Question

As part of the fieldwork of an audit engagement, the senior on the audit obtained and documented an understanding of the company's internal control relating to accounts receivable and assessed control risk related to accounts receivable at the maximum level. Alejandro, the staff person assigned to the engagement, requested and obtained from the company an aged accounts receivable schedule listing the total amount owed by each customer as of December 31, 2017, and sent positive confirmation requests to a sample of the company customers. Review Alejandro's comments on each of the following five confirmations and determine the best conclusion and/or follow-up procedures for each item. Assume that each confirmation has been signed with the appropriate signature unless otherwise noted.

Confirmation Letters
February 1, 2018
Performance Marine Sales, Inc.
1284 River Road
Louisville, Kentucky 40059
Re: Balance at December 31, 2017 - $267,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

  

The above balance is	Correct
X	Incorrect (show amount)	$325,000

If incorrect, please provide information that could help to reconcile your account.

  

Response: We placed an order for $58,000 on December 26, 2017.

Signature	Title
	Date

Alejandro's note to file:

Per discussion with the controller, the order for $58,000 was shipped FOB shipping point on December 30, 2017, and was received by the customer on January 3, 2018. .Therefore, no entry has been made to record the sale in 2017.

February 1, 2018
West Coast Ski Center, Inc.
163 Tide Avenue
Monterey, California 93940
Re: Balance at December 31, 2017 - $414,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

The above balance is	Correct
X	Incorrect (show amount)	$320,000

If incorrect, please provide information that could help to reconcile your account.

Response: We made a payment of $94,000 on December 12, 2017.

Signature	Title
	Date

Alejandro's note to file:

  

Per discussion with the controller, the company received the payment of $94,000 on December 15, 2017, and posted it to “Other Income.”

February 1, 2018
Fish & Ski World, Inc.
5660 Ocean Blvd.
Port Arkansas, Texas 78373
Re: Balance at December 31, 2017 - $72,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

The above balance is	Correct
X	Incorrect (show amount)	$163,000

If incorrect, please provide information that could help to reconcile your account.

  

Response: Per our records, the following invoices are outstanding:
Invoice #4212	$72,000
Invoice #4593	$66,000
Invoice #4738	$25,000

Signature	Title
	Date

Alejandro's note to file:

  

Invoices #4593 and 4738 are not on the A/R aging report at December 31, 2017.

February 1, 2018
NC Boating Center, Inc.
110 Windward Blvd.
Tierra Verde, Florida 33715
Re: Balance at December 31, 2017 - $239,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

  

The above balance is	Correct
	Incorrect (show amount)	$

If incorrect, please provide information that could help to reconcile your account.

  

Response: We cannot determine the balance due at December 31, 2017.

Signature	Title
	Date

Alejandro's note to file:

  

No amount was confirmed on the response letter.

February 1, 2018
Desert Boats
2135 W. Lane Ave.
Tempe, Arizona 85287
Re: Balance at December 31, 2017 - $60,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

  

The above balance is	Correct
	Incorrect (show amount)	0

If incorrect, please provide information that could help to reconcile your account.

Response: We mailed the entire amount on December 30, 2017. So the balance is completely incorrect.

Signature	Title
	Date

Alejandro's note to file:

I found cash recorded as received in the cash receipts journal on January 3, 2018.

Answer 1

1. Since the sale is FOB shipping point, the sale needs to be recorded .

The following entry needs to be recorded.

Account Title	Debit	Credit
Acccounts Receivable - Preformance Marine Sales	58000
Sales		58000

2. The following rectification entry needs to be recorded.

Account Title	Debit	Credit
Other Income	94000
Acccounts Receivable - West Coast Sky Center Inc.		94000

3. Need to check for the invoices #4593 and #4738. they may have been recorded in other customer's account. Should record the correcting entry.

4. The balance will be $239,000 , as the customer is not able to confirm.

5. As the cash is received on January 3, 2018 , the balance in the customer account will be $60,000 as at December 31, 2017.