Question 4
You work in an audit firm who acts as the external auditor of ABC Trading Limited. The audit partner has asked you to carry out audit procedures in relation to the cut off assertion and to verify the inventory quantities at the end of the financial year.
All information about inventory is kept in a computerized system, called inventory control. Relevant information in relation to quantities is being updated in the computerized system using the GRNs and sales invoices.
Inventory count is performed on a monthly basis with the purpose to count fast moving and inventory items having high cost. In addition, the company performs additional inventory counts throughout the year for all inventory items securing that all inventory items will be counted sufficiently within a year.
You have attended the inventory count on 18 December 2018 and the additional inventory count which took place on the 8 January 2019. The company’s financial year ends 31 December 2018.
Inventory valuation was performed using information obtained from the computerized inventory system as at 31 December 2018 BUT no inventory count has taken place at the end of the year; 31 December 2018.
Required
a) List and describe the principal matters you should
have checked and the matters you should have recorded when you
attended the company's inventory count on 18 December 2018
b) List and describe the checks you will perform in checking sales
and purchases cut-off have been correctly carried out:
i. At the date of inventory count on 18 December 2018
ii. At the year-end
c) The work you will carry out to check that the book inventory
records have been correctly updated from the counts at the
inventory count
d) The work you will carry out to satisfy yourself that the
inventory quantities used in the valuation of the inventory at the
year-end are correct
In: Accounting
Yoshi Company completed the following transactions and events involving its delivery trucks.
2016
| Jan. | 1 | Paid $25,015 cash plus $1,635 in sales tax for a new delivery truck estimated to have a five-year life and a $2,300 salvage value. Delivery truck costs are recorded in the Trucks account. | ||
| Dec. | 31 | Recorded annual straight-line depreciation on the truck. |
2017
| Dec. | 31 | Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,700. Recorded annual straight-line depreciation on the truck. |
2018
| Dec. | 31 | Recorded annual straight-line depreciation on the truck. | ||
| Dec. | 31 | Sold the truck for $5,400 cash. |
Required:
1-a. Calculate depreciation for year
2017.
1-b. Calculate book value and gain (loss) for sale
of Truck on December, 2018.
1-c. Prepare journal entries to record these
transactions and events.
Calculate depreciation for year 2017.
|
| Depreciation expense (for 2016) | not attempted |
| Depreciation expense (for 2017) | not attempted |
| Depreciation expense (for 2018) | not attempted |
| Accumulated depreciation 12/31/2018 | 0 |
| Book value of truck at 12/31/2018 | |
| Total cost | not attempted |
| Accumulated depreciation | not attempted |
| Book value 12/31/2018 | not attempted |
| not attempted | not attempted |
Prepare journal entries to record these transactions and events.
| A | B | C | D | E | ||
|---|---|---|---|---|---|---|
| No | Date | General Journal | Debit | Credit | ||
| 1 | ||||||
| 2 |
In: Accounting
Young the Giant Corp. was formed in 2018, with 10,000 shares of $100 par value, 5% cumulative, preferred stock and 500,000 shares of $1 par value common stock authorized. The company engaged in the following transactions.
2018:
• On January 2, 2018, the company issued 50,000 shares of common stock at a price of $30 per share.
• January 3, 2018, the company issued 5,000 shares of preferred stock for par value.
• The net loss for 2018 was $800,000. The company closed it out to retained earnings from income summary on December 31. (Prepare that entry.) No dividends were declared.
2019:
• The company repurchased 2,000 shares of common stock on November 25, 2019 at a cost of $35 per share. It is recorded using the cost method.
• The company generated net income during 2019 of $2,000,000. The company closed it out to retained earnings from income summary on December 31. (Prepare that entry.)
