During the Audit of Keats Island Brewery for the Fiscal

question 1

Essay

During the audit of Keats Island Brewery for the fiscal year ended June 30, 2022, the auditors identified the following issues:
For each of the three issues described below, using the following table, identify both the direction (increase or decrease)and the amount of the effect relative to the amount without the accounting change.
a. The company sells beer for $1 each plus $0.10 deposit on each bottle. The deposit collected is payable to the provincial recycling agency. During 2021, the company had recorded $12,000 of deposits as revenue. The auditors believe this amount should have been recorded as a liability.
b. The company had been using the first-in, first-out cost flow assumption for its inventories. In fiscal 2022, management decided to switch to the weighted-average method. This change reduced inventory by $25,000 at June 30, 2021, and $40,000 at June 30, 2022.
c. The company has equipment costing $6,000,000 that it has been depreciating over 10 years on a straight-line basis. The depreciation for fiscal 2021 was $600,000 and accumulated depreciation on June 30, 2021, was $1,200,000. During 2022, management revises the estimate of useful life to 12 years, reducing the amount of depreciation to $480,000 per year.

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Definitions:

Marginal Cost

Marginal cost is the additional cost incurred from producing one more unit of a good or service. It varies depending on the level of production and can influence pricing and production decisions.

Industry Supply Curve

A graphical representation showing the total quantity of a good or service that producers in an industry are willing to supply at different price levels.

Cost Data

Information related to the expenses incurred in the production of goods or the provision of services.

Identical Firms

Identical firms are businesses within the same industry that produce and sell products or services that are very similar in nature, leading to direct competition.