Explain why auditors must put greater emphasis on the completeness assertion when auditing accounts payable. Contrast this with the audit of assets.
What will be an ideal response?
Auditors are more concerned about overstatement of equity than understatement. As a result, auditors
need to ensure that there are no unrecorded liabilities, that is, that the accounts payable records are
complete. Controls over the timely recording of expenses and liabilities are not as stringent as controls
over assets. Companies control their assets very closely but often rely on their suppliers for control over
liabilities. Even as they send statements to their customers, they know that their suppliers will send
statements to them. In contrast, the emphasis in the case of assets is the existence assertion-do all recorded
assets exit. It is easier to verify existence than completeness. In verifying existence, the auditor is
examining items that have been recorded-the population is known. In verifying completeness, however,
the auditor is looking for items that are not recorded-the population is unknown.
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Answer the following statement true (T) or false (F)
Wheadon, Davis, and Singer formed a partnership with Wheadon contributing $60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to Singer's capital account?
A. $75,000. B. $20,000. C. $25,000. D. $30,000. E. $40,000.
On December 1, Orenthal Marketing Company received $7200 from a customer for a 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include:
A. a credit to Unearned Fees for $2400. B. a debit to Unearned Fees for $3600. C. a credit to Earned Fees for $4800. D. a debit to Earned Fees for $7200. E. a debit to Earned Fees for $4800.
Erie Company reports the following comparative balance sheets and income statement information for the current year. Comparative Balance Sheets 12/31/201512/31/2016Assets Cash $96,000? $ 56,000 Accounts receivable 40,000? 24,000? Prepaid insurance 40,000? 48,000? Inventory 16,000? 32,000? Property, plant & equipment 48,000? 56,000? Total Assets $ 240,000 $216,000? Liabilities and Stockholder's Equity Accounts payable $ 56,000 $40,000? Salaries payable 24,000? 48,000? Long-term notes payable 32,000? 40,000? Common stock 28,000? 28,000? Retained earnings 100,000? 60,000? Total Liabilities and Stockholders'
Equity $ 240,000 $216,000? 2016 Income StatementRevenue$320,000? Cost of goods sold (168,000)? Gross margin 152,000? Operating expenses (88,000)? Net income$64,000? What was the cash received from customers during the year? A. $280,000 B. $336,000 C. $296,000 D. $320,000