If the Auditors Discover That the Carrying Amount of a Client's

question 55

Multiple Choice

If the auditors discover that the carrying amount of a client's investments is overstated because of a loss in value that is other than a temporary decline in market value,they should insist that

• A) The approximate market value of the investments be shown in parentheses on the face of the balance sheet.
• B) The investments be classified as long term for balance-sheet purposes with full disclosure in the footnotes.
• C) The loss in value be recognized in the financial statements.
• D) The equity section of the balance sheet separately show a charge equal to the amount of the loss.

Recognize the differences between the perpetual and periodic inventory systems in terms of recording inventory transactions.

Identify the appropriate accounts to be debited and credited in various merchandise transactions under both inventory systems.

Grasp the concept of recording the payment for purchases and the impact of merchandise returns on financial statements.

Distinguish the accounts used and affected in the periodic inventory system.