Preliminary Inherent Risk Assessment – Review the description of Southwest Appliances, Inc. and identify four inherent risks based on the information provided. Inherent risks can flow from client’s business risks, the nature of its governance structure, and its strategic plans. However, you need to be clear about how your risks create an increased risk of material misstatement in the financial statements and not just how they might create risks of lower performance for the firm. Thus, for each inherent risk, describe the feature of the firm you believe affects inherent risk and explain how and why. By “how,” I mean whether in increases or decreases inherent risk. Make sure your “why” addresses a specific risk to the accuracy of the financial statements and whether audit effort should be increased or decreased for specific accounts or related groups of accounts if possible.Limit your inherent risk analysis to the verbal information in the case and not the financial statement data.â€¢ Preliminary Analytical Procedures – Review Southwest Appliance’s financial statements, ratios, and industrial data presented at the end of the case. Identify four accounts that you believe need additional audit scrutiny and explain why. â€¢ Preliminary Materiality Judgment- Set a preliminary materiality level for the Southwest audit. Document your materiality level and explain why you chose it.
The accounting records of Dee’s Appliances included the following balances at the end of the period:In the past, Dee’s warranty expense has been 8% of sales. During the current period, the business paid $7,100 to satisfy the warranty claims.Requirements1. Journalize Dee’s warranty expense for the period and the company’s cash payments to satisfy warranty claims. Explanations are not required.2. Show what Dee’s Appliances will report on its income statement and balance sheet for this situation at the end of the period.3. Which data item from requirement 2 will affect Dee’s current ratio? Will Dee’s current ratio increase or decrease as a result of thisitem?
The accounting records of Dee s Appliances included the following balances
High Seas Cruise Lines, Inc., reported the following income statement for the year ended December 31, 2006. Millions Operating revenues ………………………………………………….. $70,752 Operating expenses …………………………………………………. 60,258 Operating income…………………………………………………….. 10,494 Other revenue (expense), net ……………………………………. 985 Income from continuing operations……………………………. 11,479 Discontinued operations, net of tax……………………………. 935 Net income……………………………………………………………… $12,414 Required 1. Were High Seas discontinued operations more like an expense or a revenue? How can you tell? 2. Should the discontinued operations of High Seas be included in or excluded from net income? State your reason. 3. Suppose you are working as a financial analyst and your job is to predict High Seas net income for 2007 and beyond. Which item from the income statement will you use for your prediction? Identify its amount. Why will you use this item?
1) Provide a brief background in your own words to the role of a conceptual framework in
accounting, including benefits of having one, together with problems and criticisms of the
current (2010) framework. (3 Marks)
Page 2 Kaplan Business School Assessment Outline
2) In your own words and in your opinion, what should be the objective of general purpose
financial reporting? (3 Marks)
3) In your own words, explain what you understand by the term prudence. How can an
asymmetrically prudent accounting treatment lead to the understatement of income in
one period but an overstatement in future periods? (3 Marks)
4) a) In your own words, explain what is meant by the concept of substance over form.
You can use examples from within and/or outside accounting to help answer this
question. (3 Marks)
b) Do you agree with the boards decision to state explicitly that a faithful
representation represents the substance of an economic phenomenon instead of
merely representing its legal form? Justify your answer. (3 Marks)
What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $16?
a. What are the functions of audit documentation?
b. List and describe the various types of audit documents.
c. What factors affect the auditor’s judgment about the form, content, and extent of audit documentation for a particular engagement?
Waterway Company adopted the dollar-value LIFO method on January 1, 2017 (using internal price indexes and multiple pools) The following data are available for inventory pool A for the 2 years following adoption of LIFO
Inventory At Base-Year At Current-Year
1/1/17 $193,700 $193,700
12/31/17 240,800 288,960
12/31/18 275,300 338,619
Computing an internal price index and using the dollar-value LIFO method, at what amount should the inventory be reported at December 31, 2018?
