A company had sales and cost of goods sold of $350,000 and $200,000, respectively. Its gross profit equals $150,000.

A、$(417,000).

B、$695,000.

C、$278,000.

D、$417,000.

E、$973,000.

An analyst gathers the following information about a company:

Cost of goods sold $18.4 million

Average inventory $2.5 million

Receivables turnover 24 times

Number of days of payables 25 days

Under U.S.GAAP, the company’s cash conversion cycle (in days) is closest to:

A.40.

B.59.

C.65.

A company using the LIFO inventory method reports a LIFO reserve at year-end of $85,000, which is $20,000 lower than the prior year. If the company had used FIFO instead of LIFO in that year, the company’s financial statements would have reported:

A. a lower cost of goods sold, but a higher inventory balance.

B. a higher cost of goods sold, but a lower inventory balance.

C. both a higher cost of goods sold and a higher inventory balance.

(a) You are the manager responsible for the audit of Yew Co, a company which designs and develops aircraft engines. The audit for the year ended 31 July 2011 is nearing completion and the audit senior has left the following file note for your attention:

‘I have just returned from a meeting with the management of Yew Co, and there is a matter I want to bring to your attention. Yew Co’s statement of financial position recognises an intangible asset of $12·5 million in respect of capitalised research and development costs relating to new aircraft engine designs. However, market research conducted by Yew Co in relation to these new designs indicated that there would be little demand in the near future for such designs. Management has provided written representation that they agree with the results of the market research.

Currently, Yew Co has a cash balance of only $125,000 and members of the management team have expressed concerns that the company is finding it difficult to raise additional finance.

The new aircraft designs have been discussed in the chairman’s statement which is to be published with the financial statements. The discussion states that ‘developments of new engine designs are underway, and we believe that these new designs will become a significant source of income for Yew Co in the next 12 months.’

Yew Co’s draft financial statements include profit before tax of $23 million, and total assets of $210 million.

Yew Co is due to publish its annual report next week, so we need to consider the impact of this matter urgently.’

Required:

Discuss the implications of the audit senior’s file note on the completion of the audit and on the auditor’s report, recommending any further actions that should be taken by the auditor. (12 marks)

(b) You are responsible for answering technical queries from other managers and partners of your firm. An audit partner left the following note on your desk this morning:

(i) ‘I am about to draft the audit report for my client, Sycamore Co. I am going on holiday tomorrow and want to have the audit report signed and dated before I leave. The only thing outstanding is the written representation from management – I have verbally confirmed the contents with the finance director who agreed to send the representations to the audit manager within the next few days. I presume this is acceptable?’ (3 marks)

(ii) ‘We are auditing Sycamore Co for the first time. The prior period financial statements were audited by another firm. We are aware that the auditor’s report on the prior period was qualified due to a material misstatement of trade receivables. We have obtained sufficient appropriate evidence that the matter giving rise to the misstatement has been resolved and I am happy to issue an unmodified opinion. But should I refer to the prior year modification in this year’s auditor’s report?’ (3 marks)

Required:

Respond to the audit partner’s comments.

Note: the split of the mark allocation is shown within the question. (18 marks)

A、Is another term for merchandise sales.

B、Is the term used for the cost of buying and preparing merchandise for sale.

C、Is another term for revenue.

D、Is also called gross margin.

E、Is a term only used by service firms.

In a firm, if the net sales are 200 million dollars, the cost of goods sold is 50 million dollars, what is the gross profit?

A.250 million dollars

B.150 million dollars

C.300 million dollars

D.350 million dollars

A、From the data available it is not possible to determine overhead over-/under-absorption

B、Machining overheads were over-absorbed and Assembly overheads were under-absorbed

C、Machining overheads were over-absorbed and Assembly overheads were over-absorbed

D、Machining overheads were under-absorbed and Assembly overheads were over-absorbed

The following information is relevant for questions 9 and 10

A company’s draft financial statements for 2005 showed a profit of $630,000. However, the trial balance did not agree,

and a suspense account appeared in the company’s draft balance sheet.

Subsequent checking revealed the following errors:

(1) The cost of an item of plant $48,000 had been entered in the cash book and in the plant account as $4,800.

Depreciation at the rate of 10% per year ($480) had been charged.

(2) Bank charges of $440 appeared in the bank statement in December 2005 but had not been entered in the

company’s records.

(3) One of the directors of the company paid $800 due to a supplier in the company’s payables ledger by a personal

cheque. The bookkeeper recorded a debit in the supplier’s ledger account but did not complete the double entry

for the transaction. (The company does not maintain a payables ledger control account).

(4) The payments side of the cash book had been understated by $10,000.

9 Which of the above items would require an entry to the suspense account in correcting them?

A All four items

B 3 and 4 only

C 2 and 3 only

D 1, 2 and 4 only