• On December 31, 2019, the company announced a total dividend of $150,000. The company records all dividends in one Dividends and one Dividends Payable account, but shows separate preferred and common dividends amounts in journal entry explanations. Required: Show all calculations.
a) Prepare journal entries in proper form for the 2018 and 2019 transactions above. Any calculations must be shown below the entries as part of the explanations.
b) Prepare the stockholders’ equity section of the balance sheet after the two years have passed, so as of December 31, 2019. This excerpt from the balance sheet must:
• Have a proper heading;
• Show all amounts in currency format with zero decimal places;
• Use proper single- and double-underlining;
• Show all categories of shares as part of each category of stock;
• Show par values and the preferred dividend rate, and
• Follow all general formalities.
In: Accounting
The records of Shen Inc. show the following data for the years ended March 31:
| 2018 | 2017 | 2016 | |||||
| Income statement: | |||||||
| Sales | $ 336,100 | $ 317,000 | $ 296,900 | ||||
| Cost of goods sold | 233,000 | 223,000 | 211,400 | ||||
| Operating expenses | 68,000 | 64,300 | 64,300 | ||||
| Statement of financial position: | |||||||
| Inventory | 39,600 | 39,600 | 24,000 |
After the company’s March 31, 2018, year end, the accountant
discovers two errors:
| 1. | Ending inventory on March 31, 2016, was actually $ 32,300, not $ 24,000. Shen owned goods held on consignment at another company that were not included in the inventory account. |
| 2. | Shen purchased $ 14,600 of goods from a supplier on March 30, 2017, with shipping terms FOB shipping point. The goods were not received until April 4, 2017 and the goods were not included in the March 31, 2017, year-end inventory. The purchase was then recorded properly on April 4, 2017. |
(a)
For each of the three years, prepare both incorrect and
corrected income statements through to income before income
tax.
INCORRECT
| SHEN INC. Income Statement Year Ended July 31Month Ended July 31a July 31 |
|||||||
| 2018 | 2017 | 2016 | |||||
| Sales | $ | $ | $ | ||||
| Cost of goods sold | |||||||
| Gross profit | |||||||
| Operating expenses | |||||||
| Income before income tax | $ | $ | $ | ||||
| SHEN INC. Statement of financial position
Year Ended July 31Month Ended July 31a July 31
|
|||||||
| 2018 | 2017 | 2016 | |||||
|
|
$ | $ | $ | ||||
CORRECT
| SHEN INC. Income Statement
Year Ended July 31Month Ended July 31a July 31
|
|||||||
| 2018 | 2017 | 2016 | |||||
| Sales | $ | $ | $ | ||||
| Cost of goods sold | |||||||
| Gross profit | |||||||
| Operating expenses | |||||||
| Income before income tax | $ | $ | $ | ||||
SHEN INC. Statement of financial position
Year Ended July 31Month Ended July 31a July 31
|
|||||||
| 2018 | 2017 | 2016 | |||||
|
|
$ | $ | $ | ||||
In: Accounting
| Some recent financial statements for Smolira Golf Corp. follow. |
| SMOLIRA GOLF CORP. 2017 and 2018 Balance Sheets |
||||||||||||||||
| Assets | Liabilities and Owners’ Equity | |||||||||||||||
| 2017 | 2018 | 2017 | 2018 | |||||||||||||
| Current assets | Current liabilities | |||||||||||||||
| Cash | $ | 24,226 | $ | 25,900 | Accounts payable | $ | 24,984 | $ | 28,900 | |||||||
| Accounts receivable | 14,248 | 17,000 | Notes payable | 17,000 | 12,600 | |||||||||||
| Inventory | 27,802 | 28,900 | Other | 13,371 | 17,500 | |||||||||||
