Reference no: EM132640599

Questions -

Q1. Which of the following procedures is most appropriately done if the control risk and inherent risk was assessed at a maximum level?

a. Omit test of controls, then perform substantive testing at year-end

b. Omit test of controls, then perform substantive testing at an interim period

c. Perform tests of controls, then perform substantive testing at an interim period

d. Perform tests of controls, then perform substantive testing at year-end

Q2. Which of the following types of misstatements would an auditor least likely be concerned with in auditing the occurrence of sales?

a. Sale recorded more than once

b. Recorded sale with no shipment

c. Shipments made to non-existent customers

d. Shipments in transit to a customer at year-end

Q3. Which of the following best describes the reason why an independent auditor reports on financial statements?

a. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.

b. A management fraud may exist and it is more likely to be detected by independent auditors.

c. A poorly designed internal control system may be in existence.

d. Different interests may exist between the company, preparing the statements and the persons during the statements.

Q4. ABC Co. asked you to audit them in 2018 and discovered that ABC Co.'s bookkeeper failed to record the necessary adjusting entries in 2017, which consist of the following items:

- The December 31, 2017 inventory was understated by 30,000

- No entry was made for accrued utilities expense of 15,000 as of year-end

- Ordinary motor repairs of 18,200 were charged to Accumulated Depreciation during 2017

- The entity failed to record the provision for uncollectible accounts in the amount of 30,000

Your examination of the 2018 entries in the accounts uncovered the following:

- An expenditure of 60,000 for repairs of office equipment had been charged to Furniture Equipment. The entity records depreciation at 10% of the December 31 balance of PPE.

- A 2017 AR in the amount of 50,000 had been written off as uncollectible by a charge to Retained Earnings.

- Salesmen's commission includes 16,000 paid on undelivered customer's orders.

The audited income for 2017 is 2,300,000 while the unadjusted net income for 2018 is 2,100,000.

QUESTION: What is the unadjusted net income for the year 2017?

If the books are not yet closed, by how much will the retained earnings be misstated by December 31,2018? Indicate if overstatement or understatement.

Q5. Singapore Co reported a net income of 500,000 in 2016; 300,000 in 2017 and 600,000 in 2018

The following are the misstatements discovered in 2019:

2016 inventory overstated by 15,000

2017 inventory understated by 20,000

2018 inventory understated by 30,000

2017 Accrued Salaries understated by 5,000

advanced rent payments for 2019 is recorded in 2018 as rent expense, amount of 9,000

2016 depreciation of 15,000 is not yet recorded

Payment for Insurance in 2016 covering a 3-year period was fully expensed in 2016 amount 30,000

Fully depreciated equipment is sold for 25,000 in 2018 but recorded in 2019.

What is the effect of the errors in the Retained earnings of 2019?