An Entity Accomplished an Early Extinguishment of Debt and the Auditors

question 102

Multiple Choice

An entity accomplished an early extinguishment of debt and the auditors believe that literal application of GAAP would cause recognition of a loss that would materially distort the financial statements and cause them to be misleading.Given these facts,the auditors would probably choose which reporting option?

• A) Explain the situation and issue an adverse opinion.
• B) Explain the situation and issue a disclaimer of opinion.
• C) Explain the situation and issue an unqualified opinion, relying on Rule 203 of the AICPA Code of Professional Conduct.
• D) Issue the standard report.

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Definitions:

Inventory

The raw materials, work-in-process products, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

LIFO Method

A method of inventory valuation where the last items added to inventory are the first ones to be used or sold.

FIFO Method

An inventory valuation method that assumes the first items purchased are the first ones sold, standing for "First-In, First-Out."

Inventory Valuation

The method of calculating the cost associated with the inventory held by a business, influencing financial statements and taxation.