Winter2009Mid02Solution

Winter2009Mid02Solution - BROCK UNIVERSITY THIS EXAMINATION...

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BROCK UNIVERSITY THIS EXAMINATION SCRIPT IS NOT TO BE DEPOSITED IN THE LIBRARY RESERVE Mid-Term 2: Winter 2009 Number of Pages: 12 Course: ACTG 3P11 Number of Students:125 Examination Date: March 20, 2009 Instructors: Ian L. Adamson Norman Chasse Location: In class Question 1 15 2 15 3 10 4 15 Bonus 2 Total 55 Name: SOLUTION Student Number:
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Accounting 3P11 Mid-Term 2 Winter 2009 2 of 12 Question 1: (15 marks, 3 each) Gamma Able Company is a new client. During your examination of accounts payable, you notice that one supplier’s account is much larger than the rest. You therefore decide to examine the evidence supporting this account. Comment on the relative reliability and adequacy of the following types of evidence. a. Receiving documents describing the goods received, held in the receiving department. . Held by the client Only dependable if internal control over the documents is strong. But not much reliance should be placed on such documents (One mark each) b. An accounts payable confirmation received by the auditors directly from the supplier. This is excellent evidence From a third party Has not been touched by the client (One mark each)
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Accounting 3P11 Mid-Term 2 Winter 2009 3 of 12 c. A supplier’s invoice held in the clients files. Fair evidence because it comes from a third party. Also better if good internal controls over such documents. But could be fraudulently created by the client. (One mark each) c. A letter received by the client from the supplier acknowledging the amount to be paid. Not of much value It has passed through the client’s hands Not much reliance should be placed on it. (One mark each) d. A supplier’s invoice intercepted in the client’s mail before the client receives it. Strong evidence. Has not passed through the client’s hands Same reliability as an accounts payable confirmation. (One mark each)
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Accounting 3P11 Mid-Term 2 Winter 2009 4 of 12 Question 2: (15 marks) Approximately seven years ago, Harry met Sally. Both Harry and Sally were law school graduates; Harry from the University of Toronto and Sally from Ottawa University. The two became good friends and started a law partnership together in the Niagara Region. Harry has come to you, a public accountant (PA), because he is worried about recovering the cost of his share of the law firm partnership. His partner, Sally, is exercising the “shotgun” clause in their partnership agreement, and wants to buy him out. Over the last two years, Harry and Sally have had numerous battles over the way that Harry handles his accounts receivable. Harry is lenient with his customers, and has converted many of his accounts into long term notes extending two and three years into the future. He is confident that these amounts are collectible, because every one of his clients continues to make small monthly payments. Harry thinks that Sally may have been hiding profits from him and collecting some of her accounts in cash. He wants you to audit the books so that he can figure out what the ‘true’ profits are and how much Sally should pay
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This note was uploaded on 10/22/2009 for the course ACCT 70360 taught by Professor Pathak during the Spring '09 term at Windsor.

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Winter2009Mid02Solution - BROCK UNIVERSITY THIS EXAMINATION...

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