Finance and Accounting Issues - Coursework Example

work: Finance and Accounting s work: Finance and Accounting Module V: Accounts Receivable Aging analysis 1. a. Of the $11,920,028 accounts receivable balance, confirmation requests were sent out for accounts that totaled 9,803,430; which is equivalent to 82.4% of the total accounts receivable balance. b. In the event of no reply for a positive confirmation, we would resend the confirmation and consider calling the customer to encourage them to reply (Klopper, 2011). If this does not work, we would perform alternative procedures that would be intended to verify the existence and valuation of the receivable. These alternative procedures would include analyzing subsequent receipts to determine if amounts collected were related to sales after confirmation date (Siegel, 2010). c. Analyzing subsequent collections enables determination of supporting documents to determine if amounts were related to sales after confirmation date. 2. Based on the analysis of subsequent collections and results of the confirmation process, the information available is sufficient evidence to evaluate the existence and valuation assertion. 3. Suggested Reclassification entry A Accounts and notes Receivable-Trade 190485 Accounts payable 190485 4. a. I would examine any notes receivable that the client may have with the customer whose accounts are to be written off. Additionally, I would try to confirm the note with the customer including the balance due, interest rate, date of the note, date due and also the collateral pledged (Kinney, 2011). b. Audit Adjustment 2: 8325 Bad Debts Expense 380000 1250 Allowance for Doubtful Accounts 380000 To adjust Allowance for the doubtful accounts to $600000 as agreed. Basing on aging analysis and subsequent collection (WP 3.B) and discussion with the credit manager, an allowance of $600000 is reasonable and adequate (I examined correspondence and also discussed with the credit manager; explanation of audit legend) 5. g WP 3 BILTRITE BICYCLES, INC. Prepared by: Accounts and Notes Receivable-Trade Date: December 31, 2009 Reviewed by: Date: 12/31/2008 12/31/2009 Audit 12/31/2009 Audited Balance Per Ledger Adjustments Reclassifications Audited Accounts Receivable-Trade $11,700,000 $11,920,000 $11,920,000 3.A Notes Receivable-Trade $1,500,000 $80,000 $80,000 3.B - - - - - Total $13,200,000 $12,000,000 $0 $0 $12,000,000 Allowance for Doubtful Accounts ($800,000) ($220,000) ($220,000) 3.C - - - - - $12,400,000 $11,780,000 $0 $0 $11,780,000 = = = = = WTB 1 WP 3.A BILTRITE BICYCLES, INC. Prepared by: Accounts Receivable Aging Analysis Date: December 31, 2009 Reviewed by: Date: PAST DUE (DAYS) CUSTOMER TOTAL CURRENT 1-30 31-60 61-90 91-120 OVER 120 COMMENTS Adams Supply $35,668 $35,668 Arley Supply $123,400 $66,880 $56,520 Atlantic Bicycle Shops, Inc. $234,500 C & $234,500 Beece Hardware Outlets $66,700 $66,700 Big Mart Discount Centers $773,200 C U $773,200 Customer unable to confirm details Examined invoices and bills of lading Big Tiger Discount Stores $997,650 C & $923,440 $74,210 Bikes and Parts $188,990 $123,400 $65,590 Browns Bikes $2,344 $2,344 Chicago Bike and Fitness Stores $45,689 $23,449 $22,240 Churchill Stores $65,788 $65,788 Crandall Stores $33,211 C & $33,211 Epworth Sales $12,366 $12,366 Florida Bike World $664,100 C & $455,600 $208,500 Florida Marts $198,760 $198,760 Garrold Outfitters $133,456 $23,467 $35,689 $12,335 $61,965 Gibson Sales and Service $11,234 C & $1,344 $9,890 Ginny Lou Midwest Sales $189,600 $189,600 Great Lakes Fitness Centers $144,600 $144,600 Howell Sports Shops $23,440 $23,440 Jackson Bicycle Store $3,256 $3,256 Jackson Jovia $8,800 $8,800 Jamby, Inc. $23,440 C & $12,200 $11,240 John Vance Boats and Bikes $22,344 $22,344 Josh and Lanier $4,566 $4,566 L Mart Department Stores $1,320,000 C U $1,320,000 Customer unable to confirm details Examined invoices and bills of lading Lee Stores $76,000 C & $76,000 Leemer Hardware $3,346 $3,346 Liesure Time $338,700 C U $338,700 Customer unable to confirm details Examined invoices and bills of lading Lincoln Supply ($22,400) C & ($22,400) Lippincotts $5,677 $5,677 Long Island Bicycle Sales $166,945 $166,945 Luther Stores $122,340 $112,450 $9,890 Marion Stores $112,780 C & $112,780 Morison, Inc. $166,700 $166,700 Nationwide Hardware Supply $442,300 C & $442,300 New England Bike Tours and Sales $467,323 C U $322,300 $56,780 $88,243 Collected in January Northeast Discount Outlets $388,900 C & $385,600 $3,300 Northwest Supply $222,589 C & $120,489 $102,100 Oxford, Inc. $67,854 $67,854 In Chapter 11 bankruptcy Pacific Bike Suppliers $337,780 C & $337,780 Payne Sports Shop $2,238 $2,238 Pedomar $336,223 C U $336,223 Examined shipping documents Perleman Enterprises $312,399 C & $13,450 $166,800 $132,149 $0 Rear and Sawbuck $881,870 C U $881,870 Customer unable to confirm details Examined invoices and bills of lading Reggies Bikes $44,567 $44,567 Sacramento Sales $249,240 C & $249,240 Saftner Sales and Service $4,532 $4,532 Scramble Gogmo Stores $446,770 C & $225,445 $76,800 $22,340 $122,185 Smith & Hines Bike Sales and Service ($113,320) C & ($113,320) Southwest Spokes, Inc. $443,760 C U $443,760 Customer unable to confirm details Examined invoices and bills of lading Taylors Bicycle Shop ($54,765) C & ($54,765) Texas Bike Emporium $266,800 C & $266,800 Torkini, Inc. $233,400 C U $233,400 Amount in dispute Trooper Shoop Sales and Service $16,788 $16,788 Truly Bikes $122,900 C & $122,900 Turin, Inc. $33,446 C & $13,500 $12,300 $7,646 Uncle Johns Discount Hardware $223,400 C U $223,400 Amount in dispute Warner Discount Stores $56,700 $23,400 $33,300 Wayne and Lambert, Inc. $98,760 $98,760 Wouk, Inc. $3,204 $3,204 Zerleena Stores $87,180 $78,950 $8,230 - - - - - - - $11,920,028 $9,456,221 $831,216 $1,299,904 $219,837 $18,120 $94,730 = SUBSEQUENT COLLECTIONS(To January 28, 2010) $466,987 $89,900 $202,300 $5,677 $0 $0 - - - - - - UNCOLLECTED (as of January 28, 2010) $11,155,164 $8,989,234 $741,316 $1,097,604 $214,160 $18,120 $94,730 - - - - - - Estimated percent uncollectible 1.00% 10.00% 20.00% 50.00% 75.00% 100.00% Estimated uncollectible-dollars $598,945 $89,892 $74,132 $219,521 $107,080 $13,590 $94,730 WP 3.A (cont.) Audit Reclassification Entry B: Accounts and Notes Receivable-Trade $190,485 Accounts Payable $190,485 To reclassify credit balances. Explanation of Audit Legends: C Mailed confirmation request: All accounts >=$200,000 Random selection of remainder confirmed & Confirmation returned-no exception U Unable to confirm (see comments) For more information concerning those accounts for which customers were unable to provide details, see WP 6.4, sales and purchases cutoff tests. Prepared by: Date: Reviewed by: Date: WP 3.C BILTRITE BICYCLES, INC. Allowance for Uncollectible Accounts December 31, 2009 Account 1250 Account 8325 All. for D.A. B.D. Expense - - 1/1/09 Balance per ledger $800,000 1/1-12/31/09 Monthly provision $500,000 $500,000 - - $1,300,000 $500,000 1/1-12/31/09 Write-offs: Pacific Coast Bike Shops ($325,600) * C Phar Mor Stores, Inc. ($134,600) * C Ontario Discount Stores, Inc. ($344,750) * C Jacks Bike and Training Shops ($275,050) * C - - 12/31/09 Balance per ledger $220,000 $500,000 AJE 2 - - 12/31/09 Audited balance $220,000 $500,000 = = Audit Adjustment 2: 8325 Bad Debts Expense 380000 1250 Allowance for Doubtful Accounts 380000 To adjust allowance for doubtful accounts to $600,000 as agreed. Based on aging analysis and subsequent collections (WP 3.B) and discussions with Mr. White, the credit manager, an allowance of $600,000 seems reasonable and adequate. Explanation of audit legends: * Examined correspondence and discussed with credit manager C Confirmed Module VI: Sales and Purchases Cutoff Tests 1. Cut off error Impact on net income Voucher number 12460 was for the inventory in transit. Title passed on 12/30. Although freight terms were FOB shipping point, goods were not received until 2008. Has no effect on income because the goods were excluded from the inventory The sales invoices 33003, 33004, 33007, and 33009 were recorded as 2009 sales. However, the contract did not pass to the customer until 2010. That is, goods shipped January 2010. Resulted into overstatement by 3,760,3330 dollars. This is because the goods were included in, in year 2009, 12/31, the physical inventory. Vouchers numbered 12458 and 12459 were for merchandise received and included in year-end inventory but they were not recorded. This led to overstatement by $854,154 The late recording of the vouchers and early recording of the sales seems to be intentional earning inflation devices. This include vouchers 12458 and 12459 and sales invoices 33003, 33004, 33006, 33007, and 33009. Considering Biltrite’s internal controls relating to shipping and receiving, unintentional errors of this type and magnitude are not likely to appear (Kimmel, 2011). Suppose the auditor does suspect misrepresentation, consideration should be given to possible lowering of individual item materiality threshold. More so due to 3 million dollars