Essay question 2 (50 points) Based on the company and its environment, including

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Essay question 2 (50 points)

Based on the company and its environment, including its internal control, the auditors assessed the risk of material misstatements to the financial statements, whether due to error or fraud, and designed the nature, timing, and extent of further audit procedures to be performed. As a result of conducting the above risk assessment procedures, the audit program for year 2 includes the following changes from the audit program for year 1. The company has a calendar year end and operates only on weekdays.
In conducting the audit procedures for the search for unrecorded liabilities, the materiality/scope for this area was assessed by the auditors at $6,000. Adjustments are only recorded for items equal to, or exceeding materiality. The last day of fieldwork is estimated to be February 1, year 3.
For the items reflected in the following check register, which are not recorded in the accounts payable subsidiary ledger at December 31, year 2, determine if each potential liability is recorded in the proper accounting period and also determine the amount that should be journalized, if any. If no action is required, you must enter $0.
For each of the check numbers in the table below, double-click on each of the associated shaded cells and select from the lists provided if any action or adjustment is required, as well as the dollar value of the required adjustment. Each selection may be used once, more than once, or not at all.
Check Register

  

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lendor Check Checkdate dmownt Water World Water coolers in office and warehouse delivered 1333 /6lyear 33,500 1231year 2 Daniel Breen, 1334 /6year 3 6.000 Corporate legal services for December, year 2 Telephone Services, Inc. 1335 /year 3 S 6,500 December, year 2, telephone and computer services Paychecks Pitt Ohio 1336 110year 3 $25.500 Biweekly payroll (12/25/year 2-1/7year 3) Trucking Trucking services 12/4/ year 2-1year 3, deliveries ' made evenly throughout the period 1337 /10/year 3 $45,60 1338 117year 3 2002 Replenish petty cash box 1339 2year 3 $11,000 18/year 2 340 /23/year 3$12,230 23year 2 1341 /24/year 3 $25,500 Biweekly payroll (I/8/year 3-1/1lyear 3) 1342 2/6year 3 6,800 Corporate legal services for January, vear 3 Petty cash Smith's Forklift Received nefoklt on 12/29/year 2, ordered on Glenn's Glass Distribution Specialty goods ordered 12/20/year 2, delivered Daniel Breen, Esquire

Explanation / Answer

Check Adsjustment needed? Amount 1333 No, as this is below materiality level of $ 6000 Nil 1334 Yes, legal expense liability will be recorded in Year 2 $ 6000 1335 Yes, telephone and computer expense liability will be recorded in Year 2 $ 6500 1336 Yes, salary expense liability will be recorded in Year 2 for proportional amount $(25500 X 7 / 14) $12750 1337 Yes, trucking expense liability will be recorded in Year 2 for proportional amount $(45601 X 28 / 31) $ 41188 1338 No, as this is below materiality level of $ 6000 Nil 1339 Yes, liability for forklift will be recorded in Year 2 $ 11000 1340 Yes, speciality goods expense liability will be recorded in Year 2 $ 12230 1341 No adjustment is required in Year 2, as expense pertains to Year 3 Nil 1342 No adjustment is required in Year 2, as expense pertains to Year 3 Nil

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