Reference no: EM132543707
Advanced Audit Accounts Payable and Other Liabilities The audit staff of Adams, Barnes & Co. (ABC), CPAs, reported the following audit findings in their 20X5 audit of Keystone Computers & Networks (KCN), Inc.:
1. Unrecorded liabilities in the amount of $6,440 for purchases of inventory. These inventory items were counted and included in the year-end total.
2. Projected misstatement from confirmation of accounts receivable in the amount of $2,042 understatement.
3. Projected misstatement from price tests of inventory of $9,510 overstatement.
4. The staff of ABC believes that the amount of KCN's allowance for uncollectible accounts should be increased by $5,000.
- Auditing Operations and Completing the Audit 669
Required:
In addition, the audit staff has decided that for evaluating a material misstatement of the finan- cial statements, the following guidelines should be used:
Current assets-$50,000
Noncurrent assets-$75,000
Current liabilities-$50,000
Noncurrent liabilities-$75,000
Total owners' equity-$100,000
Net income before taxes-$65,000
Question a. Prepare a schedule modeled to be used to evaluate the above audit findings, assuming that KCN's marginal tax rate is 25 percent.
Question b. Decide whether the results indicate that there is a sufficiently low risk of material misstate- ment to justify ABC's audit opinion.
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