question archive 1) Simon Company's year-end balance sheets follow
1) Simon Company's year-end balance sheets follow. At December 31 Current Yr 1 yr Ago 2 yrs ago Assets Cash $ 31,800 $ 35,625 $ 37,800 Accounts receivable, net 89,500 62,500 50,200 Merchandise inventory 112,500 82,500 54,000 Prepaid expenses 10,700 9,375 5,000 Plant assets, net 278,500 255,000 230,500 Total assets $ 523,000 $ 445,000 $377,500 Liabilities and Equity Accounts payable $ 129,900 $ 75,250 $ 51,250 Long-tern notes payable secured by mortgages on plant assets 98,500 101,500 83,500 Common stock, $10 par value 163,500 3,500 163,500 Retained earnings 131, 100 104,750 79, 250 Total liabilities and equity $ 523,000 $445,000 $377,500 1 Yr Ago The company's income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit: For Year Ended December 31 Current Yr Sales $673,500 $532,000 Cost of goods sold $411,225 $345,500 Other operating expenses 209,550 134,980 Interest expense 12, 100 13,300 Income tax expense 9,525 8,845 Total costs and expenses 642,400 502,625 Net income $ 31, 100 $ 29,375 Earnings per share $ 1.90 $ 1.80
(1-a) Compute days' sales uncollected. (1-b) For each ratio, determine if it improved or worsened in the current year. Complete this question by entering your answers in the tabs below. Required 1A Required 1B Compute days' sales uncollected. Days' Sales Uncollected 1 Choose Denominator: X Days Choose Numerator: ? 1 - Days' Sales Uncollected Days' Sales Uncollected days days X Current Yr: X 1 1 Yr Ago: Required 1 Required 10
For each ratio, determine if it improved or worsened in the current year. Days' sales uncollected
2. Your client, General Television, Inc. manufactures televisions and during the current year acquired Micro Engineering, Inc., which manufactured flat panel plasma screens for computers so that it could compete in the market for flat panel televisions. Following is a list of several risks that have been identified in the audit of this television manufacturer. 1. General Television has strong internal controls over existence of inventory. It has a good perpetual inventory system and regularly compares inventory on hand with the perpetual records. 2. Prices have been changing rapidly in General Television's marketplace. Although the market place is relatively stable for traditional televisions, the prices on flat panel televisions have become much more competitive. 3. General Television had to pay a premium to acquire Micro Engineering. General Television had independent appraisers of the fair value of the assets and has determined that about 35 percent of the purchase price should be allocated to goodwill. Required: In a memo format, answer the following questions for risks described in 1, 2, and 3 above. Treat each case independent from one another. a) Identify the relevant assertion. b) Does this assertion represent a significant inherent risk? Explain. c) How might you respond to this risk in terms of staffing decisions? d) How might you respond to this risk in terms of nature of audit tests? e) How might you respond to this risk in terms of timing of audit tests? f) How might you respond to this risk in terms of extent of audit tests?
3. You work as a staff auditor for regional CPA firm of Cash and Green. Your supervisor asked you to conduct research for three unrelated clients. 1. In year 1, B. Cosby, CPA, conducted a review of Huxtable Company's financial statements. However, in year 2, the Huxtable Company hired your firm, Cash and Green, to audit its financial statements. Should your firm meet with B. Cosby, and would B. Cosby be considered as a predecessor auditor? 2. In audit of the G.Lopez Co's financial statement, your firm seeks to obtain an attorney representation letter regarding any, undisclosed potential corporate liabilities. Angie L., the G. Lopez General Council responded to this letter by citing American Bar Association (ABA) language that emphasizes attorney-client privilege regarding such unasserted claims. E.g., the letter uses such phrases as “it would be inappropriate for this firm to respond to such general inquiries" and "we cannot comment upon the adequacy of the company's listing, if any, of unasserted possible claims or assessments." Do such responses constitute limitations in the scope of the audit? 3. Your firm issued an unqualified audit opinion for the B. Mac Inc.'s previous year's financial statements, which used a modified accrual basis of accounting, which is considered as an other comprehensive base of accounting (OCBOA). In the current year, B. Mac switched to (normal, full) accrual system, and wants to show comparative financial statements for the two years. Should your firm require the restatement of the prior year's financial statements using this new basis of accounting, and what disclosures, if any, should be made to the financial statements and Joe's audit report? 4. Your firm is completing the audit of the Ima Big Company's current year's financial statements and reads in SAS 114 (AU Section 380) that he should communicate his results with members of Ima's audit committee. But, despite many requests for many years, Ima has established no such committee primarily since it has only two stockholders. What should your firm do now? Required: a) Provide responses for each independent case on the appropriate accounting treatment. b) Support your responses by citing the appropriate Statement on Auditing Standard (SAS) or AU Section
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