You are engaged to perform an audit of the Giordani Corporation for the year end

Question

You are engaged to perform an audit of the Giordani Corporation for the year ended December 31, 2013. You have decided to perform the following cutoff test for payables and accruals. Select all items greater than $25,000 for two business days before and after year-end from the purchases journal and ensure that all transactions are recorded in the proper period. During your rm’s observation of Giordani’s physical inventory you obtained the following cutoff information: the last receiving report number in 2013 was 49,745. Your audit work identied the following items for fur-ther investigation: Selections from the December 2013 Purchase Journal DateRR#Vendor NameAmountExplanation a. 12/3049,742Allen Chem.$29,875Chemicals purchased for manufacturing process.b. 12/31noneKhan Consulting$45,000Payment for consulting services for the three-month period beginning December 1, 2013. The $45,000 was charged to consulting expenses.c. 12/3149,744Goff Materials$205,000Raw materials used in the manufacturing process. Selections from the January 2014 Purchase Journal DateRR#Vendor NameAmountExplanation d. 1/0149,746Temper Trucks$75,985Purchase of a new forklift.e. 1/0249,743Pack Products$42,000Paper products used in manufacturing process.f. 1/02noneTelecom Inc.$32,450December 2013 telephone bill. Required: For each of the six items provided in the table above, consider whether there is evidence of proper cutoff of payables and accruals (i.e., the transaction is recorded in the proper period). If the item is not properly recorded, prepare the necessary adjusting entries at December 31, 2013.

Explanation / Answer

adjusting Journal Entries:

Date Accounts Title and explanation Debit $ Credit $ a Dec 31 Raw Materials inventory 29,875 Accounts Payable 29,875 Work in Process inventory 29,875 Raw Materials Inventory 29,875 b Dec 31 Prepaid consulting expenses 30000 consulting expenses 30000 c Dec 31 Material Inventory 205000 Accounts Payable 205000 Work in process inventory 205000 Materials Inventory 205000 d Dec 31 Forklift Truck 75985 Accounts Payable 75985 e Dec 31 Material Inventory 42000 Accounts Payable 42000 Work in process inventory 42000 Material Inventory 42000 f Dec 31 Telephone expenses 32450 Telephone expenses payable 32450

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