ACC – Prince Publishing Company

$16.00

Description

Prince Publishing Company sell trade books to all major retailers & wholesalers booksellers on a returnable bases. The bulk of returns of current book sales come back over a six month lag. Thus, sales for any 6 month period are returned in the subsequent six months.
Prince Publishing has on it’s balance sheet at December 31, 2012 a liability account labeled “Reserve for Returns” with a balance of $1,020,000.00
Returns are a major issue in the publishing industry. An overstatement or understatement of of returns can cause a material misstatement in the financials. Thus, Audit Risk is high for this account
You have set a TOLERABLE MISSTATEMENT in this account at $50,000.00
You decide the best type of evidence you can gather is by recalculation the reserve for returns.
You request the following information:
Sales for the six months ending December 31 & returns for the subsequent six months for the past FIVE YEARS & sales for the six months ending December 31, 2012.

DETERMINE
2) Percent
of Returns

Actual
Sales 7/1 – 12/31/2007

$5,158,604

Returns 1/1 – 6/30/2008

$1,662,796

Sales 7/1 – 12/31/2008

$7,367,053

Returns 1/1 – 6/30/2009

$2,358,689

Sales 7/1 – 12/31/2009

$5,834,712

Returns 1/1 – 6/30/2010

$1,759,836

Sales 7/1 – 12/31/2010

$4,926,051

Returns 1/1 – 6/30/2011

$1,298,450

Sales 7/1 – 12/31/2011

$4,563,943

Returns 1/1 – 6/30/2012

$775,241

Sales 7/1 – 12/31/2012

$5,094,107

Project Return

$1,020,000

20.0%

Requirements:

1) Set your Tolerable Misstatement

2) Determine the actual percent of RETURNS for each of the 5 Years (above).
3) Using the above return percentages, derive a projected return percentage for 2012.

4) Based on your return percentage, WHAT is an adequate Reserve for Returns
5) Does it fall into your Tolerable range.

Draw a conclusion based on your finding.

6) If you are the client and you disagree with the audit findings, what rebuttal, would you have for the auditor

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