The Balance Sheet for BCS,Inc ADescribe How the Ending Inventory Numbers Were Determined

question 97

Essay

The balance sheet for BCS,Inc.for December 31,2012 and December 31,2011 is provided below.You are working on the audit for the 12/31/12 year-end.The 12/31/11 balance sheet numbers were audited by your CPA firm last year.Use the partial balance sheet for BCS provided below.You have been assigned to audit the ending inventory numbers. $\begin{array}{l}\\Cash\\\text{Trading Investment Securities}\\\text{Allowance for Trading Securities}\\\text{Accounts Receivable}\\\text{Raw Materials Inventory}\\\text{WIP Inventory}\\\text{Finished Goods Inventory}\\\text{Land}\\\text{Building}\\\text{Accumulated Depreciation-Building}\\\text{Construction-in-Progress}\\\text{Accumulated Depreciation-CIP}\\\text{Held-to-Maturity Securities}\\\text{Available for Sale Securities}\\\text{Allowance for Available-for-Sale Securities}\\\end{array}\begin{array}{rr}{12 / 31 / 2012}&{12 / 31 / 2011}\\\hline{25,439} & {32,786} \\345,000 & 436,000 \\54,738 & -23,412 \\120,334 & 143,023 \\275,963 & 345,768 \\34,087 & 32,635 \\348,974 & 438,678 \\2,300,000 & 3,444,567 \\2,256,876 & 2,345,987 \\-1,200,000 & -1,000,000 \\2,345,678 & 2,112,473 \\-100,000 & -75,000 \\1,200,765 & 1,100,325 \\2,100,000 & 3,145,000 \\-786,000 & -943,000\end{array}$ a.Describe how the ending inventory numbers were determined.b.What audit tests did the auditor perform to determine that the ending inventory numbers were accurate?
c.Describe an audit sampling test that you might use to gather evidence for the valuation assertion for inventory.d.How would the auditor determine that inventory exists?
e.How would the auditor determine that the completeness assertion in regard to inventory is met?
f.Can you identify any "red flags" related to the inventory balance? How would you modify your audit procedures to gather evidence in light of the red flags?

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Definitions:

Monopoly

A market structure characterized by a single seller, selling a unique product in the market with no close substitutes.

Production Function

An equation that specifies the output that can be produced by varying amounts of inputs, demonstrating how efficiently these inputs are converted into outputs.

Labor

The human effort, either physical or mental, used in the production process to create goods or provide services.

Monopolistic Distributor

A distributor who has exclusive control over the supply of a particular product or service in the market, limiting competition.