part 1

you are working as a summer intern for AAA Auditing, Inc. you have been asked to help resolve discrepancies noted in the audit for doffin corporation. a retailer of specialty aquarium supplies. as a retail company, Doffin Corporation uses the perpetual inventory system. to prepare for this assignment, you have been asked to review your knowledge of sales and purchase transactions by completing the following table. consider the effect of each transaction on the three accounts listed, and identify which accounts are debited or credited. if not affected by the transaction, select "no effect".

part 2

after going through the accounting records of doffin corporation in detail, the auditor made a list if observations. you have been asked to review the effect of these observations. for each observation, identify which items on the income statement are overstated or understated. if not affected by the observation, select the "no effect".

Inventory Estimated Returns Inventory Cost of Goods Sold Debit Credit Debit 4 Purchase of merchandise for resale Cash sale of merchandise Customer returns Yearly estimate for customer returns Freight paid for merchandise purchased FOB shipping point Return of merchandise purchased for resale Freight paid for sales with FOB destination Sale on account Customer payment on account Payment of service fee for processing credit card sales 014 > Purchase of merchandise for resale Cash sale of merchandise Customer retums Yearly estimate for customer returns Freight paid for merchandise purchased FOB shipping point Return of merchandise purchased for resale Freight paid for sales with FOB destination Sale on account Customer payment on account Payment of service fee for processing credit card sales Estimated Returns Inventory Cost of Goods Sold Inventory Debit Credit Debit cabinet Opera Operating Twees Costoods Sold GoPro Observations werd very tale Credit God Observations While the company accountant was on vacation, the cost of each sale was not recorded for sales transactions. All freight costs were charged to Delivery Expense regardless of the terms of sale. Customer returns and allowances were sometimes debited to Estimated Returns Inventory and credited to Sale Office supplies expense was indluded in administrative expenses. Sales tax collected on each sale was credited to cost of Goods Sold. Inventory shrinkage was credited to Miscellaneous Selling Expense. Credit card processing fees were debited to cost of Goods Sold. Operating Expenses Operating Income Sales Cost of Goods Sold Gross Profit Overstated Understated No Effect