| Total | $ | 66,276 | $ | 71,800 | Total | $ | 55,355 | $ | 59,000 | |||||||
| Long-term debt | $ | 124,000 | $ | 127,662 | ||||||||||||
| Owners’ equity | ||||||||||||||||
| Common stock and paid-in surplus | $ | 60,000 | $ | 60,000 | ||||||||||||
| Accumulated retained earnings | 169,616 | 189,338 | ||||||||||||||
| Fixed assets | ||||||||||||||||
| Net plant and equipment | $ | 342,695 | $ | 364,200 | Total | $ | 229,616 | $ | 249,338 | |||||||
| Total assets | $ | 408,971 | $ | 436,000 | Total liabilities and owners’ equity | $ | 408,971 | $ | 436,000 | |||||||
| SMOLIRA GOLF CORP. 2018 Income Statement |
|||||||
| Sales | $ | 390,477 | |||||
| Cost of goods sold | 261,500 | ||||||
| Depreciation | 50,900 | ||||||
| Earnings before interest and taxes | $ | 78,077 | |||||
| Interest paid | 16,100 | ||||||
| Taxable income | $ | 61,977 | |||||
| Taxes (23%) | 14,255 | ||||||
| Net income | $ | 47,722 | |||||
| Dividends | $ | 28,000 | |||||
| Retained earnings | 19,722 | ||||||
|
Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate): (Enter your profitability ratio answers as a percent rounded to 2 decimal places, e.g., 32.16. Round the remaining answers to 2 decimal places, e.g., 32.16.) |
Find the follow for 2017 and 2018:
Current ratio
quick ratio
cash ratio
Find the follow:
Total asset turnover
Inventory turnover
receivables turnover
Find the following for 2017 and 2018:
total debt ratio
debt equity ratio
equity muliplier
Find the following:
time interest earned
cash coverage ratio
profit margin
return on assets
return on equity
In: Finance
Balance Sheets as on 31st Dec 2017 & 31st Dec 2018
|
31st Dec 2017 |
31st Dec 2018 |
|||
|
Current Assets: |
||||
|
Cash |
$65,000 |
$80,000 |
||
|
Accounts Receivables |
$2,500,000 |
$4,000,000 |
||
|
Inventory |
$1,500,000 |
$2,500,000 |
||
|
Total Current Assets |
$4,065,000 |
$6,580,000 |
||
|
Fixed Assets: |
||||
|
Buildings |
$2,000,000 |
$3,000,000 |
||
|
Furniture & office equipment |
$1,100,000 |
$1,400,000 |
||
|
Good Will |
$6,100,000 |
$5,700,000 |
||
|
Patents |
$1,000,000 |
$1,100,000 |
||
|
Total Fixed Assets |
$10,200,000 |
$11,200,000 |
||
|
Total Assets |
$14,265,000 |
$17,780,000 |
||
|
Liabilities: |
||||
|
Current Liabilities: |
||||
|
Accounts Payable |
$1,200,000 |
$1,350,000 |
||
|
Notes Payable |
$500,000 |
$550,000 |
||
|
Interest Payable |
$110,000 |
$125,000 |
||
|
Total Current Liabilities |
$1,810,000 |
$2,025,000 |
||
|
Shareholder's Equity: |
||||
|
Common Stock |
$8,655,000 |
$12,000,000 |
||
|
Retained earnings |
$3,800,000 |
$3,755,000 |
||
|
Total Stockholder's equity |
$8,455,000 |
$11,755,000 |
||
|
Total Liabilities & Stockholder's equity |
$14,265,000 |
$17,780,000 |
Income Statements for the years ended 31st Dec 2017 & 31st Dec 2018
|
|
31st Dec 2017 |
31st Dec 2018 |
|
Sales |
$7,500,000 |
$8,600,000 |
|
Less: Cost of goods sold |
$5,200,000 |
$6,000,000 |
|
Gross profit |
$2,300,000 |
$2,600,000 |
|
Less: Operating expenses |
||
|
General & administrative expenses |
$250,000 |
$380,000 |
|
Selling & distribution expenses |
$580,000 |
$600,000 |
|
Other operating expenses |
$150,000 |
$190,000 |
|
Operating profit |
$1,320,000 |
$1,430,000 |
|
Less: Interest expenses |
$350,000 |
$400,000 |
|
Net income before taxes |
$970,000 |
$1,030,000 |
|
Less: Taxes at 30% |
$291,000 |
$309,000 |
|
Net Income after taxes |
$679,000 |
$721,000 |
Calculate the following ratios for 2018 representing:
Liquidity (Current ratio, Accounts Receivable Turnover ratio)
