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27. Desiree Clark is a licensed CPA. During the first month of operations of her business, the follow...
Show transcribed image text Desiree Clark is a licensed CPA. During the first month of operations of her business, the following events and transactions occurred. Clark invested $20,000 cash in her business. Hired a secretary-receptionist at a salary of $2,000 per month. Purchased $2, 500 of supplies on account from Read Supply Company. Paid office rent of $900 cash for the month. Completed a tax assignment and billed client $3, 200 for services provided. Received S3, 500 advance on a management consulting engagement. Received cash of $1.200 for services completed for C. Desmond Co. Paid secretary-receptionist $2,000 s for the month. Paid 60% of balance due Read Supply Company. Desiree uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 301 Owner's Capital, No. 400 Service Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense. (a) Journalize the transactions. (b) Post to the ledger accounts (c) Prepare a trial balance on May 31, 2012.
28. answer and show your solution Problem 16-13 (AICPA Adapted) On January 1, 2019, Scoundrel Company pu
answer and show your solution ordinary shares at P80 per share to be classified as nontrading through other comprehensive income. On September 30, 2019, the entity received 100,000 share rights to purchase 20,000 shares at P90 per share. The share rights had an expiration date of February 1, 2020. On September 30, 2019, each share had a market value of P114 and the share right had a market value of P6 What a mount should be reported on September 30, 2019 1. as investment in share rights? a. 500,000 b. 400,000 100,000 d. 600,000 C. 2. What is the total cost of the share rights are exercised? investment if all of the new 1,800,000 b. 1,600,000 c. 2,200,000 d. 2,400,000 a. Problem 16-14 (AICPA Adapted) Temporal Company owned 50,000 ordinary shares held for trading. These 50,000 shares were purchased for P120 per share. During the year, the investee distributed 50,000 share rights to the investor. The investor was entitled to buy one new share for P90 cash and two of these rights.. Each share hada market value of P130 and each right had a market value of P20 on the date of issue. What total cost should be recorded for the new shares that acquired by exercising the rights? are 2,250,000 b. 3,250,000 c. 3,050,000 d. 5,500,000 a 427
29. (TCO D) Irving Music Shop gives its customers coupons redeemable for a poster plus a Dixie Chicks CD
(TCO D) Irving Music Shop gives its customers coupons redeemable for a poster plus a Dixie Chicks CD. One coupon is issued for each dollar of sales. On the surrender of 100 coupons and $5.00 cash, the poster and CD are given to the customer. It is estimated that 80% of the coupons will be presented ...
30. Problem 4-2A (Part Level Submission) Len Kumar started his own consulting firm, Kumar Consulting,...
Problem 4-2A (Part Level Submission) Len Kumar started his own consulting firm, Kumar Consulting, on June 1, 2017. The trial balance at June 30 is as follows. KUMAR CONSULTING Trial Balance June 30, 2017 Debit Credit 6,850 7,000 1,992 3,000 15,000 Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accounts Payable Unearned Service Revenue Common Stock Service Revenue Salaries and Wages Expense Rent Expense $ 4,280 5,200 21,992 8,300 4,000 1,930 $39,772 $39,772 In addition to those accounts listed on the trial balance, the chart of accounts for Kumar also contains the following accounts: Accumulated Depreciation-Equipment, Salaries and Wages Payable, Depreciation Expense, Insurance Expense, Utilities Expense, and Supplies Expense
31. (Objective 24-4) Identify five audit procedures normally done as a part of the review for...
(Objective 24-4) Identify five audit procedures normally done as a part of the review for subsequent events.
