21 the following event occurred after the company 39 s year end but before the compl 4306304

21 the following event occurred after the company 39 s year end but before the compl 4306304

21) The following event occurred after the company's year-end but before the completion of the audit. For this subsequent event, determine whether the event:

•requires an adjustment to the year-end financial statements,

•requires note disclosure, or

•requires neither adjustment to recognized amounts nor disclosure.

A major client unexpectedly goes bankrupt and it is determined that you will get only 30% of the value of their account receivable as full and final settlement. (Justify your recommendation.)

22) The following event occurred after the company's year-end but before the completion of the audit. For this subsequent event, determine whether the event:

•requires an adjustment to the year-end financial statements,

•requires note disclosure, or

•requires neither adjustment to recognized amounts nor disclosure.

The company experiences a major labour strike. Workers are still on strike when the audit is finished. Does your answer change if this strike might force the company into bankruptcy? (Justify your recommendation).

23) Sing Songs Ltd. started operations on January 1, 2009.  During its first year of operations, the company had a choice of accounting policies:

Accounting Option 1

Accounting Option 2

Inventory valuation

FIFO

Average cost

Bad debt expense

7% of sales

Allowance: 20% of closing (gross) accounts receivable

Warranty expense

5% of sales

Allowance: an analysis of sales and repairs

Using the following information about activities for 2009-2011, derive the net income for each year under both accounting options:

2009

2010

2011

Sales (all on account)

10,500,000

13,500,000

14,100,000

Inventory purchases (paid immediately)

4,500,000

3,000,000

2,900,000

Ending inventory value: FIFO

1,800,000

2,000,000

2,150,000

Ending inventory value: Average cost

1,710,000

1,750,000

2,150,000

Collections

9,500,000

12,500,000

7,165,000

Amounts actually written off

100,000

250,000

750,000

Warranties actually paid

180,000

500,000

525,000

Estimated warranty payable ending balance based on ageing analysis of sales

385,000

525,000

700,000

Depreciation expense

1,100,000

1,100,000

1,100,000

All other operating expenses (paid immediately)

2,500,000

2,800,000

3,000,000

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