Chapter17 - answer - CHAPTER COMPLETING THE AUDIT 17 17-1....

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17-1. a. (3) b. (1) c. (4) d. (3) 17-2. a. (4) b. (3) c. (1) d. (4) 17-3. a. (3) b. (1) c. (1) d. (2) e. (1) 17-4. Tracy Brewing Company a. 4 - The amount appeared collectible at the end of the field work. b. 1 - The uncollectible amount was determined before end of field work. c. 3 - Amount should have been determined to be uncollectible before end of field work, but it was discovered after the issuance of the statements. The financial statements should have been known to be in error on 8-20-06. d. 2 - The cause of the bankruptcy took place after the balance sheet date, therefore the balance sheet was fairly stated. Account may be written off as uncollectible at 6-30-06, but they are not required to do so. Footnote disclosure is necessary because the subsequent event is material. e. 2 - The sale took place after the balance sheet date but, since the loss was material and will affect future profits, footnote disclosure is necessary. f. 2 - The lawsuit originated in the current year, but the amount of the loss is unknown. g. 1 - The settlement should be reflected in the 6-30-06 financial statements as an adjustment of current period income and not a prior period adjustment. h. 4 - The financial statements were believed to be fairly stated for 6-30-06 or 8- 19-06. i. 2 - The cause of the lawsuit occurred before the balance sheet date and the lawsuit should be included in the 6-30-06 footnotes. CHAPTER 17 COMPLETING THE AUDIT
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17-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition 17-5. Flowmeter, Inc. Ite m No. Audit Procedures Required Disclosure and Reasons 1. Goods “in-transit” would be detected in the course of the auditor’s review of the year-end “cutoff” of purchases. The auditor would examine receiving reports and purchase invoices to make certain that the liability to suppliers had been recorded for all goods included in inventory, and that all goods for which the client was liable at year-end were recorded in inventory. The receipt of the goods provides additional evidence with respect to conditions that existed at the date of the balance sheet and hence the financial statements should be adjusted to take into account such additional information. 2. Settlements of litigation would be revealed by requesting from the company’s legal counsel a description and evaluation of any litigation, impending litigation, claims, and contingent liabilities of which he has knowledge that existed at the date of the balance sheet being reported upon, together with a description and evaluation up to the date the information is furnished. A review of cash
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Chapter17 - answer - CHAPTER COMPLETING THE AUDIT 17 17-1....

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