(Objective 24-4)
REVIEW FOR SUBSEQUENT EVENTS
The third part of completing the audit included in the sidebar is the review for subse - quent events. The auditor must review transactions and events that occurred after the balance sheet date to determine whether any of these transactions or events affect the fair presentation or disclosure of the current period statements. The auditing procedures required by auditing standards to verify these transactions and events are commonly called the review for subsequent events or post-balance-sheet review. The auditor’s responsibility for reviewing subsequent events is normally limited to the period beginning with the balance sheet date and ending with the date of the auditor’s report. Because the date of the auditor’s report corresponds to the completion of the important auditing procedures in the client’s office, the subsequent events review should be completed near the end of the audit.1 Figure 24-3 shows the period covered by a subsequent events review and the timing of that review
Two types of subsequent events require consideration by management and evaluation by the auditor: those that have a direct effect on the financial statements and require adjustment of the current year’s financial statement amounts and those that have no direct effect on the financial statement amounts but for which disclosure is required. Those That Have a Direct Effect on the Financial Statements and Require Adjustment Some events that occur after the balance sheet date provide additional information to management that helps them determine the fair presentation of account balances as of the balance sheet date. Information about those events helps auditors in verifying the balances. For example, if the auditor is having difficulty determining the correct valuation of inventory because of obsolescence, the sale of raw material inven - tory as scrap in the subsequent period will indicate the correct value of the inventory as of the balance sheet date. Subsequent period events, such as the following, require an adjustment of account balances in the current year’s financial statements if the amounts are material:
• Declaration of bankruptcy by a customer with an outstanding accounts receivable balance because of the customer’s deteriorating financial condition
• Settlement of litigation at an amount different from the amount recorded on the books
• Disposal of equipment not being used in operations at a price below the current book value
• Sale of investments at a price below recorded cost When subsequent events are used to evaluate the amounts included in the yearend financial statements, auditors must distinguish between conditions that existed at the balance sheet date and those that came into being after the end of the year. The subsequent information should not be incorporated directly into the statements if the conditions causing the change in valuation took place after year-end. For example, assume one type of a client’s inventory suddenly becomes obsolete because of a technology change after the balance sheet date. The sale of the inventory at a loss in the subsequent period is not relevant in the valuation of inventory for obsolescence in this case. Auditors of accelerated filer public companies must inquire about and consider any information about subsequent events that materially affects the effectiveness of internal control over financial reporting as of the end of the fiscal period. If auditors conclude that the events reflect a material weakness that existed at year-end, they must give an adverse opinion on internal control over financial reporting. If they are unable to determine the effect of the subsequent event on the effectiveness of internal control, they must disclaim their opinion on internal control.
Those That Do Not Have a Direct Effect on the Financial Statements but for Which Dis closure Is Required Subsequent events of this type provide evidence of conditions that did not exist at the date of the balance sheet being reported on but are so significant that they require disclosure even though they do not require account adjustment. Ordinarily, these events can be adequately disclosed by the use of footnotes, but occasionally, one may be so significant as to require disclosure in supplemental financial statements that include the effect of the event as if it had occurred on the balance sheet date. An example is an extremely material merger. Events or transactions occurring in the subsequent period that may require dis - closure rather than an adjustment in the financial statements include:
• A decline in the market value of securities held for temporary investment or resale
• The issuance of bonds or equity securities
• A decline in the market value of inventory as a consequence of government action barring further sale of a product
• The uninsured loss of inventories as a result of fire
• A merger or an acquisition Auditors of accelerated filer public companies may also identify events related to internal control over financial reporting that arose subsequent to year-end. If the auditor determines that these subsequent events have a material effect on the company’s internal control over financial reporting, the auditor’s report must include an explanatory para - graph either describing the event and its effect or directing the reader to a disclosure in management’s report on internal control of the event and its effect. There are two categories of audit procedures for the subsequent events review: 1. Procedures normally integrated as a part of the verification of year-end account balances
