?

A) Accounts Receivable

B) Notes Payable

C) Cash

D) Rent Expense

18) "All debits are increases and all credits are decreases." Is this a correct statement? Explain your answer.

Answer:   

19) Which of the following accounts decreases with a credit?

A) Cash

B) Common Stock

C) Accounts Payable

D) Unearned Revenue

20) Which of the following accounts increases with a debit?

A) Prepaid Rent

B) Interest Payable

C) Accounts Payable

D) Common Stock

21) Which one of the following account groups will decrease with a debit?

A) assets and expenses

B) revenues and expenses

C) liabilities and revenues

D) assets and liabilities

22) Which of the following statements is true of expenses?

A) Expenses increase equity, so an expense account's normal balance is a credit balance.

B) Expenses decrease equity, so an expense account's normal balance is a credit balance.

C) Expenses increase equity, so an expense account's normal balance is a debit balance.

D) Expenses decrease equity, so an expense account's normal balance is a debit balance.

23) Which one of the following account groups normally has a credit balance?

A) assets and liabilities

B) equity and assets

C) liabilities and revenues

D) assets and expenses

24) Which one of the following account groups normally has a debit balance?

A) assets and expenses

B) revenues and expenses

C) liabilities and revenues

D) assets and liabilities

25) Accounts Receivable is a(n) ________ account and has a normal ________ balance.

A) liability; debit

B) asset; debit

C) liability; credit

D) asset; credit

26) Accounts Payable is a(n) ________ account and has a normal ________ balance.

A) liability; debit

B) asset; debit

C) liability; credit

D) asset; credit

27) Prepaid Rent is a(n) ________ account and has a normal ________ balance.

A) asset; debit

B) liability; credit  

C) liability; debit

D) asset; credit

28) For Office Supplies, the category of account and its normal balance is ________.

A) liabilities and a debit balance

B) assets and a debit balance

C) liabilities and a credit balance

D) assets and a credit balance

29) The Salaries Payable account is a(n) ________.

A) liability account with a normal debit balance

B) asset account with a normal debit balance

C) liability account with a normal credit balance

D) asset account with a normal credit balance

30) For expenses, the category of account and its normal balance is ________.

A) equity and a credit balance

B) assets and a debit balance

C) assets and a credit balance

D) equity and a debit balance

31) The Accounts Receivable account of Brownstone, Inc. has the following postings:

Accounts Receivable

Calculate the ending balance of the account.

A) $28,000 debit

B) $25,000 debit

C) $3,000 credit

D) $22,000 debit

32) The Accounts Payable account of Waterford, Inc. has the following postings:

Accounts Receivable

Calculate the ending balance of the account.

A) $12,000 credit

B) $14,000 debit

C) $14,000 credit

D) $8,000 debit

33) A business purchases $3,500 of office supplies for cash. Which of the following sets of ledger accounts reflects the posting of this transaction?

A)  

Office Supplies

Accounts Payable

B)  

Office Supplies

Cash

C)  

Office Supplies

Accounts Payable

D)  

Office Supplies

Cash

34) When is a trial balance usually prepared?

A) after each entry is journalized

B) before the financial statements are prepared

C) after the financial statements are prepared

D) at the beginning of an accounting period