Chapter 16 Homework
16-23
1.
2.
3.
4.
5.
6.
7.
8.
16-27
a.
b.
Detail tie-in
Detail tie-in
a. Existence
b.
Accuracy
c. Realizable value (if cash receipts relate to older accounts)
a.
Existence
b.
Accuracy
a.
Existence
b.
Accuracy
c.
Realizable value (if cash receipts relate to older accounts)
Cutoff
Rights
Classification
Ordinarily, a shipment is considered a sale when it is shipped, picked up, or
delivered by a common carrier.
The sales invoice number can be ignored, except to determine the shipping
document number.
INVOICE NO.
SHIPPING
DOCUMENT
NO.
MISSTATEMENT
IN SALES CUTOFF
OVERSTATEMENT OR
UNDERSTATEMENT OF
AUG. 31 SALES
August sales
4326
4329
4327
4328
4330
2164
2169
2165
2168
2166
none
1,914.30
none
620.22
none
2,534.52
2163
2167
2170
2171
2172
4,641.31
106.39
none
none
none
4,747.70
overstatement
overstatement
September
sales
4332
4331
4333
4335
4334
Net understatement
understatement
understatement
2,213.18
Adjusting entry
Accounts receivable
Sales
2,213.18
2213.18
c.
After making the type of cutoff adjustments shown in part b, current year
sales would be overstated by:
Amount of sale
2168
2169
2170
2171
2172
620.22
1,914.30
852.06
1,250.50
646.58
5,283.66
The best way to discover the misstatement is to be on hand on the
balance sheet date and record in the audit working papers the last
shipping document issued in the current period. Later, the auditors can
examine shipping documents before and after the balance sheet date to
determine if they were correctly dated.
d.
The following procedures are usually desirable to test for sales cutoff.
1.
2.
3.
Be present during the physical count on the last day of the
accounting period to determine the shipping document number
for the last shipment made in the current year. Record that
number in the working papers.
During year-end field work, select a sample of shipping
documents preceding and succeeding those selected in
procedure 1. Shipping documents with the same or with a smaller
number than the one determined in procedure 1 should be included in
current sales. Those with document numbers larger than that
number should have been excluded from current sales.
During year-end field work, select a sample of sales from the
sales journal recorded in the last few days of the current
period, and a sample of those recorded for the first few days in
the subsequent period. Trace sales recorded in the current period to
related shipping documents to make sure that each one has a
number equal to or smaller than the one in procedure 1. Similarly,
trace sales recorded in the subsequent period to make sure each
sale has a related shipping document number greater than the
one in procedure 1.
e.
The following are effective controls and related tests of controls to help
prevent cutoff misstatements.
CONTROL
TEST OF CONTROL
(1)
Policy requiring the use of
prenumbered shipping documents.
Examine several documents for
prenumbering.
(2)
Policy requiring the issuance of
shipping documents sequentially.
Observe issuance of documents, examine
document numbers and inquiry.
(3)
Policy requiring recording sales
invoices in the same sequence as
shipping documents are issued.
Observe recording of documents, examine
document numbers and inquiry.
(4)
Policy requiring dating of shipping
documents, immediate recording of
sales, and dating sales on the same
date as the shipment.
Observe dating of shipping documents and
sales invoices, and timing of recording.
(5)
16-29
Use perpetual inventory records and
reconciliation of differences between
physical and perpetual records.
Examine worksheets reconciling physical
counts and perpetual records.
a.
Tests of controls and substantive tests of transactions related to the
allowance for doubtful accounts include the following:
1.
Test of controls for customer authorization and credit approval.
2.
Substantive tests of transactions for posting and summarization and
aging of accounts receivable.
3.
Substantive tests of transactions for bad debt charge-offs.
4.
Tests of controls over follow-up on past due accounts.
b.
An analysis of the allowance for doubtful accounts as a percentage of
accounts receivable and the percentage of receivables in each aging
category follows.