2. Procedures performed specifically for the purpose of discovering events or trans - actions that must be recognized as subsequent events The first category includes cutoff and valuation tests done as a part of the tests of details of balances. For example, auditors examine subsequent period sales and acquisition transactions to determine whether the cutoff is accurate. Auditors also test the collecti - bility of accounts receivable by reviewing subsequent period cash receipts to evaluate the valuation of the allowance for uncollectible accounts. Procedures for cutoff and valuation have been discussed sufficiently in preceding chapters and are not repeated here. The second category of tests are performed specifically to obtain information to incorporate into the current year’s account balances or footnotes as tests of the complete - ness presentation and disclosure objective. These tests include the following: Review Records Prepared Subsequent to the Balance Sheet Date Auditors should review journals and ledgers to determine the existence and nature of significant transactions related to the current year. If journals are not kept up-to-date, auditors should review documents that will be used to prepare the journals. Auditors of public companies that are accelerated filers must inquire about and examine statements issued during the subsequent events review period, such as relevant internal audit reports and regulatory agency reports on the company’s internal control over financial reporting. Review Internal Statements Prepared Subsequent to the Balance Sheet Date In the review, auditors should emphasize changes in the business compared to results for the same period in the year under audit and changes after year-end. They should pay careful attention to major changes in the business or environment in which the client is operating. Auditors should discuss the interim statements with manage ment to determine whether they are prepared on the same basis as the current period statements, and also inquire about significant changes in the operating results. Examine Minutes Issued Subsequent to the Balance Sheet Date Auditors must examine the minutes of stockholders and directors meetings subsequent to the balance sheet date for subsequent events affecting the current period financial statements. Correspond with Attorneys As discussed earlier in the chapter, auditors correspond with attorneys as a part of the search for contingent liabilities. Auditors normally request the attorney to date and mail the letter as of the expected completion date of field work to fulfill the auditors’ responsibility for subsequent events. Inquire of Management Inquiries vary from client to client, but normally include significant changes in the assets or capital structure of the company after the balance sheet date, the current status of items that were not completely resolved at the balance sheet date, and unusual adjustments made subsequent to the balance sheet date. Public company auditors must also include inquiries of management about any changes in internal control over financial reporting made subsequent to the end of the fiscal period. Inquiries of management about subsequent events must be done with appropriate client personnel to obtain meaningful answers. For example, it is not useful for the auditor to discuss tax or union matters with an accounts receivable supervisor. Depending on the information desired, auditors usually make inquiries of the controller, vice presidents, and the president. Obtain a Letter of Representation The letter of representation written by the client’s management to the auditor formalizes statements made by management about different matters throughout the audit, including discussions about subsequent events. This letter is mandatory and includes other relevant matters. This letter is discussed in the following section. Occasionally, the auditor determines that a subsequent event that affects the current period financial statements occurred after the field work was completed but before the audit report was issued. The source of such information is typically management or the media. For example, what if an audit client acquired another company after the auditor’s last day of field work? Using the dates in Figure 24-3 on page 765, assume the acquisi - tion occurred on March 23, when the last day of field work was March 11. In that situation, auditing standards require the auditor to extend audit tests for the newly discovered subsequent event to make sure that it is correctly disclosed. The auditor has two equally acceptable options for expanding subsequent events tests: 1. Expand all subsequent events tests to the new date 2. Restrict the subsequent events review to matters related to the new subsequent event For the first option, auditors simply change the audit report date to the new date. For the second option, the auditor issues a dual-dated audit report, meaning that the audit report includes two dates: the first date for the completion of field work, except for the specific exception, and the second date, which is always later, for the exception. In the example, assume the auditor returned to the client’s premises to perform audit tests pertaining only to the acquisition and completes those tests on March 31. The audit report will be dualdated as follows: March 11, 2012, except for note 17, as to which the date is March 31, 2012.
32. 101. Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are...
101. Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?
A. $8,000 increase
B. $8,000 decrease
C. $30,000 decrease
D. $30,000 increase
102. Spice Inc.'s unit selling price is $60, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units?
A. $150,000 decrease
B. $175,000 increase
C. $200,000 increase
D. $150,000 increase
103. If sales are $914,000, variable costs are $498,130, and operating income is $260,000, what is the contribution margin ratio?
A. 52.2%
B. 28.4%
C. 54.5%
D. 45.5%
104. A firm operated at 80% of capacity for the past year, during which fixed costs were $330,000, variable costs were 70% of sales, and sales were $1,000,000. Operating profit was:
A. $140,000
B. ($30,000)
C. $370,000
D. $670,000
105. If sales are $525,000, variable costs are 53% of sales, and operating income is $50,000, what is the contribution margin ratio?
A. 47%
B. 26.5%
C. 9.5%
D. 53%
106. Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?
A. $125,000 decrease
B. $175,000 increase
C. $75,000 increase
D. $247,500 increase
107. Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:
A. 47% and $11 per unit
B. 53% and $7 per unit
C. 47% and $8 per unit
D. 52% and $11 per unit
108. If the contribution margin ratio for France Company is 45%, sales were $425,000. and fixed costs were $100,000, what was the income from operations?
A. $233,750
B. $91,250
C. $191,250
D. $133,750
109. If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the break-even sales (units)?
A. 3,425 units
B. 2,381 units
C. 2,000 units
D. 4,808 units
110. If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?
A. $1,250,000
B. $450,000
C. $1,875,000
D. $300,000