View the step-by-step solution to:


For each independent situation below, select from the option lists provided the appropriate inherent risk factor

and the effect of the inherent risk, if any, on the company's net income. 

Susceptibility of an asset to theft: Overstatement

Estimates: Understatement

Complexity: Overstatement

Volume: Overstatement

1.Sales orders for an Internet textbook distributor have increased 100% over the last year. Additionally, the company's asset turnover ratio also doubled since the previous year.

2.SLL Co. recorded its first hedging transaction for mortgage-backed securities in 20X1. At the end of 20X1, the fair value of mortgage-backed securities had decreased significantly

3.Jeweler's Supply House, Inc., supplies silver and gold to high end jewelry designers. During 20X1, the price of gold doubled and silver prices tripled. Given that three of its major competitors went out of business last year, Jeweler's Supply House maintains a significant amount of inventory in one warehouse outside Baltimore city.   

4.Anton's Technology Sales and Repair Shop provides three-year money back warranties on all sales and repairs . During 20X1, warranty claims decreased significantly. Anton's did not reduce the warranty reserve.

Top Answer

1). Volume: Overstatement 2). Estimates:... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question