Audit Chapter 9

(9.48)

a) According to the chapter, Smith should expect to find company’s count sheet, the planning memo that encompasses the company’s inventory counting procedures and plans, and always the auditors’ investigation of the employees. After the first-hand investigation, the auditors should have observed the inventory counting procedure and also completed a test count. The working papers, memo, and count sheet should all have a supervisor’s signature.

b) These substantive procedures should be documented for existence and completeness assertions:

1. Obtain client’s inventory-counting instructions and review for completeness.

2. Scan the inventory compilation for items added from sources other than the physical count and items that appear to be large round numbers or systematic fictitious additions.

3. At year-end, identify the numbers of the last shipping and receiving documents for the year. Compare these to the sales, inventory/cost of sales, and accounts payable entries for proper cutoff

4. Tour facilities to ensure all items have been counted

(9.49)

Adjusting Entries:

1st) Inventory Control 28,400

Inventory Variation 28,400

Reason: There was a double credit to inventory control and one of them had to be reversed.

2nd) Nothing. This entry is correct.

3rd) Sales 21,300

Accounts Receivable 21,300

Inventory Control 18,900

Cost of Sales 18,900

Reason: The sale was recorded too early.

(9.50)

a) Periodic System

Inventory (1183, 1184) 29,335.13

Accounts Payable 11,482.57

Purchases 17,852.56

b) Perpetual System

Inventory (1183, 1184) 29,335.13

Accounts Payable 11,482.57

Costs of Goods Sold 17,852.56