check ‘kiting’ and misrepresentation of the Lawton related party loan in the previous module IX. 2. AJE No. 3 5300 cost of Goods sold-Pikes Peak 854154 2020 Accounts Payable 854154 In a bid to adjust cost of goods sold for vouchers 12458 and 12459 representing parts inventories received and included in December 31, 2009 physical inventory but not until January, 2010: Reflecting inventory in transit at 31st December, 2009: AJE No.5 4100 sales-Grand Prix Touring bike 1230620 4200 sales-Phoenix mountain bike 230435 4300 sales-Pikes Peak mountain Bike 1937430 4400 sales-Himalaya mountain Bike 253050 4500 sales-Waist linear stationary Bike 108795 1201 Accounts Receivable-Trade 3760330 Reversing the following 2010 sales recorded in 2009: sales Account Number invoice Number Amount 4100 4200 4300 4400 4500 33003 881870 322500 23400 446740 32500 36680 33004 443760 77200 55900 223060 87600 0 33006 773200 288700 0 410650 22300 52550 33007 338700 44860 62375 122400 88500 20565 33009 1322800 497310 88760 714500 22150 0 TOTAL 3760330 1230620 230435 1937430 253050 108795 Module VII: Search for Unrecorded Liabilities 1. Lucas has satisfied some of the objectives of searching for unrecorded liabilities but not all. She has been able to determine whether additional invoices received and not un-vouchered are for charges pertaining to the year being audited. Additionally, she has determined whether the client included these charges in liabilities. This has been done by examining 2010 un-vouchered invoices and tracing 2009 charges contained therein to the client’s 12/2/09 Adjustment for unrecorded invoices. However, Lucas did not: a. Examine the January, 2010 voucher register and underlying invoices, for any material charges pertaining to 2009. b. Trace any charges identified in (a) above to Biltrite’s 12/31/09 adjustments for unrecorded liabilities. c. Examine 2008 audit working paper for recurring year-end liabilities not yet considered for 2009. 2. Drafted 3. WP 15.1 BILTRITE BICYCLES, INC. Prepared by: Search for Unrecorded Liabilities Date: December 31, 2009 Reviewed by: Date: INVOICE VENDOR DATE AMOUNT EXPLANATION Crown Manufacturing 2/4/2010 $260,000 v Indirect materials shipped and received in January, 2010. Bluehill and Gilson 2/8/2010 $173,400 v 2009 consulting fees related to employee benefits. Kryolock Steel Supply 2/3/2010 $420,000 v January purchase of raw materials. Marion County Treasurer 2/4/2010 $468,000 vt 2nd half, 2009 real estate taxes East Texas Power & Light 2/1/2010 $1,322,400 vt December, 2009 electric bill Jason & Associates-Freight Auditors 2/9/2010 $196,000 v Charges for auditing 2009 freight bills Palmer & Nile Advertising 2/4/2010 $460,000 v 4th quarter, 2009 advertising services Bullseye Parts, Inc. 2/6/2010 $134,800 v January 2010 purchase of repair parts Archer & Wheel 2/9/2010 $753,420 v New welding equipment purchased in January 2010 MedCare HMO, Inc. 2/9/2010 $288,540 vt December, 2009 health insurance premiums for hourly employees Explanation of Audit Legends: v Examined invoice vt Examined invoice and traced to clients year-end adjustment Procedures: Requested all unvouchered invoices as of 2/10/10 Examined above invoices, noting period to which charges apply Traced 2009 charges to clients 12/31/09 adjustment for unrecorded invoices Audit Adjustment 6 9452 Other Professional Services 369400 8340 Advertising Expense 460000 8310 Sales Commissions 366900 9431 FICA Tax Expense 94000 9432 State Unemployment Tax Expense 126000 9480 Printing and Copying Expense 27800 9481 Postage Expense 22300 9460 Supplies Expense 18600 2020 Accounts Payable 2051 FICA Payable 2054 Unemployment and Workers Compensation Premiums Payable 2080 Accrued Commissions Payable To record 2009 charges not reflected by Biltrite. Audit Adjustment 6 9452 Other Professional Services 369400 8340 Advertising Expense 460000 8310 Sales Commissions 366900 9431 FICA Tax Expense 94000 9432 State Unemployment Tax Expense 126000 9480 Printing and Copying Expense 27800 9481 Postage Expenses 22300 9460 Supplies Payable 18600 2020 Accounts Payable 173400 2051 FICA Payable 94000 2054 Unemployment and Workers compensation premiums payable 288540 2080 accrued commission Payable 1322400 To record charges not reflected by Biltrite References Kimmel, D. (2011). Tools for Business Decision Making. Berlin: Springer Kinney, R. (2011). Cost Accounting. Berlin: Springer Klopper, M. (2004). Accounting Research. Hershey: Business Science Reference Siegel, G. (2010). Accounting Handbook. New York: Springer. Read More