Assume that you are the auditor of Weller, Inc. and that you have been asked to
ID: 2365282 • Letter: A
Question
Assume that you are the auditor of Weller, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items.a. The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted.
b. Equipment purchases of $170,000 were partly financed during the year through the issuance of a $110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at $60,000.
c. Weller has reported its ending inventory at $2,100,000 in the financial statements. No other information related to inventories is presented in the financial statements and related notes.
d. The company changed its method of valuing inventories from weighted-average to FIFO. No mention of this change was made in the financial statements.
Explanation / Answer
a. As per fully disclosure principle company should disclose each and every item which is related to business, hence company has to report all current year revenues and all current year expenses in Income statement. Then only auditor can verify perfectly.
b. Here company has to report $170,000 as equipment in fixed assets side and $110,000 as notes payable in liabilities side. As per cost concept assets has to report only in historical cost. Remaining $60,000 has to reduce in cash balance from assets side.
c. As per accounting standard every company has to report all information related to inventories, beginning balance, purchases, returns, discount and ending balance.
d. As per consistency principle company should not change their accounting policies like inventory valuation, depreciation calculation etc. These policies should be constant over a period. If company wants to change their inventory method, should be take approval for changing. Thank you....