AP 9-10 Evaluating substantive testing results

The following items are documented in the working papers.

1. Sales transaction included in the year ended December 2022, but evidence from the cut-off procedure suggests the sale should be dated January 1, 2023 ($1,250,000).

2. Warranty expenses in the trial balance for the year ended December 2022 total @150,000. The provision (liability) for warranty claims as of December 2021, was $100,000. Inspection of correspondence suggests that an additional $200,000 in warranty claims could result from ongoing disputes with customers. No provision for these claims has been made. Management has booked a warranty provision for 2022 of $120,000.

3. Restructuring expenses related to the reorganization of head office administration incorrectly charged to rental expenses ($578,920).

4. No expense for impairment of assets has been made by management. A drought-induced recession has adversely impacted property values in regional cities where seven branch offices are located (head office and two branch offices are located in the capital city). Total land and buildings in the trial balance is $5,500,000.

Required

(a) Evaluate each item a

nd explain whether it is a factual misstatement or a judgemental misstatement. What action do you recommend for each?

(b) Which accounts would be affected, and how if an adjustment is made for each item?