Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 9, Problem 9.2C
To determine
Introduction:
Inventory turnover measures how many times inventory is purchased and sold. Receivable turnover measures how quickly trade receivables are collected.
To discuss:
The reasons for decline in inventory turnover and receivable turnover.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Receivables and inventory turnover
Thornby Inc. completed its fiscal year on December 31. The auditor, Kim Holmes, has approached the CFO, Brad Potter, regarding the year-end receivables and inventory levels of Thornby Inc. The following conversation takes place:
Kim:
We are beginning our audit of Thornby Inc. and have prepared ratio analyses to determine if there have been significant changes in operations or financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 5.1 to 3.8, while the accounts receivable turnover has decreased from 12.5 to 9. I was wondering if you could explain this change in operations.
Brad:
There is little need for concern. The inventory represents computers that we were unable to sell during the holiday buying season. We are confident, however, that we will be able to sell these computers as we move into the next fiscal year.
Kim:
What gives you this confidence?
Brad:
We will…
The descriptive sections of the annual report that provides insight into what the company does and the types of risks it lates is felt
Select one:
OA management discussion and analysis.
B. the industry overview.
OC. the audit opinion.
D. notes to the financial statements.
To best interpret the accounts receivable turnover ratio, the days in accounts receivable should be compared to the company's
Select one:
A sales revenue.
B. credit terms.
OC. inventory turnover.
D. accounts receivable balance.
Two companies have an identical amount of current assets and current liabilities Donald Inc. has 40% of its current assets invested in
whereas Mickey Corp. has 30% of its current assets invested in inventory Which of the following statements is true?
Select one:
OA. Donald will have the higher quick ratio.
OB. Donald will have the higher current ratio.
OC. The companies are equally liquid because their current ratios are the same
OD. Donald is less liquid than Mick
You are the auditor for Sigma Pty Ltd.As part of your preliminary work, you have obtained the following information:
Current Year (unaudited)
Previous Year(audited)
Industry average
i) Current ratio (Working capital ratio)
1.91
2.35
2.91
ii) Receivables turnover
57 days
51 days
73 days
iii) Inventory turnover
72 days
65 days
96 days
iv) Gross profit margin
20%
18%
20%
v) Net profit margin
4%
4%
6%
In addition you have found that:
The financial controller resigned during the year and the company has yet to hire another financial controller. The accounts of the current year were prepared by the assistant accountant.
For situation mentioned above:
i). Which component of the Audit Risk Model (ARM) would be affected, and how?
ii). Discuss how your audit plan would be affected.
Note:Prepare your answers in a tabular format as follows:
Component of ARM
Effect on Audit Plan
Chapter 9 Solutions
Survey of Accounting (Accounting I)
Ch. 9 - What type of analysis is indicated by the...Ch. 9 - Which of the following measures indicates the...Ch. 9 - Prob. 3SEQCh. 9 - Prob. 4SEQCh. 9 - Prob. 5SEQCh. 9 - That is the difference between horizontal and...Ch. 9 - Prob. 2CDQCh. 9 - Prob. 3CDQCh. 9 - Prob. 4CDQCh. 9 - How would the current and quick ratios of a...
Ch. 9 - For Belzcr Corporation, the working capital at the...Ch. 9 - Prob. 7CDQCh. 9 - Prob. 8CDQCh. 9 - a. Why is it advantageous to have a high inventory...Ch. 9 - Prob. 10CDQCh. 9 - Prob. 11CDQCh. 9 - Prob. 12CDQCh. 9 - Prob. 13CDQCh. 9 - Prob. 14CDQCh. 9 - Prob. 15CDQCh. 9 - Favorable business conditions may bring about...Ch. 9 - Prob. 17CDQCh. 9 - Prob. 9.1ECh. 9 - Vertical analysis of income statement The...Ch. 9 - Common-sized income statement Revenue and expense...Ch. 9 - Prob. 9.4ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Current position analysis The bond indenture for...Ch. 9 - Accounts receivable analysis The following data...Ch. 9 - Prob. 9.10ECh. 9 - Inventory analysis The following data were...Ch. 9 - Inventory analysis Costco Wholesale Corporation...Ch. 9 - Ratio of liabilities to stockholders' equity and...Ch. 9 - Prob. 9.14ECh. 9 - Debt ratio, ratio of liabilities to stockholders'...Ch. 9 - Prob. 9.16ECh. 9 - Profitability metrics The following selected data...Ch. 9 - Profitability metrics Macy's, Inc. (M). sells...Ch. 9 - Seven metrics The following data were taken from...Ch. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - Unusual income statement items Assume that the...Ch. 9 - Horizontal analysis for income statement For 20Y3....Ch. 9 - Horizontal analysis for income statement For 20Y3....Ch. 9 - Prob. 9.2.1PCh. 9 - Prob. 9.2.2PCh. 9 - Effect of transactions on current position...Ch. 9 - Effect of transactions on current position...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Prob. 9.4.7PCh. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Twenty metrics of liquidity, solvency, and...Ch. 9 - Prob. 9.4.20PCh. 9 - Trend analysis Critelli Company has provided the...Ch. 9 - Trend analysis Critelli Company has provided the...Ch. 9 - Prob. 9.1CCh. 9 - Prob. 9.2CCh. 9 - Prob. 9.3CCh. 9 - Prob. 9.4.1CCh. 9 - Prob. 9.4.2CCh. 9 - Prob. 9.4.3CCh. 9 - Comprehensive profitability and solvency analysis...Ch. 9 - Comprehensive profitability and solvency analysis...