Required: a. What is the dollar impact of the misstatement identified in 2023 on each of the following (assume a 21% tax rate fo Manning)? Note: Enter amounts to be deducted with a minus sign. b. Assume that performance materiality was set at $180,000. Would the misstatement be material if using the rollove method? c. Assume that performance materiality was set at $180,000. Using the Iron Curtain method, would the $130,000 misstatement in 2023 result in the need for an adjusting adjustment to the financial statements? d. If performance materiality were established at $100,000 for Manning, what is the total misstatement amount to consider when evaluating materiality under each of the following methods: e. If performance materiality were established at $100,000 for Manning, under each method, what is the minimum amount of adjustment Colt would propose to Manning's Company's financial statements?
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- Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has identified during the past three years. These misstatements are Immaterial and have related to Isolated matters. In this summary, parentheses Imply that the misstatements would have reduced balances if they had been corrected (e.g., In 2020, the misstatements would have reduced net income by $82,500, assets by $100,000, liabilities by $17,500, and equity by $82,500 if corrected). Year 2020 2021 2022 Effect on Net Income $ (82,500) (22,000) 30,000 Effect on Assets $ (100,000) (25,500) 30,000 Effect on Liabilities $ (17,500) (3,500) 0 Effect on Equity $ (82,500) (22,000) 30,000 During the most recent audit, Colt concluded that expenses totaling $130,000 were recognized in January 2024 (when Manning paid them) but should have been recognized in 2023. Required: a. What is the dollar Impact of the misstatement identified in 2023 on each of the following…Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common characteristics). A summary of these misstatements follows. (To illustrate, in 2015, the misstatements would have reduced net income by $13,200 if corrected:) Effect on Equity $ (13,200) 5,000 (9,250) (2,000) 1,000 Effect on Net Effect on Effect on Income $ (13,200) 5,000 (9,250) (2,000) 1,000 Year Assets Liabilities $ (20,000) 12,000 (11,000) (5,500) 1,000 $ (6,800) 7,000 (1,750) (3,500) 2015 2016 2017 2018 2019 During the most recent audit, Rivers concluded that service revenue totaling $11,000 was recognized as of December 31, 2020 and it did not meet the criteria for recognition until 2021. When Rivers discussed this issue with Chris Turner, Charger Company's chief financial officer, Turner asked Rivers about the performance…You were assigned to audit the financial statements of Swansea Corporation as at and for the year ended December 31, 2021. Your senior asked you to draft a memo on materiality and tolerable error for your client. Swansea Corporation has incurred substantial net losses due to COVID-19 pandemic. Up to 2019, it has been profitable. Which of the following is least likely to be your starting point in computing materiality? Group of answer choices Normalized net income Net loss Total assets Normalized revenue
- You are auditing the financial statements of A Company for the year ended December 31, 2023. The Company's income statements indicated the following net income:2021: P1,200,0002022: P1,490,0002023: P1,325,000An examination of the accounting records for the year ended December 31, 2023 indicates that several errors were made. The following errors were discovered:A. Unused supplies at the end of each year were consistently omitted:2020: P95,000; 2022: P100,000; 2023: P140,000B. The footings and extensions showed that the inventory on December 31, 2022 was understated by P80,000C. P105,000 worth of inventories were received on January 5, 2022 and were not included in the physical count as of December 31, 2021. Upon investigation, however, you discovered that these goods were shipped free-alongside by the supplier on December 28, 2021. The invoice for the goods were received and recorded in the purchase journal on December 29, 2021.D. The following advance payments to suppliers at the…In your audit of Aviary Industries for calendar year 2013, you founda number of matters that you believe represent possible adjustments to the company’sbooks. These matters are described below. Management’s attitude is that “once the booksare closed, they’re closed,” and management does not want to make any adjustments.Planning materiality for the audit was $100,000, determined by computing 5% ofexpected income before taxes. Actual income before taxes on the financial statementsprior to any adjustments is $1,652,867.Possible adjustments:1. Several credit memos that were processed and recorded after year-end relate tosales and accounts receivable for 2013. These total $26,451.2. Inventory cutoff tests indicate that $25,673 of inventory received on December 30, 2013,was recorded as purchases and accounts payable in 2014. These items were included inthe inventory count at year-end and therefore were included in ending inventory.3. Inventory cutoff tests indicate several sales invoices…Upon inspection of the records of Eisenhower Company in connection to its financial statement audit for the year ended December 31, 2022, the following errors were revealed: • A fire insurance premium of P 40,000 was paid and charged to insurance expense in 2021. This covers one year from April 1, 2021. • Inventory at December 31, 2020 was understated by P 80,000. • Inventory at December 31, 2021 was understated by P 120,000. • The year 2021 last quarter taxes amounting to P 60,000 were paid on January 19, 2022 and charged to expense account of 2022. • A cash advance of P 100,000 in payment of goods to be delivered in January 2022 was received on December 15, 2021 and credited to Sales. • The gross profit on sales is 40%. • The net income for the year ended December 31, 2021 before any adjustments is P 1,550.000. 1,200,000 1,440,000 1,550,000 1,600,000
