As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual items that have occurred during the current year.
Please read CA 4-6 Ethics (Classification on Income Statement Items) (located in Chapter 4: Income Statement and Related Information, Other Reporting Issues, Concepts for Analysis on page 191 of the textbook). Please answer and discuss the questions below as required.
CA4-6 ETHICS (Classification of Income Statement Items)
As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual items that have occurred during the current year. The following material items have come to your attention.
A merchandising company incorrectly overstated its ending inventory 2 years ago. Inventory for all other periods is correctly computed.
An automobile dealer sells for $137,000 an extremely rare 1930 S type Invicta which it purchased for $21,000 10 years ago. The Invicta is the only such display item the dealer owns.
A drilling company during the current year extended the estimated useful life of certain drilling equipment from 9 to 15 years. As a result, depreciation for the current year was materially lowered.
A retail outlet changed its computation for bad debt expense from 1% to ½ of 1% of sales because of changes in its customer clientele.
A mining concern sells a foreign subsidiary engaged in uranium mining, although it (the seller) continues to engage in uranium mining in other countries.
A steel company changes from the average-cost method to the FIFO method for inventory costing purposes.
A construction company, at great expense, prepared a major proposal for a government loan. The loan is not approved.
A water pump manufacturer has had large losses resulting from a strike by its employees early in the year.
Depreciation for a prior period was incorrectly understated by $950,000. The error was discovered in the current year.
A large sheep rancher suffered a major loss because the state required that all sheep in the state be killed to halt the spread of a rare disease. Such a situation has not occurred in the state for 20 years.
A food distributor that sells wholesale to supermarket chains and to fast-food restaurants (two distinguishable classes of customers) decides to discontinue the division that sells to one of the two classes of customers. This represents a strategic shift in the company business.
INSTRUCTIONS
From the foregoing information, indicate in what section of the income statement or retained earnings statement these items should be classified. Provide a brief rationale for your position.
Collepals.com Plagiarism Free Papers
Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.
Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS
Why Hire Collepals.com writers to do your paper?
Quality- We are experienced and have access to ample research materials.
We write plagiarism Free Content
Confidential- We never share or sell your personal information to third parties.
Support-Chat with us today! We are always waiting to answer all your questions.