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- PLEASE ANSWER ASAP Problem No. 6 In conducting your audit of AACA Corporation, a company engaged in import and wholesale business, for the year ended December 31, 2022, you determined that its internal control system was good. Accordingly, you observed the physical inventory at an interim date, November 30, 2022 instead of at December 31, 2022. You obtained the following information from the company’s general ledger. Sales for eleven months ended November 30, 2022 P1,120,000 Sales for the year ended December 31, 2022 1,536,000 Purchases for eleven months ended November 30, 2022 (before audit adjustments) 856,000 Purchases for the year ended December 31, 2022 1,280,000 Inventory, January 1, 2022 140,000 Physical inventory, November 30, 2022 220,000 Your audit disclosed the following additional information. Shipments costing P12,000 were received in November and included in the physical inventory but recorded as December purchases. Deposit of…arrow_forwardREFER TO IMAGE FOR NUMBERS Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these: Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend in terms of actual dollar increases. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company’s line of credit for 20X4 was…arrow_forwardIn conducting your audit of Mangatarem Corporation, a company engaged in import and wholesale business, for the fiscal year ended June 30, 2006, you determined that its internal control system was good. Accordingly, you observed the physical inventory at an interim date, May 31, 2006 instead of at June 30, 2006. You obtained the following information from the company's general ledger: Sales for eleven months ended May 31, 2006 (before audit adjustments) P1,615,000 Sales for the fiscal year ended June 30, 2006 (before audit adjustments) 1,843,000 Purchases for eleven months ended May 31, 2006 (before audit adjustments) 1,296,000 Purchases for the fiscal year ended June 30, 2006 1,536,000 Inventory, July 1, 2005 170,200 Physical inventory, May 31, 2006 264,000 Your audit disclosed the following additional information. 1) Shipments costing P12,000 were received in May and included in the physical inventory but recorded as June purchases. 2) Deposit of P4,000 made with vendor and charged…arrow_forward
- In conducting your audit of Blue Lagoon Corporation, a company engaged in import and wholesale business, for the fiscal year ended June 30, 2021, you determined that its internal control system was good. Accordingly, you observed the physical inventory at an interim date, May 30, 2021 instead of at June 30, 2021. You obtained the following information from the company's general ledger. Sales for eleven months ended May 31, 20121 (before audit adjustments) Sales for the fiscal year ended June 30, 2021 (before audit adjustments) Purchases for eleven months ended May 31, 2021 (before audit adjustments) Purchases for the fiscal year ended June 30, 2021 (before audit adjustments) Inventory, July 1, 2020 Physical inventory, May 30, 2021 P1,615,000 1,843,000 1,296,000 1,536,000 170,200 264,000 Your audit disclosed the following additional information. a. Shipments costing P12,000 were received in May and included in the physical inventory but recorded as June purchases. b. Deposit of P4,000…arrow_forwardQuestion 3: (35 Marks) As the in-charge senior auditor on the audit engagement for JA Tire Manufacturing for the year ended December 31, 2019, you are responsible for auditing the revenue cycle. The manager has instructed you to read JA Tire Manufacturing system provided on the first tab of the Excel file "Appendix 1_JATireSales_Data" before attempting this audit to familiarize yourself with the sales process and the relevant worksheets and terminology. This file contains sales transaction information for the year ended December 31, 2019. JA Tire has four sales divisions within Canada and sells primarily to large tire companies with regional warehouses that subsequently distribute to local retailers. Based on some of the risk assessment procedures already performed, you identified risks related to the fact that salespersons receive a commission on sales to distributors and the commission is calculated on a monthly basis. Your manager has asked you to perform analytical procedures as a…arrow_forwardMichael Corporation is on a calendar year basis. The following data were found during your audit:1) An excerpt from the client’s trial balance revealed the following account balances:Accounts receivable P 80,000Inventory, per count 1,200,000Accounts payable 790,000Net sales 6,050,000Net purchases 3,300,000Net income 610,0002) The client conducted an inventory count on December 31, 2021. Michael Corporation normally sells at 30% gross profit based on selling price.3) Goods were in transit FOB destination from a supplier in the amount of P120,000. Further testing revealed that the suppliers invoice pertaining to the delivery was received and recorded on December 28, 2021.4) Good costing P70,000 had been received on December 31, and recorded as a purchase. However, upon your inspection, the goods were found to be defective and would be immediately returned.5) Materials costing P224,000, sold and billed on December 30 under a “bill and hold” agreement, had been segregated in the warehouse…arrow_forward
