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    Problem: A) B) C) D) E)

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    leshz zyn
    Reel Company's year-end audit revealed several issues with their financial reporting: goods in transit and shipped were excluded from inventory; defective goods received were incorrectly included; goods segregated for a customer were excluded despite being on premises; goods on consignment were excluded despite being in possession of the consignee; shipped goods were incorrectly included in inventory; goods segregated but not shipped were excluded; goods received were incorrectly included in inventory; and goods received were excluded from inventory. The auditor must determine adjusted balances for inventory, accounts payable, net sales, net purchases, and net income based on the findings.

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    Problem: A) B) C) D) E)

    Uploaded by

    leshz zyn
    24 views1 page
    Reel Company's year-end audit revealed several issues with their financial reporting: goods in transit and shipped were excluded from inventory; defective goods received were incorrectly included; goods segregated for a customer were excluded despite being on premises; goods on consignment were excluded despite being in possession of the consignee; shipped goods were incorrectly included in inventory; goods segregated but not shipped were excluded; goods received were incorrectly included in inventory; and goods received were excluded from inventory. The auditor must determine adjusted balances for inventory, accounts payable, net sales, net purchases, and net income based on the findings.

    Original Title

    Audit of Inventory

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    Reel Company's year-end audit revealed several issues with their financial reporting: goods in transit and shipped were excluded from inventory; defective goods received were incorrectly included; goods segregated for a customer were excluded despite being on premises; goods on consignment were excluded despite being in possession of the consignee; shipped goods were incorrectly included in inventory; goods segregated but not shipped were excluded; goods received were incorrectly included in inventory; and goods received were excluded from inventory. The auditor must determine adjusted balances for inventory, accounts payable, net sales, net purchases, and net income based on the findings.

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    © All Rights Reserved
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    24 views1 page

    Problem: A) B) C) D) E)

    Uploaded by

    leshz zyn
    Reel Company's year-end audit revealed several issues with their financial reporting: goods in transit and shipped were excluded from inventory; defective goods received were incorrectly included; goods segregated for a customer were excluded despite being on premises; goods on consignment were excluded despite being in possession of the consignee; shipped goods were incorrectly included in inventory; goods segregated but not shipped were excluded; goods received were incorrectly included in inventory; and goods received were excluded from inventory. The auditor must determine adjusted balances for inventory, accounts payable, net sales, net purchases, and net income based on the findings.

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    Problem

    The following data were found during your audit of Reel Company, who operates on a
    calendar year basis:
    a. Goods in transit shipped FOB destination by a supplier, in the amount of
    P150,000, had been excluded from the inventory, and further testing revealed
    that the purchase had been recorded.
    b. Goods costing P75,000 had been received, included in inventory, and recorded as
    a purchase. However, upon your inspection, the goods were found to be defective
    and would be immediately returned.
    c. Materials costing P375,000 and billed on December 30 at a selling price of
    P480,000 had been segregated in the warehouse for shipment to a customer. The
    materials had been excluded from inventory as a signed purchase order had been
    received from the customer. Terms: fob destination.
    d. Goods costing P105,000 was out on consignment with Stel Company. Since the
    monthly statement from STel Company listed those materials as on hand, the
    items had been exclulded from the final inventory and invoiced on December 31
    at P120,000.
    e. The sale of P225,000 worth of materials and costing P180,000 had been shipped
    fob point of shipment on December 31. However, this inventory were part of the
    final inventory. The sale was properly recorded 2017.
    f. Goods costing P150,000 and selling for P210,000 had been segregated, but not
    shipped at December 31, and were not included in the inventory. A review of the
    customer’s purchase order set forth terms as fob destination. The sale had not
    been recorded.
    g. Your client has an invoice from a supplier, terms fob shipping point but the goods
    had not arrived as yet. However, these materials costing P255,000 had been
    included in the inventory count, but no entry had been made for their purchase.
    h. Merchandise costing P300,000 had been recorded as a purchase but not included
    as inventory. Terms of sale are fob shipping point according to the supplier’s
    invoice which had arrived at December 31.

    Further inspection of the client’s records revealed the following:


     December 31, 2020 balances:
     Inventory: P1,650,000
     Accounts receivable: P870,000
     Accounts payable: P1,035,000
     Net Sales: P7,575,000
     Net purchases: P3,450,000
     Net income: P765,000

    Requirement: Based on the information above and results of your audit, create a
    working paper to document your audit. Determine the adjusted balance of
    following as of December 31, 2020:
    a) Inventory
    b) Accounts payable
    c) Net sales
    d) Net purchases
    e) Net income

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