Solvency (Debt/Equity ratio, Debt ratio)
Profitability (Return on Assets, Gross Profit Margin)
Asset Management (Inventory Turnover ratio, Fixed Assets Turnover ratio)
(10pts)
Calculate the net tangible asset values for 2017 and 2018 and comment on them. (5pts)
In: Finance
Brandlin Company of Anaheim, California, purchases materials from a foreign supplier on December 1, 2017, with payment of 27,000 korunas to be made on March 1, 2018. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2017, Brandlin enters into a forward contract to purchase 27,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:
| Date | Spot Rate | Forward Rate (to March 1, 2018) |
||||
| December 1, 2017 | $ | 4.50 | $ | 4.575 | ||
| December 31, 2017 | 4.60 | 4.700 | ||||
| March 1, 2018 | 4.75 | N/A | ||||
Brandlin’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31.
a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency payable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars. (12 entries)
a-2. Assuming that the purchased parts became a part of the cost of goods sold in 2017, what is the impact on 2017 net income?
a-3. What is the impact on 2018 net income?
a-4. What is the impact on net income over the two accounting periods?
b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency payable, prepare journal entries for these transactions in U.S. dollars. (12 entries)
b-2. Assuming that the purchased parts became a part of the cost of goods sold in 2017, what is the impact on net income in 2017 and in 2018?
b-3. What is the impact on net income over the two accounting periods?
In: Finance
In 2018, the Westgate Construction Company entered into a
contract to construct a road for Santa Clara County for
$10,000,000. The road was completed in 2020. Information related to
the contract is as follows:
| 2018 | 2019 | 2020 | |||||||
| Cost incurred during the year | $ | 2,400,000 | $ | 3,600,000 | $ | 2,200,000 | |||
| Estimated costs to complete as of year-end | 5,600,000 | 2,000,000 | 0 | ||||||
| Billings during the year | 2,000,000 | 4,000,000 | 4,000,000 | ||||||
| Cash collections during the year | 1,800,000 | 3,600,000 | 4,600,000 | ||||||
Westgate Construction uses the completed contract method of
accounting for long-term construction contracts.
Required:
1. Calculate the amount of revenue and gross profit (loss)
to be recognized in each of the three years.
2-a.In the journal below, complete the necessary
journal entries for the year 2018 (credit "Various accounts" for
construction costs incurred).
2-b.In the journal below, complete the necessary
journal entries for the year 2019 (credit "Various accounts" for
construction costs incurred).
2-c. In the journal below, complete the necessary
journal entries for the year 2020 (credit "Various accounts" for
construction costs incurred).
3. Complete the information required below to
prepare a partial balance sheet for 2018 and 2019 showing any items
related to the contract.
4. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years assuming
the following costs incurred and costs to complete
information.
| 2018 | 2019 | 2020 | |||||||
| Cost incurred during the year | $ | 2,400,000 | $ | 3,800,000 | $ | 3,200,000 | |||
| Estimated costs to complete as of year-end | 5,600,000 | 3,100,000 | 0 | ||||||
5. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years assuming
the following costs incurred and costs to complete
information.