- Michael Corporation is on a calendar year basis. The following data were found during your audit: 1) An excerpt from the client’s trial balance revealed the following account balances:Accounts receivable P 80,000Inventory, per count 1,200,000Accounts payable 790,000Net sales 6,050,000Net purchases 3,300,000Net income 610,000 2) The client conducted an inventory count on December 31, 2021. Michael Corporation normally sells at 30% gross profit based on selling price. 3) Goods were in transit FOB destination from a supplier in the amount of P120,000. Further testing revealed that the supplier's invoice pertaining to the delivery was received and recorded on December 28, 2021. 4) Good costing P70,000 had been received on December 31 and recorded as a purchase. However, upon your inspection, the goods were found to be defective and would be immediately returned. 5) Materials costing P224,000, sold and billed on December 30 under a “bill and hold” agreement, had been segregated in the…arrow_forwardProblem 11: The GANDA CO is on a calendar year basis. The following data were found during your audit: a. Goods in transit shipped FOB Shipping point on December 28 by a supplier in the amount of P100,000 had been excluded from the inventory, and further testing revealed that the purchase had been recorded. b. Goods costing P30,000 had been received, included in inventory, and recorded as a purchase. However, upon your inspection, the goods were found to de defective and would be immediately returned. c. Materials costing P170,000 and billed on December 30 at a selling price of P264,000 had been segregated in the warehouse for shipment to a customer. The materials had been excluded from inventory as a signed purchase order had been received from the customer, terms FOB destination. d. Goods costing P70,000 was out on consignment with Gandanva, inc. since the monthly statement from Gandanva listed those materials on hand, the items had been excluded from the final inventory and invoiced…arrow_forwardYou are auditing the financial statements of A Company for the year ended December 31, 2023. The Company's income statements indicated the following net income:2021: P1,200,0002022: P1,490,0002023: P1,325,000An examination of the accounting records for the year ended December 31, 2023 indicates that several errors were made. The following errors were discovered:A. Unused supplies at the end of each year were consistently omitted:2020: P95,000; 2022: P100,000; 2023: P140,000B. The footings and extensions showed that the inventory on December 31, 2022 was understated by P80,000C. P105,000 worth of inventories were received on January 5, 2022 and were not included in the physical count as of December 31, 2021. Upon investigation, however, you discovered that these goods were shipped free-alongside by the supplier on December 28, 2021. The invoice for the goods were received and recorded in the purchase journal on December 29, 2021.D. The following advance payments to suppliers at the…arrow_forward
- Sandra: We are beginning our audit of Imex and have prepared ratio analyses to determine if there have been significant changes in financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 5 to 2.8 and the accounts receivable turnover has decreased from 12 to 8. I was wondering if you could explain this change in operations. Travis: There is little need for concern. The inventory represents computers that we were unable to sell during the holiday buying season. We are confident, however, that we will be able to sell these computers as we move into the next fiscal year. Sandra: What gives you this confidence? Travis: We will increase our advertising and provide some very attractive price concessions to move these machines. We have no choice. Newer technology is already out there, and we have to unload this inventory. Sandra: …and the receivables? Travis: As you may be aware, the company is under tremendous pressure…arrow_forwardGross Profit Shelly Corporation is an importer and wholesaler. Its merchandise is purchased from several suppliers and is warehoused by Shelly until sold to consumers. In conducting her audit for the year ended June 30, 2019, the corporations CPA determined that the system of internal control was good. Accordingly, she observed the physical inventory at an interim date, May 31, 2019, instead of at year-end. The CPA obtained the following information from the general ledger: The CPAs audit disclosed the following information: Required: In audit engagements in which interim physical inventories are observed, a frequently used auditing procedure is to test the reasonableness of the year-end inventory by the application of gross profit ratios. Prepare in good form the following schedules: 1. Computation of the gross profit ratio for 11 months ended May 31, 2019 2. Computation by the gross profit ratio method of cost of goods sold during June 2019 3. Computation by the gross profit ratio method of June 30, 2019 inventoryarrow_forwardDuring the course of the Year 2 audit of Chester Co., the auditor discovered potential cutoff problems that may or may not require adjusting journal entries. For each of the potential cutoff problems indicated below, complete the required journal entries. To prepare each required journal entry: 1. The company shipped merchandise with a carrying amount of $75,000 FOB destination on December 23, Year 2, and recorded the sale and relief of inventory on that date. The customer received the merchandise on December 31, Year 2. The merchandise has a gross profit margin of 10%. Record the necessary Year 2 adjustments, if any. 2. The company shipped merchandise with a carrying amount of $45,000 to a consignee on December 24, Year 2, and recorded the sale and the relief of inventory on that date. The consignee had not sold the merchandise as of January 5, Year 3. The merchandise has a gross profit margin of 10%. Record the necessary Year 2 adjustments, if any. 3. At the beginning of Year 2, the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning