Chapter 16 Homework
16-23 1. Detail tie-in
2. Detail tie-in
3. a. Existence
b. Accuracy
c. Realizable value (if cash receipts relate to older accounts)
4. a. Existence
b. Accuracy
5. a. Existence
b. Accuracy
c. Realizable value (if cash receipts relate to older accounts)
6. Cutoff
7. Rights
8. Classification
16-27 a. Ordinarily, a shipment is considered a sale when it is shipped, picked up, or delivered by a common carrier.
b. 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 SALESAugust sales
4326
4329
4327
4328
4330 / 2164
2169
2165
2168
2166 / none
1,914.30
none
620.22
none
2,534.52 / overstatement
overstatement
September sales
4332
4331
4333
4335
4334 / 2163
2167
2170
2171
2172 / 4,641.31
106.39
none
none
none
4,747.70 / understatement
understatement
Net 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 620.22
2169 1,914.30
2170 852.06
2171 1,250.50
2172 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. 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.
2. 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.
3. 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.
(2) Policy requiring the issuance of shipping documents sequentially.
(3) Policy requiring recording sales invoices in the same sequence as shipping documents are issued.
(4) Policy requiring dating of shipping documents, immediate recording of sales, and dating sales on the same date as the shipment.
(5) Use perpetual inventory records and reconciliation of differences between physical and perpetual records. / Examine several documents for prenumbering.
Observe issuance of documents, examine document numbers and inquiry.
Observe recording of documents, examine document numbers and inquiry.
Observe dating of shipping documents and sales invoices, and timing of recording.
Examine worksheets reconciling physical counts and perpetual records.
16-29 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.
12/31/2009 / 12/31/2008Allowance as a % of AR / 6.25% / 7.27%
Charge-offs as a % of sales / 0.94% / 0.99%
Percentage of receivables
in each aging category
0-30 days / 62.28% / 67.42%
30-60 days / 17.65% / 15.62%
60-90 days / 11.93% / 10.28%
Over 90 days / 8.14% / 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. There are 201 invoices in the file, totaling $286,315.79. (Read count at bottom of table; use Total command on NEWBAL column.)
b. 78 records contain finance charges, totaling $3,872.20 of finance charges. (Filter expression is FINCHG > .0, then run Count and Total commands.)
c. 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
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Not For Commercial Use
CUSTNO NEWBAL COUNT
0.00 1
051593 34931.05 29
202028 44678.85 18
250402 33716.00 14
284354 21767.54 15
359310 421.15 7
444413 27277.99 13
503458 22558.65 23
778088 14271.03 21
812465 47598.10 27
878035 4111.82 2
925007 18286.53 15
962353 16697.08 16
286315.79 201
d. 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 04/11/2009 09:38:49
Produced with ACL by: ACL Educational Edition -
Not For Commercial Use
< AGE over 0-> 10,000 >
> Minimum encountered was 10
> Maximum encountered was 34
STMTDT COUNT <-- % % --> NEWBAL
0 -> 29 18 66.67% 84.36% 40154.38
30 -> 59 9 33.33% 15.64% 7443.72
60 -> 89 0 0.00% 0.00% 0.00
90 -> 119 0 0.00% 0.00% 0.00
120 -> 10,000 0 0.00% 0.00% 0.00
27 100.00% 100.00% 47598.10
f. 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 COUNT <-- % % --> NEWBAL
14,271.03 -> 30,934.56 6 60.00% 42.89% 120858.82
30,934.57 -> 47,598.10 4 40.00% 57.11% 160924.00
10 100.00% 100.00% 281782.82