You are performing an audit of the financial statements of the Josh Music Co. as of...

  

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You are performing an audit of the financial statements of the Josh Music Co. as of December 31, year 1. Given your experience auditing this company in previous years, you have developed an expectation relative to each financial statement account for current- year activity. Based upon your review of preliminary financial statements, the actual results differ from your expectation for certain accounts and the CFO has provided an explanation for the difference. For the expectations, results, and subsequent client explanations in the table below, click on the cell in column D and select from the option list provided the appropriate audit response for each situation. An option may be used once, more than once, or not at all. A1 1 2 3₂ 4 5 6 lock A Auditor expectation Gross profit was 2% in the prior year; similar profit expected in year 1. Property, plant, and equipment acquisitions generally do not fluctuate from year to year. B Shipping January orders in December is a common industry practice. copy Actual result Client explanation Sold more expensive Gross profit was 12% in year products with a higher 1. gross margin during the year. Increase in interest expense Interest expense stayed the Debt was refinanced due to increase in debt. same. during the year. Property, plant, and equipment acquisitions decreased significantly from the previous year. Sales have grown in each of the last three years. C The industry historically has There have been excessive few losses on retired assets. cut recurring losses on assets retired. No changes were made to property, plant, and equipment acquisition practices. Increased marketing efforts have positively influenced sales. Losses were due to increased asset usage. paste D Audit response !!!! !!! !!!! !!! Account for all inventory tags and count sheets. O Calculate inventory turnover rates. O Discuss the adequacy of the allowance for doubtful accounts with management. Examine cash receipts subsequent to year-end. Examine new debt agreement. O Obtain current interest rates from independent pricing source. O Obtain new debt agreement. RESET CANCEL ACCEPT Select an option below Review bank confirmations. Review depreciation policies. Review insurance coverage on assets. O Review loan agreements for liens and restrictions on property, plant, and equipment. Review repairs and maintenance accounts for proper classifications. Review sales and related product cost data. Review sales returns subsequent to year end. RESET CANCEL ACCEPT Review sales returns subsequent to year end. Review the cutoff of receivables around year-end. Select items of equipment from the accounting records and then locate them during the plant tour. Test the pricing of inventory. RESET CANCEL ACCEPT You are performing an audit of the financial statements of the Josh Music Co. as of December 31, year 1. Given your experience auditing this company in previous years, you have developed an expectation relative to each financial statement account for current- year activity. Based upon your review of preliminary financial statements, the actual results differ from your expectation for certain accounts and the CFO has provided an explanation for the difference. For the expectations, results, and subsequent client explanations in the table below, click on the cell in column D and select from the option list provided the appropriate audit response for each situation. An option may be used once, more than once, or not at all. A1 1 2 3₂ 4 5 6 lock A Auditor expectation Gross profit was 2% in the prior year; similar profit expected in year 1. Property, plant, and equipment acquisitions generally do not fluctuate from year to year. B Shipping January orders in December is a common industry practice. copy Actual result Client explanation Sold more expensive Gross profit was 12% in year products with a higher 1. gross margin during the year. Increase in interest expense Interest expense stayed the Debt was refinanced due to increase in debt. same. during the year. Property, plant, and equipment acquisitions decreased significantly from the previous year. Sales have grown in each of the last three years. C The industry historically has There have been excessive few losses on retired assets. cut recurring losses on assets retired. No changes were made to property, plant, and equipment acquisition practices. Increased marketing efforts have positively influenced sales. Losses were due to increased asset usage. paste D Audit response !!!! !!! !!!! !!! Account for all inventory tags and count sheets. O Calculate inventory turnover rates. O Discuss the adequacy of the allowance for doubtful accounts with management. Examine cash receipts subsequent to year-end. Examine new debt agreement. O Obtain current interest rates from independent pricing source. O Obtain new debt agreement. RESET CANCEL ACCEPT Select an option below Review bank confirmations. Review depreciation policies. Review insurance coverage on assets. O Review loan agreements for liens and restrictions on property, plant, and equipment. Review repairs and maintenance accounts for proper classifications. Review sales and related product cost data. Review sales returns subsequent to year end. RESET CANCEL ACCEPT Review sales returns subsequent to year end. Review the cutoff of receivables around year-end. Select items of equipment from the accounting records and then locate them during the plant tour. Test the pricing of inventory. RESET CANCEL ACCEPT

Answer rating: 100% (QA)

Number Column D 1 2 3 4 51 6 Note Audit response Review sales an... View the full answer