Allowance as a % of AR
Charge-offs as a % of sales
Percentage of receivables
in each aging category
0-30 days
30-60 days
60-90 days
Over 90 days
12/31/2009
6.25%
0.94%
12/31/2008
7.27%
0.99%
62.28%
17.65%
11.93%
8.14%
67.42%
15.62%
10.28%
6.68%
Total
100.00%
100.00%
Despite the increased in the allowance account from $75,000 in
2008 to $90,000 in 2009, the analysis suggests the account is
understated. Whether the allowance is misstated by more than $15,000 is
a matter of judgment. Although the allowance increased from $75,000 to
$90,000 it decreased as a percentage of accounts receivable from
7.27% in 2008 to 6.25% in 2009. An increase in the allowance of almost
$15,000 would be necessary maintain the allowance at the same
percentage of accounts receivable as the prior year.
In addition, current accounts receivable decreased from 67.42%
to 62.28% of accounts receivable. The amount of past due receivables
increased from $335,892 to $543,346. The allowance is 16.56% of past
due receivables for 2009 and 22.33% for 2008. To maintain the
allowance as the same percentage of past due receivables would
require an increase in the allowance of more than $30,000.
16-36 – ACL Problem
a.
b.
c.
There are 201 invoices in the file, totaling $286,315.79. (Read count at
bottom of table; use Total command on NEWBAL column.)
78 records contain finance charges, totaling $3,872.20 of finance charges.
(Filter expression is FINCHG > .0, then run Count and Total commands.)
Customer #812465 has the largest balance outstanding: $47,598.10.
(Remove filter from part b, summarize by customer number and print to an
ACL table.) See the following report:
Page
1
04/11/2009 09:30:51
Produced with ACL by: ACL Educational Edition Not For Commercial Use
d.
CUSTNO
NEWBAL
COUNT
051593
202028
250402
284354
359310
444413
503458
778088
812465
878035
925007
962353
0.00
34931.05
44678.85
33716.00
21767.54
421.15
27277.99
22558.65
14271.03
47598.10
4111.82
18286.53
16697.08
1
29
18
14
15
7
13
23
21
27
2
15
16
286315.79
201
The largest amount is $47,598.10 and the smallest non-zero
amount is $421.15. (Use Quick Sort on the ACL table created in step
c.)
e.
See the following printout of the aging of customer #812465.
(Return to the original table, create a filter expression of CUSTNO =
“812465”, then run the Age command.)
Page
1
Produced with ACL by: ACL
Not For Commercial Use
<<< AGE over 0-> 10,000
>>> Minimum encountered
>>> Maximum encountered
STMTDT
0
30
60
90
120
f.
->
29
->
59
->
89
->
119
-> 10,000
04/11/2009
09:38:49
Educational Edition >>>
was 10
was 34
COUNT
<-- %
% -->
NEWBAL
18
9
0
0
0
66.67%
33.33%
0.00%
0.00%
0.00%
84.36%
15.64%
0.00%
0.00%
0.00%
40154.38
7443.72
0.00
0.00
0.00
27
100.00%
100.00%
47598.10
See the following printout. There are 10 customers with balances
over $5000. (Go back to the summarized table from part c, create a
filter expression to exclude balances > $5,000). Then stratify these
balanced into two intervals. (Do Quick Sort to find minimum and
maximum amounts, then run Stratify command using two intervals
and the minimum and maximum amounts from the Quick Sort
results.)
Page
1
04/11/2009
10:05:13
Produced with ACL by: ACL Educational Edition Not For Commercial Use
<<< STRATIFY over 14,271.03-> 47,598.10 >>>
>>> Minimum encountered was 14,271.03
>>> Maximum encountered was 47,598.10
NEWBAL
14,271.03 -> 30,934.56
30,934.57 -> 47,598.10
COUNT
<-- %
% -->
NEWBAL
6
4
60.00%
40.00%
42.89%
57.11%
120858.82
160924.00
100.00% 100.00%
281782.82
10