You are engaged to perform an audit of the giordani corporation for the year end
ID: 2476629 • Letter: Y
Question
You are engaged to perform an audit of the giordani corporation for the year ended december 31,2013.YOu have decided to perform the following cutoff test for payables and accruals. select all items greater than $25,000 for two business days before and after year-end from the purchases journal and ensure that all transactions are recorded in the proper period.During your firm's observation of giordani's physical inventory you obtained the following cutoff information:the last receiving report number in 2013 was 49,745.Your audit work identified the following items for further investigation: For each of the six items provided in the table above, consider whether there is evidence of proper cutoff of payables and accruals(i,e,the transaction is recorded in the proper period.) If the item is not properly recorded, prepare the necessary adjusting entries at december31,2013.Explanation / Answer
a. The mentioned transaction is correctly recorded as the date of purchase pertains to the FY 2013. Hence no adjustment is needed.
b. Payment has been made for the 3 months starting from December 1, 2013. One third of the expense pertains to FY 2013 and two third of the total expediture pertains to the FY 2014. As per the acrual method prepaid expense entry need to be recoded for the 2 months expense (45000*2/3 = 30000). The following entry can be recorded on December 31, 2013:
Prepaid consulting expenses Dr $30000
To Consulting Expenses $30000
c. The mentioned transaction is correctly recorded as the date of purchase pertains to the FY 2013. Hence no adjustment is needed.
d. The mentioned transaction is correctly recorded as the date of purchase pertains to the FY 2014. Hence no adjustment is needed.
e. As per the RR# given, it may looks like it pertains to the FY 2013 but there as per the given explanation it is considered as FY 2014. Hence no adjustment is needed.
f. December 2013 telephone bill is recorded in FY 2014. Hence the following adjustment entries need to be reccorded.
On December 31, 2013
Telephone Expenses Dr $32450
Telecom Inc. $32450
On January 02, 2014
Telecom Inc Dr $32450
Telephone Expenses $32450
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