- Upon inspection of the records of Eisenhower Company in connection to its financial statement audit for the year ended December 31, 2022, the following errors were revealed: A fire insurance premium of P 40,000 was paid and charged to insurance expense in 2021. This covers one year from April 1, 2021. Inventory at December 31, 2020 was understated by P 80,000. Inventory at December 31, 2021 was understated by P 120,000. The year 2021 last quarter taxes amounting to P 60,000 were paid on January 19, 2022 and charged to expense account of 2022. A cash advance of P 100,000 in payment of goods to be delivered in January 2022 was received on December 15, 2021 and credited to Sales. The gross profit on sales is 40%. The net income for the year ended December 31, 2021 before any adjustments is P 1,550,000. Group of answer choices 1,600,000 1,200,000 1,440,000 1,550,000Uncorrected Misstatements and Performance Materiality. Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common characteristics). A summary of these misstatements follows. (To illustrate, in 2012, the misstatements would have reduced net income by $13,200 if corrected:) Check the below image for misstatements - During the most recent audit, Rivers concluded that sales totaling $11,000 were recognized as of December 31, 2017, that did not meet the criteria for recognition until 2018. When Rivers discussed these sales with Chris Turner, Charger Company’s chief financial officer, Turner asked Rivers about the performance materiality level used in the audit, which was $25,000. Upon learning of this, Turner remarked, “Then there’s no need toworry . . . it’s not a material amount. Why should we…During an audit of Madison Company’s December 31, 2020 records it was discovered that the company did not accurately accrue for $12,500 of depreciation expense. The accrual of interest expense of $4,500 was also omitted. These errors occurred in 2019 and have a material impact on Madison’s financial records. Madison’s net income for the year was $123,000. The company is subject to a 35% tax rate. The company had a retained earnings balance of $557,500 on January 1, 2020. No dividends were paid. Required: 1. Prepare the necessary journal entries to correct the accounting records of Madison Company’s books. 2. Prepare the statement of retained earnings for 2020. 1. Prepare the necessary journal entries to correct the accounting records of Madison Company’s books. For grading purposes, prepare four separate entries dated December 31. General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2…
- During the course of an audit of the financial statements of Julie Company for the yearended December 31, 2019, the following data are discovered: Inventory on January 1, 2019 had been overstated by P300,000. Inventory on December 31, 2019 was understated by P500,000. An insurance policy covering three years had been purchased on January 1, 2018for P150,000. The entire amount was charged as an expense in 2018. During 2019, the entity received a P100,000 cash advance from a customer formerchandise to be manufactured and shipped during 2020. The amount had beencredited to sales revenue. The gross profit on sales is 50%.Net income for 2019 per book was P2,000,000. What is the proper net income for 2019?During an audit of Madison Company’s December 31, 2020 records it was discovered that the company did not accurately accrue for $12,500 of depreciation expense. The accrual of interest expense of $4,500 was also omitted. These errors occurred in 2019 and have a material impact on Madison’s financial records. Madison’s net income for the year was $123,000. The company is subject to a 35% tax rate. The company had a retained earnings balance of $557,500 on January 1, 2020. No dividends were paid. Required: 1. Prepare the necessary journal entries to correct the accounting records of Madison Company’s books. For grading purposes, prepare four separate entries dated December 31. General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 8Upon inspection of the records of Eisenhower Company in connection to its financial statement audit for the year ended December 31, 2022, the following errors were revealed: A fire insurance premium of P 40,000 was paid and charged to insurance expense in 2021. This covers one year from April 1, 2021. Inventory at December 31, 2020 was understated by P 80,000. Inventory at December 31, 2021 was understated by P 120,000. • The year 2021 last quarter taxes amounting to P 60,000 were paid on January 19, 2022 and charged to expense account of 2022. A cash advance of P 100,000 in payment of goods to be delivered in January 2022 was received on December 15, 2021 and credited to Sales. • The gross profit on sales is 40%. The net income for the year ended December 31, 2021 before any adjustments is P 1,550,000. O 1,550,000 O 1,200,000 O 1.440,000 O 1.600,000