Reference no: EM132508616

Assume that sales are made evenly through the year; accounts receivable are collected one month after sale. Gross profit to sales has been .40. Sales in year 1 are $1,200,000; actual sales increase 10% from year 1 to year 2. Accounts receivable turnover for year 1 was 12.0.

• Relationships between accounts for year 2 are expected to be similar to those of year 1.

A comparison between year 1 and unaudited year 2 data is as follows:

                                              Year 1                  Year 2 (unaudited)

Sales                                         $ 1,200,000        Can be determined

Cost of Goods Sold                            720,000          792,000 (amount seems all right)

Accounts Receivable (end of year)       100,000              Can be determined

Note: At the beginning of year 1, accounts receivable were $100,000.

Unaudited data for year 2 indicate the following:

Gross profit to sales is .4612244;

Accounts receivable turnover is 8.166666

Question 1: Determine if there seems to be a discrepancy for unaudited Sales for year 2 and Accounts Receivable at the end of year 2. If so, indicate whether it seems a possible overstatement or understatement, and estimate an amount. BRIEFLY DISCUSS AND SHOW CALCULATIONS.

Question 1: Estimate of Year 2 Recorded Sales, [unaudited] (Discuss briefly)

Question 2: Estimate of year 2 Actual Sales [Based on your "audit"]

Question 3: Estimate Unaudited Accounts Receivable end year 2 (discuss briefly)

Question 4: Estimate actual accounts Receivable end year 2 (discuss briefly)