During your work on the audit of the Jamaica Can Company, you discover the differences described below

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During your work on the audit of the Jamaica Can Company, you discover the differences described below and note them in the working papers:

1. To verify the client accrual for wages payable, you took the gross wages for the week ending January 3, 19X0, and divided them by the number of working days in the week. You then multiplied this average daily wage by the number of working days that week in the client's year-end. The difference between your computation and the amount the client recorded was \(\$ 321\). You considered this amount immaterial and no further work was done.

2. During your vouching of additions to plant buildings, you examined an invoice for repairs to the roof for \(\$ 2,500\) from the Dillon Fixit Shop. The charge should have been expensed.

3. During your scanning of customer balances receivable, you noticed that one item for \(\$ 4,221\) is over 180 days. The controller agreed the total should be written off because the customer is bankrupt. The client provided an allowance for doubtful accounts based on a percentage of sales.

4. You checked extensions on 20 percent of the dollar value of the client's manually prepared inventory summary and discovered differences of \(\$ 418\) (over client). You extrapolated the difference in accordance with your senior's instructions and came up with a difference of \(\$ 2,090\) ( \(5 \times\) \(\$ 418)\).

5. Your review of the accounts payable listing revealed one rather large debit balance of \(\$ 28,900\). You examined shipping documents that indicated that your client had returned a defective batch of paint just prior to the balance sheet date.

Required:

a. Prepare a summary schedule of audit differences using the following headings: Account Titles, Balance Sheet \(\mathrm{Dr}\) and \(\mathrm{Cr}\) and Income Statement \(\mathrm{Dr}\) and \(\mathrm{Cr}\).

b. Prepare, in good form, an adjusting journal entries working paper assuming each adjustment over \(\$ 2,000\) will be proposed to the client for booking.

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Modern Auditing

ISBN: 9780471542834

5th Edition

Authors: Walter Gerry Kell, William C. Boynton, Richard E. Ziegler

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