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:

Standard Price

A predetermined price that a company aims to pay for materials, labor, and other costs, used for budgeting and performance evaluation.

Raw Material

The basic material from which a product is made, typically unprocessed or minimally processed before being used in manufacturing processes.

Fixed Overhead

Costs that do not vary with the level of production or sales, including rent, salaries, and insurance, ensuring the basic operational capability of a business.

Standard Cost

A predetermined or estimated cost of performing an operation or producing a good, used in budgeting and cost management.