In 2020, Bill decides to refinance his mortgage and the balance on his small business loan in to one at a lower rate. The bank is willing to work with him as long as he can provide them with copies of audited financial statement. He isn’t sure what that means so he come to you and you explain the different types of audits that are performed and the different types of opinions that can be issued and agree to perform the audit.
In your audit of Bill’s Bagels Inc for 2019, you found a number of issues that you believe to represent possible adjustments to the company’s books. Bill’s attitude is that “once the books are closed, they’re closed”, and he doesn’t want to make any adjustments. Below are the issues that concern you.
Credit memos totaling $3,000 that were processed and recorded after year-end relate to sales and accounts receivable for 2019.
Inventory cutoff tests indicate that $23,000 of inventory received after December 31, 2019, was recorded as purchases and accounts payable in 2020. These items were included in the inventory count at year-end and therefore were included in ending inventory.
Inventory cutoff tests also indicate several sales in 2019 for goods that were shipped in early 2020. The goods were not included in inventory but were set -aside in a separate shipping area. The sales total of these shipments was $15,000 and the cost of sales for the shipments $10,000
The company wrote several checks totaling $48,000 at the end of 2019 for accounts payable that were held and not mailed until January 15, 2020.
The company has not established a reserve for expiring inventories. Your tests indicate that a reserve $20,000 is appropriate.
Your review of the allowance for uncollectible accounts indicates that it may be understated by between $2,000 and $3,000.
Determine the adjustments that you believe must be made for Bill’s Bagels financial statements to be fairly presented. Include the amounts and accounts affected by each adjustment. (Planning materiality for the engagement was determined to be 2% of expected income before taxes.) A trial balance is provided for your review.
A.Prepare the necessary adjustments and show how they would affect the financial statements-individually and in the aggregate (total)
B.Describe your responsibilities related to unadjusted misstatements that management has determined are immaterial individually and in the aggregate.
C.What type of opinion would be issued if the adjustments were made?
D.What type of opinion would be issued if Bill refuses to make the adjustments?
base the worksheet that i give u answer B.C.D. (A is done)