Ch 5 Comp Ques 5-30 and Ch 7 Comp Ques 7-22

Chapter 5 Comprehensive Question 5-30

1. The allowance for doubtful accounts is fairly presented in amount. – Valuation or Allocation

2. All accounts payable owed as of the balance sheet date are included in the financial

statements. - Completeness

3. All purchase returns recorded in the general ledger are valid. – Existence and Occurrence

4. There is a risk that purchases made in the last week of the month might be recorded in

the following period. - Completeness

5. The client may have factored accounts receivable. – Rights and Obligations

6. The client has used special-purpose entities to finance a building. Neither the building

nor the debt is included in the financial statements. - Completeness

7. A retail client values its inventory using the retail method of accounting. – Valuation and Allocation

8. A construction client uses the percentage of completion method for recognizing revenues. – Existence and Occurrence

9. A client has a defined benefit pension plan and does not have competent employees to

write footnote disclosures. – Presentation and Disclosures

10. A client acquired a subsidiary company and paid a high amount of goodwill when the

stock market, and resulting values, were at all-time highs. – Valuation or Allocation

11. A client financed the acquisition of assets using preferred stock that pays a 3 percent

dividend and must be redeemed from the shareholders next year. – Presentation and Disclosure

Chapter 7 Comprehensive Question 7-22

Key Issue Describe knowledge used to develop a knowledgeable perspective about HipStar Describe how knowledge would be useful in performing the audit.

Industry Conditions Knowledge of the current market and of the competition. Knowledge of how the company will provide music to customers through the internet. Knowledge of how the pricing is determined for the music. This knowledge will help the auditor estimate the expected growth of the company’s revenue. Knowing how the company is planning...