AC 410 All Assignments AC 410 All Assignments | Page 11

As soon as goods have been inspected and counted in the
receiving department, they are sent to the factory production area and
stored alongside the machines in which they are to be processed.
Finished goods are moved from the assembly line to a storeroom in the
custody of a stock clerk, who maintains a perpetual inventory record in
terms of physical units, but not in dollars.
What weaknesses, if any, do you see in the internal control over
inventories?
Problem 12-35
Described below are potential financial statement misstatements that
are encountered by auditors.
Inventory is understated because warehouse personnel overlooked
several racks of parts in taking the physical inventory.
Inventory is overstated because warehouse personnel included
inventory items received subsequent to year-end while recording the
purchase in the subsequent year to hide inventory shortages.
Inventory is overstated because management instructed computer
personnel to make changes in the file used to price inventories.
Questions Requiring Analysis 13-31
You are part of the audit team that is auditing Happy Chicken, Inc., a
company that franchises Happy Chicken family restaurants. During the
current year, management of Happy Chicken purchased for $2 million
one of its franchised locations, a store that was having financial
difficulties. In performing its analysis for impairment of assets at year-
end, management of Happy Chicken determined that the carrying value