December 31, 2018
Dollar-value LIFO inventory$_____________________
1 Which of the following would NOT be the characteristics of current assets?ABCDLikely to change before the next accounting period is overNot bought for resaleUse as part of the firm’s trading operationsLiquidity2 ABC Company has Rs. 150,000 cash, Rs. 80,000 as accounts receivables, Rs. 20,000as allowance for doubtful accounts, Rs. 10,000 as work in progress inventory, Rs. 55,000as prepaid expenses, Rs. 50,000 land purchased in the current year. Calculate the value ofcurrent assets.ABCDRs. 275,000Rs. 315,000Rs. 365,000Rs. 220,000Which of the following would be considered a cash-flow item from a “financing”activity?3.ABCDA cash outflow to the government for taxesA cash outflow to repurchase the firm’s own common stockA cash outflow to lenders as interestA cash outflow to purchase bonds issued by another company4 Which of the following is NOT an example of cash equivalents?ABCDCertificates of DepositMoney market accountsMoney market mutual fundsEuro Bond5 Which of the following would NOT be considered a cash flow from â€œoperatingâ€activities?ABCDPayments for the sale of loansInterest received on loansTax paymentsPayment of debt principle6 Depreciation is added back to profit when arriving at the cash flow from operatingactivities because:ABCDDepreciation is only an estimated amountDepreciation does not affect profitDepreciation does not result in a flow of cashDepreciation only affects the balance sheet, not the profit and loss account7 If net profit before taxation and interest was Rs. 95,000, depreciation for the year wasRs. 17,000, stock has decreased during the year by Rs. 7,000, debtors have increased byRs. 11,000 and creditors have decreased by Rs. 4,000, what is the overall cash flow fromoperating activities?ABCDRs. 104,000Rs. 112,000Rs. 98,000Rs. 134,0008 In the long run, a business must generate positive net cash flow from which of thefollowing activities, if it is to survive?ABCDInvesting activitiesFinancing activitiesOperating activitiesNon cash activities9 The income statement of the UBL shows the interest revenue of Rs. 6,000, and theamount of accrued interest receivable has increased from Rs. 3000 to Rs. 4000 during theyear. Calculate the amount of interest received.ABCDRs. 7000Rs. 8000Rs. 5000Rs. 100010 The statement of cash flow does NOT assist investors, creditors and othersin assessing such factors as:ABCDThe companyâ€™s ability to generate positive cash flows in future periodsThe companyâ€™s ability to meet its obligations and to pay dividendsThe companyâ€™s ability to forecast future lossesThe companyâ€™s needs for external financing11 Which of the following should NOT be called â€œSalesâ€?ABCDGoods sold for cashOffice fixtures soldGoods sold on creditSale of item previously included in â€˜Purchasesâ€™12 An incorrect inventory balance would NOT cause an error in the calculation of___________.ABCDCost of goods soldNet incomeGross profitDividends13 Which of the following is NOT true about the specific identification method?ABCDIt requires a very detailed physical countThis method allows management to easily manipulate ending inventory costThis method is very hard to use on interchangeable goodsThis results in an overstated inventory account during the period of inflation14 Under the periodic inventory system, which of the following is a correct closingentry?ABCDDebit – Income Summary; Credit – SalesCredit – Income Summary; Debit – Purchase Returns & AllowancesDebit – Income Summary; Credit Merchandise InventoryDebit Purchases; Credit – Income Summary15 In a periodic inventory system, when merchandise is purchased its cost is debited to________ account.ABCDInventoryInventory expensePurchasesCost of goods sold16 Which of the following is NOT a financial asset?ABCDMarketable securitiesReceivablesInventoryShort-term investments17 Notes to financial statements are beneficial in meeting the disclosure requirements offinancial reporting. The note should NOT be used to:ABCDDescribe significant accounting policiesDescribe depreciation methods employed by the companyDescribe principles and methods peculiar to the industryCorrect an improper presentation in the financial statements18 A company purchased the land in exchange for the capital stock; it would affectwhich of the following?ABCDCash flow from operating activitiesCash flow from investing activitiesCash flow from financing activitiesIt would not affect any section19 Which of the following would NOT represent the cash outflows for the business?ABCDPurchase of building for cashThe sale of land for cashRetirement of long term debtThe payment of cash for dividends20 The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivableand an ending balance of Rs. 15,000. The income statement reported Sales Revenue ofRs. 200,000. Using this information, compute cash collected from customers.ABCDRs. 215,000Rs. 205,000Rs. 195,000Rs. 200,000
Valiant Corporation has $1,800,000 in total liabilities, $800,000 of which are current. Valiant has $400,000 of cash and cash equivalents; $300,000 of other current assets; and $2,000,000 in property, plant, and equipment.
Calculate Valiant’s debt to equity ratio.
Use of a Trial Balance as a Basis for Adjusting Entries
Bob Reynolds operates a real estate business. A trial balance on April 30, 2008, before any adjusting
entries are recorded, appears as follows:
1. Prepare in general journal form the necessary adjusting entries at April 30, 2008. Label the
entries (a) through (h) to correspond to the other data.
2. Note that the unadjusted trial balance reports a credit balance in Accumulated Depreciation—
Office Equipment of $5,000. Explain why the account contains a balance of $5,000 on April 30,