Discussion 4 Due on 02/01/18 3PM CST (TODAY) Read Client-Acceptance Decisions: Simultaneous Effects of Client Business Risk, Audit Risk, Auditor Business Risk, and Risk Adaptation by Johnstone. (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=934191) Then discuss the importance of performing a background check on the senior management team and board of directors of a potential audit client: Does the accounting staff have adequate credentials? Does anyone on the management team have a criminal record? EXERCISE 5-5A The Shirt Shop Summary of Purchase Transactions 1/20 Purchased Units @ = 4/21 Purchased Units @ = 7/25 Purchased Units @ = 9/19 Purchased Units @ = Available for Sale a. (1) FIFO Units Unit Cost Total Ending Inventory From 9/19 Purchase @ From 7/25 Purchase @ Total Ending Inventory a. (2) LIFO Units Unit Cost Total Ending Inventory From 1/20 Purchase @ Total Ending Inventory a. (3) Weighted Average Total Cost Total Units = Cost per Unit Ending Inventory 160 units @ $10.51 = $1,681.60 EXERCISE 5-5A (cont.) b. Note: The purchase entries are the same for all three methods. The Shirt Shop General Journal Date Account Title Debit Credit Jan. 20 Merchandise Inventory Cash Apr. 21 Merchandise Inventory Cash July 25 Merchandise Inventory Cash Sept. 19 Merchandise Inventory Cash (1) FIFO Sales and Cost of Goods Sold 2016 Cash (810 x $30) Sales Revenue 2016 Cost of Goods Sold Merchandise Inventory (2) LIFO Sales and Cost of Goods Sold 2016 Cash Sales Revenue 2016 Cost of Goods Sold Merchandise Inventory (3) Weighted Average Sales and Cost of Goods Sold 2016 Cash Sales Revenue 2016 Cost of Goods Sold Merchandise Inventory EXERCISE 5-5A b. (cont.) (1) FIFO Cash Sales Revenue 2016 1/20 2016 4/21 Bal. 7/25 9/19 Cost of Goods Sold Bal. 6,010 2016 Bal. Merchandise Inventory 1/20 4/21 7/25 9/19 2016 Bal. (2) LIFO Cash Sales Revenue 2016 16,200 Cost of Goods Sold Bal. 2016 Bal. 8,910 Merchandise Inventory EXERCISE 5-5A b. (cont.) (3) Weighted Average Cash Sales Revenue 2016 16,200 Cost of Goods Sold Bal. 6,010 2016 8,513 Bal. 8,513 Merchandise Inventory EXERCISE 5-5A (cont.) c. FIFO Sales ( units @ $20) Cost of Goods Sold Cost of Goods Avail. for Sale* Less: Ending Inventory Cost of Goods Sold Gross Margin $ 8,270 LIFO Sales (810 units @ $20) $16,200 Cost of Goods Sold Cost of Goods Avail. for Sale* Less: Ending Inventory Cost of Goods Sold Gros.

1. Discussion 4
Due on 02/01/18 3PM CST (TODAY)
Read Client-Acceptance Decisions: Simultaneous Effects of
Client Business Risk, Audit Risk, Auditor Business Risk, and
Risk Adaptation by Johnstone.
(https://papers.ssrn.com/sol3/papers.cfm?abstract_id=934191)
Then discuss the importance of performing a background check
on the senior management team and board of directors of a
potential audit client: Does the accounting staff have adequate
credentials? Does anyone on the management team have a
criminal record?
EXERCISE 5-5A
The Shirt Shop
Summary of Purchase Transactions
1/20
Purchased Units
@
=

2. 4/21
Purchased Units
@
=
7/25
Purchased Units
@
=
9/19
Purchased Units
@
=
Available for Sale

3. a. (1)
FIFO
Units
Unit Cost
Total
Ending Inventory
From 9/19 Purchase
@
From 7/25 Purchase

4. @
Total Ending Inventory
a. (2)
LIFO
Units

5. Unit Cost
Total
Ending Inventory
From 1/20 Purchase
@

6. Total Ending Inventory
a. (3)
Weighted Average
Total Cost
Total Units
=
Cost per Unit

7. Ending Inventory
160 units @ $10.51 =
$1,681.60
EXERCISE 5-5A (cont.)
b.
Note: The purchase entries are the same for all three methods.
The Shirt Shop
General Journal
Date
Account Title
Debit
Credit
Jan. 20
Merchandise Inventory
Cash

8. Apr. 21
Merchandise Inventory
Cash
July 25
Merchandise Inventory
Cash
Sept. 19
Merchandise Inventory
Cash

9. (1) FIFO Sales and Cost of Goods Sold
2016
Cash (810 x $30)
Sales Revenue
2016
Cost of Goods Sold
Merchandise Inventory
(2) LIFO Sales and Cost of Goods Sold

10. 2016
Cash
Sales Revenue
2016
Cost of Goods Sold
Merchandise Inventory
(3) Weighted Average Sales and Cost of Goods Sold

11. 2016
Cash
Sales Revenue
2016
Cost of Goods Sold
Merchandise Inventory
EXERCISE 5-5A b. (cont.)
(1) FIFO
Cash
Sales Revenue
2016
1/20

12. 2016
4/21
Bal.
7/25
9/19
Cost of Goods Sold
Bal. 6,010
2016
Bal.
Merchandise Inventory
1/20
4/21

13. 7/25
9/19
2016
Bal.
(2) LIFO
Cash
Sales Revenue
2016 16,200

14. Cost of Goods Sold
Bal.
2016
Bal. 8,910
Merchandise Inventory

15. EXERCISE 5-5A b. (cont.)
(3) Weighted Average
Cash
Sales Revenue
2016 16,200

16. Cost of Goods Sold
Bal. 6,010
2016 8,513
Bal. 8,513
Merchandise Inventory

17. EXERCISE 5-5A (cont.)
c.
FIFO
Sales ( units @ $20)

18. Cost of Goods Sold
Cost of Goods Avail. for Sale*
Less: Ending Inventory
Cost of Goods Sold

19. Gross Margin
$ 8,270
LIFO
Sales (810 units @ $20)

20. $16,200
Cost of Goods Sold
Cost of Goods Avail. for Sale*
Less: Ending Inventory
Cost of Goods Sold

21. Gross Margin