Question: You are assigned to the December 31 2013 audit of

You are assigned to the December 31, 2013, audit of Sea Gull Airframes, Inc. The company designs and manufactures aircraft superstructures and airframe components. You observed the physical inventory at December 31 and are satisfied that it was properly taken. The inventory at December 31, 2013, has been priced, extended, and totaled by the client and is made up of about 5,000 inventory items with a total valuation of $8, 275,000. In performing inventory price tests, you have decided to stratify your tests and conclude that you should have two strata: items with a value over $5,000 and those with a value of less than $5,000. The book values are as follows:

In performing pricing and extension tests, you have decided to test about 50 inventory items in detail. You selected 40 of the over $5,000 items and 10 of those under $5,000 at random from the population. You find all items to be correct except for items A through G below, which you believe may be misstated. You have tested the following items, to this point, exclusive of A through G:

Sea Gull Airframes uses a periodic inventory system and values its inventory at the lower of FIFO cost or market. You were able to locate all invoices needed for your examination. The seven inventory items in the sample you believe may be misstated, along with the relevant data for determining the proper valuation, are shown next.

In addition, you noted a freight bill for voucher 12-23 in the amount of $200. This bill was entered in the freight-in-account. Virtually all freight was for the metal formers. This is the first time Sea Gull Airframes has been audited by your firm.

a. Review all information and determine the inventory misstatements of the seven items in question. State any assumptions you consider necessary to determine the amount of the misstatements.
b. Prepare an audit schedule to summarize your finding. Use the computer to prepare the schedule (instructor’soption).

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