Required: As the auditor, you confirmed Accounts Receivable balances as of December 31, 2018 (Client’s Year-End). Listed below are confirmations returned with comments. Also listed below is the follow-up that you performed. Based on this information, complete the table on page 2 and submit this table on MOODLE.
Due Date: Thursday, March 14th at 3 p.m.
1. Response from Client’s Customer:
“The balance of $120,000 is incorrect because we paid that amount in full on December 31, 2018.”
Auditor’s Follow-up: An analysis of the cash receipts journal revealed that the check had been received in the mail on January 2, 2019, properly applied to the account balance and deposited..
2. Response from Client’s Customer: “Of the balance of $30,000, $330 is incorrect because on December 19 we returned a printer when we found that we didn’t need it. We ordered it in the middle of November when we had anticipated a need for it. When we received the printer, we realized it was unnecessary and returned it unopened.”
Auditor’s Follow-up: An analysis of the transaction revealed that it was received by your client prior to December 31, 2018 but they have not yet processed the credit.
3. . Response from Client’s Customer: “The balance of $214,400 is correct, and we paid it on January 5, 2017.” Auditor’s Follow-up: An analysis of the cash receipts journal revealed that the check had been received on January 10, 2017.
4. . Response from Client’s Customer: “Of the balance of $130,000, $10,000 is incorrect because it represents goods that we didn’t receive until January 5, 2019.”
Auditor’s Follow-up: Inspection of shipping records reveals that the item was shipped on December 31, 2018 fob shipping point.
5. . Response from Client’s Customer: “Of the account’s $18,000 balance, we only owe $17,460 and the $540 (3% of the total) remains unpaid because the Keystone salesperson told us that she would be able to obtain a “special” discount beyond the normal.”
Auditor’s Follow-up: While inspection of the sale s agreement indicated no such discount arrangement, discussions with Carter Addison (controller) and Joshua Caleb (president) indicated that the salesperson had inappropriately granted such a discount to the client. On January 15, 2019, they processed the discount and credited the account for $540.
Complete the following table:
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Conf # |
Book Value |
Audited Value |
Difference |
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1 |
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2 |
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3 |
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4 |
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5 |
| Conf # | Book Value $ | Audited Value $ | Difference $ |
| 1 | 120000 | 120000 | 0 |
| 2 | 30000 | 29670 | 330 |
| 3 | 214400 | 214400 | 0 |
| 4 | 130000 | 130000 | 0 |
| 5 | 18000 | 18000 | 0 |
Explanations:
1. Since check is received on January 2, 2019 and properly recorded, balance on December 31, 2018 does not require any adjustment and audited value is same as book value.
2. The returned printer needs to be recorded and the accounts receivable adjusted accordingly for $330. Hence, audited value is $30000 - $330 = $29670.
3. Balance is correct as confirmed by client's customer hence, no adjustment required and audited value and book value are the same.
4. Since the goods were shipped FOB shipping point, the receivables reported in the books are correct hence, no change in audited value.
5. Since discount is processed only on January 15, 2019, no change in book value and audited value on December 31, 2018.
Required: As the auditor, you confirmed Accounts Receivable balances as of December 31, 2018 (Client’s Year-End)....