While performing a sales cutoff test for your audit client, you review all shipping documents for five days before and five days after year-end. All sales are on credit and are sent FOB shipping point. Cost of goods sold is 75% of sales revenue. You are using the shipping log for the ten-day time period of the test. Test results follow.

a. Identify by shipping number the sales that the company has recorded as sales revenue at December 31, 2010.
b. Identify by shipping number the sales that should have been recorded as sales revenue at December 31, 2010.
c. Prepare the adjusting entry needed to correct the sales revenue and inventory at December 31, 2010.
d. Prepare the journal entries needed to record the sale represented by shipping document 450784, including the cash collection and the revenue recognition.
e. What accounting rule should the company use to recognize revenue?
f. How is the company currently recognizing revenue?
g. What questions should you ask the client to clarify the evidence you have gathered during this audittest?

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Shipping Number Sales Price Date Shipped Date Billed Date Cash Collected 450783 10,249 Dec 26, 2010 Dec 30, 2010 an 28, 2011 450784 450785 450786 450787 450789 450790 450791 450792 1,250,000 an 5, 2011 an 8, 2011 Feb 25, 2011 24,990 Dec 27, 2010 Dc 31, 2010 Dec 15, 2010 2,156 Dec 28, 2010 Jan 2, 2011 Jan 31, 2011 1,937 Dec 29, 2010 Dec 31, 2010 Feb 3, 2011 110,895 c 3, 2010 Jan 3, 2011 Feb 8, 2011 Jan 2, 2011 an 5, 2011 Feb 4, 2011 Jan 3, 2011 an 6, 2011 n 25, 2011 Jan 4, 2011 an 10, 2011 Dec 25, 2010 45,761 240,441