| 2018 | 2019 | 2020 | |||||||
| Cost incurred during the year | $ | 2,400,000 | $ | 3,800,000 | $ | 3,900,000 | |||
| Estimated costs to complete as of year-end | 5,600,000 | 4,100,000 | 0 | ||||||
In: Accounting
In 2018, the Westgate Construction Company entered into a
contract to construct a road for Santa Clara County for
$10,000,000. The road was completed in 2020. Information related to
the contract is as follows:
|
2018 |
2019 |
2020 |
|||||||
|
Cost incurred during the year |
$ |
2,523,000 |
$ |
3,177,000 |
$ |
1,980,000 |
|||
|
Estimated costs to complete as of year-end |
6,177,000 |
1,800,000 |
0 |
||||||
|
Billings during the year |
2,070,000 |
3,630,000 |
4,300,000 |
||||||
|
Cash collections during the year |
1,835,000 |
3,400,000 |
4,765,000 |
||||||
Westgate recognizes revenue over time according to percentage of
completion.
Required:
1. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary
journal entries for the year 2018 (credit "Various accounts" for
construction costs incurred).
2-b. In the journal below, complete the necessary
journal entries for the year 2019 (credit "Various accounts" for
construction costs incurred).
2-c. In the journal below, complete the necessary
journal entries for the year 2020 (credit "Various accounts" for
construction costs incurred).
3. Complete the information required below to
prepare a partial balance sheet for 2018 and 2019 showing any items
related to the contract.
4. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years assuming
the following costs incurred and costs to complete
information.
|
2018 |
2019 |
2020 |
|||||||
|
Cost incurred during the year |
$ |
2,523,000 |
$ |
3,835,000 |
$ |
3,235,000 |
|||
|
Estimated costs to complete as of year-end |
6,177,000 |
3,135,000 |
0 |
||||||
5. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years assuming
the following costs incurred and costs to complete
information.
|
2018 |
2019 |
2020 |
|||||||
|
Cost incurred during the year |
$ |
2,523,000 |
$ |
3,835,000 |
$ |
4,005,000 |
|||
|
Estimated costs to complete as of year-end |
6,177,000 |
4,170,000 |
0 |
||||||
In: Accounting
In 2018, the Westgate Construction Company entered into a
contract to construct a road for Santa Clara County for
$10,000,000. The road was completed in 2020. Information related to
the contract is as follows:
| 2018 | 2019 | 2020 | |||||||||
| Cost incurred during the year | $ | 2,291,000 | $ | 3,555,000 | $ | 2,259,400 | |||||
| Estimated costs to complete as of year-end | 5,609,000 | 2,054,000 | 0 | ||||||||
| Billings during the year | 1,900,000 | 3,946,000 | 4,154,000 | ||||||||
| Cash collections during the year | 1,700,000 | 3,500,000 | 4,800,000 | ||||||||
Westgate Construction uses the completed contract method of
accounting for long-term construction contracts.
Required:
1. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary
journal entries for the year 2018 (credit "Various accounts" for
construction costs incurred).
2-b. In the journal below, complete the necessary
journal entries for the year 2019 (credit "Various accounts" for
construction costs incurred).
2-c. In the journal below, complete the necessary
journal entries for the year 2020 (credit "Various accounts" for
construction costs incurred).
3. Complete the information required below to
prepare a partial balance sheet for 2018 and 2019 showing any items
related to the contract.
4. Calculate the amount of revenue and gross
profit (loss) to be recognized in each of the three years assuming
the following costs incurred and costs to complete
information.
| 2018 | 2019 | 2020 | |||||||||
| Cost incurred during the year | $ | 2,510,000 | $ | 3,855,000 | $ | 3,210,000 | |||||
| Estimated costs to complete as of year-end | 5,710,000 | 3,210,000 | 0 | ||||||||
5. Calculate the amount of revenue and gross profit (loss)
to be recognized in each of the three years assuming the following
costs incurred and costs to complete information.
| 2018 | 2019 | 2020 | |||||||||
| Cost incurred during the year | $ | 2,510,000 | $ | 3,855,000 | $ | 4,065,000 | |||||
| Estimated costs to complete as of year-end | 5,710,000 | 4,210,000 | 0 | ||||||||
In: Accounting