Homework Extra Credit
Prince Publishing Company sell trade books to all major retailers & wholesalers booksellers
on a returnable bases. The bulk of returns of current book sales come back over a
six month lag. Thus, sales for any 6 month period are returned in the subsequent
six months.
Prince Publishing has on it's balance sheet at December 31, 2012 a liability account labeled
"Reserve for Returns" with a balance of $1,020,000.00
Returns are a major issue in the publishing industry. An overstatement or understatement of
of returns can cause a material misstatement in the financials. Thus, Audit Risk is high
for this account
You have set a TOLERABLE MISSTATEMENT in this account at $50,000.00
You decide the best type of evidence you can gather is by recalculation the reserve
for returns.
You request the following information:
Sales for the six months ending December 31 & returns for the subsequent
six months for the past FIVE YEARS & sales for the six months ending
December 31, 2012. c
| |
Actual |
|
of Returns |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales 7/1 - 12/31/2007 |
|
|
$51,58,604 |
|
Returns 1/1 - 6/30/2008 |
|
|
$16,62,796 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales 7/1 - 12/31/2008 |
|
|
$73,67,053 |
|
Returns 1/1 - 6/30/2009 |
|
|
$23,58,689 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales 7/1 - 12/31/2009 |
|
|
$58,34,712 |
|
Returns 1/1 - 6/30/2010 |
|
|
$17,59,836 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales 7/1 - 12/31/2010 |
|
|
$49,26,051 |
|
Returns 1/1 - 6/30/2011 |
|
|
$12,98,450 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales 7/1 - 12/31/2011 |
|
|
$45,63,943 |
|
Returns 1/1 - 6/30/2012 |
|
|
$7,75,241 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales 7/1 - 12/31/2012 |
|
|
$50,94,107 |
|
Project Return |
|
|
$10,20,000 |
|
20.0% |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Requirements: |
|
|
|
|
|
|
|
|
|
|
| |
1) Set your Tolerable Misstatement |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
2) Determine the actual percent of RETURNS for each of the 5 Years (above). |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
3) Using the above return percentages, derive a projected return percentage for 2012. |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
4) Based on your return percentage, WHAT is an adequate Reserve for Returns |
|
|
|
|
|
|
|
|
|
$0 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
5) Does it fall into your Tolerable range. Draw a conclusion based on your finding. |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
6) If you are the client and you disagree with the audit findings, what rebuttal, would you have for the auditor ????+B25 |
|
|
|
|
|
|
|
|
|
|