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ACP314 Competency Practice

The unadjusted trial balance of WE NEVER KNOW Incorporated as of December 31, 2017 shows total debits of $32,836,880 equal to total credits. During the audit, Marky encountered the following situations: 1) WE NEVER KNOW changed its inventory valuation method from FIFO to LIFO, which materially affects comparability between years though Marky concurs with the change. 2) Marky was engaged after year-end and found accounting records were unreliable for determining inventory balances. 3) An immaterial inventory adjustment was found but the client refused to adjust the financials. 4) Marky has substantial doubt about the company's ability to continue

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Jastine Rose Cañete
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54 views

ACP314 Competency Practice

The unadjusted trial balance of WE NEVER KNOW Incorporated as of December 31, 2017 shows total debits of $32,836,880 equal to total credits. During the audit, Marky encountered the following situations: 1) WE NEVER KNOW changed its inventory valuation method from FIFO to LIFO, which materially affects comparability between years though Marky concurs with the change. 2) Marky was engaged after year-end and found accounting records were unreliable for determining inventory balances. 3) An immaterial inventory adjustment was found but the client refused to adjust the financials. 4) Marky has substantial doubt about the company's ability to continue

Uploaded by

Jastine Rose Cañete
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ACP314

WE NEVER KNOW Incorporated


UNADJUSTED TRIAL BALANCE
December 31, 2017

Debit Credit
Petty cash fund P 60,000
Cash in bank 1,056,000
Trading securities 483,640
Accounts receivable – trade 3,618,660
Allowance for doubtful accounts P 110,360
Notes receivable 1,300,000
Inventories 7,274,900
Prepaid advertising 640,000
Prepaid insurance 490,000
Prepaid rent 420,000
Office supplies inventory 361,000
Furniture and fixtures 1,298,400
Delivery equipment 2,770,000
Accumulated depreciation 1,177,500
Other assets 548,000
Accounts payable – trade 2,356,320
Notes payable 3,300,000
Accrued expenses 169,040
Bonds payable 5,000,000
Discount on bonds payable 500,000
Ordinary share capital 5,400,000
Retained earnings 792,160
Sales 13,078,000
Cost of goods sold 8,034,000
Operating expenses 3,357,000
Other income 1,453,500
Other charges 625,280
P32,836,880 P32,836,880

Below are situations that Marky, CPA, has encountered during his audit of WE NEVER KNOW Incorporated.

Assume
 The auditor is independent
 The auditor previously expressed an unqualified opinion on the prior year’s financial statements.
 Only single-year (not comparative) statements are presented for the current year.
 The conditions for an unqualified opinion exist unless contradicted by the facts.
 The conditions stated in the items to be answered are material, unless otherwise indicated.

1. WE NEVER KNOW changed its method of accounting for the cost of inventories from FIFO to LIFO.
Marky concurs with the change although it has a material effect on the comparability of the financial
statements.

2. Marky was engaged to audit a client’s financial statements after the annual physical inventory count.
The accounting records were not sufficiently reliable to enable him to become satisfied as to the year-
end inventory balances.

3. Marky found an immaterial adjustment relating to inventory. WE NEVER KNOW has refused to
adjust the financial statements to reflect this immaterial item.

4. Due to losses and adverse key financial ratios, Marky has substantial doubt about WE NEVER
KNOW’ ability to continue as a going concern for a reasonable period of time. The client has
adequately disclosed its financial difficulties in a note to its financial statements, which do not include
any adjustments that might result from the outcome of this uncertainty. Also, Marky has ruled out the
use of a disclaimer of opinion.

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