Green, CPA, is completing audit procedures for the December 31 year 4 audits at JBU Co., a nonissuer. An auditor from Green attended the physical inventory obeservation at year end. JBU Co. maintains a perpetual inventory system that is integrated with its general ledger. The auditor noted some issues that require further investigation while reviewing JBU’s inventory count sheets and warehouse lacation maps. The auditor established the following information relating to the inventory count and product lines of the JBU. There was not product movement on the day of the count The loading dock is part of warehouse A for the purposes of the count All product lines within each storage area have been identified on the warehouse maps The warehouse map is reflectieve of the warehouse on the day of the count Inventory values in the perpetual inventory listing are based on the most recent purchase price Materiality for the year end audit is 8000 Performance materiality is 5000 Email for the controller Auditor, please see my response to your question inline below. Also, it should be noted that on closer look, there is an issue with physical counts of the 5mm widgets. The perpetual records are correct. This has been validated by your associate. Lastly, it looks like the perpetual inventory listing includes 750 units of SKU 267-1 that should have been moved out of the perpetual inventory system and onto the consigned inventory account. Thanks Controller Email from Auditor Hi, Can you please tell me weather the items in the returns area have been included in the count? (Controller) Yes, the counts are correct and returns have been included in the counts. However, they would not yet have been processed in the perpetual invenoty system. Thanks Auditor, Supplier Report Widget- Wiz Co SKU 267-3 On September 25 year 4 JBU acquired 100 units of SKU 267-3 with a unit price of 7.99. Subsequent to this acquisition, JBU sold a total of 25 units of 267-3 to third parties for $11.99, and utilized 70 units of the product in the manufacture of equipment being held for sale in warehouse C. SKU 267-5 The company has not made a purchase of SKU-267-5 subsequent to February year 3. In prior years, JBU had a regular customer for this product line during year 3. This customer became insolvent. SKU 267-1 In March, year 4, JBU purchased 5,000 units of sku 267-1. Half of the units were used in the manufacture of equipment that has subsequently been sold. A further 30% of the units were sold to third parties during year 4 and 5% of the units are in ending inventory. The remaining 15% of the units were provided to a customer on a consignment basis on December 31, year 4 these units were sold by the customer on January 3 year 5. SKU-267-4 In December year 3 the company acquired 10,000 units of SKU 267-4 at a price of $1.56 per unit. During year 4, the company sold 5898 units of the product of third parties. The last sale was made in November year 4, with shipment that same month. Warehouse Map Warehouse A Warehouse B Hex Bolts (561-3) Bolts- ¾ inch (490-2) Bolts- ¾ inch (490-2) Widgets -10mm (267-1) Flex Washers (671-0) Hex Bolts (561-3) Widgets-20mm (267-3) Flat washers (671-0) Widgets-10mm (267-1) Copper coil (290-1) Wrenches (583-5) Widgets-10mm (267-4) Copper Coil (290-1) Hex Bolts (561-3) Large Plates (352-2) Loading docks Returns area Large Plates (352-2) Copper Coil (290-1) Hex Bolts (561-3) Inventory Count Sheets Warehouse A 267-4 4098 490-2 541 267-3 -- 561-3 7975 290-1 121 583-5 -- 671-0 2683 267-1 131 352-2 -- Ware House B 267-4 -- 490-2 491 267-3 5 561-3 1950 290-1 800 583-5 110 671-0 10188 267-1 119 352 136 Perpetual inventory list Product sku last purchase date last purchase item cost item cost inventory value Wrenches 583-5 6-3-yr-4 12.78 150 1917.00 Widgets-10mm 267-1 3-8-yr4 4.99 1000 4990.00 Bolts -3/4 inch 490-2 1-1-yr1 3.28 1032 3384.96 Flat washers 671-0 12-26-yr4 2.60 12871 33464.60 Widgets-20mm 267-3 9-25-yr4 7.99 5 39.95 Hex Bolts 561-3 9-30-yr3 12.89 9875 127288.75 Widgets-15mm 267-5 2-7-yr3 6.78 -- -- Widgets-5mm 267-4 12-28-yr3 1.56 4102 6399.12 Copper coil 290-1 10-15-yr4 3.77 921 3472.17 Large plates 352-2 4-16-yr4 20.89 156 1698.84 182655.39
Based on the work performed above, form a conclusion on the ending inventory balance. Assume that the auditor performed any follow-up procedures to confirm the initial reasons for the differences identified and therefore any adjustments required are accurate and there are no other adjustments to consider other than those above. Product Line Adjustment if any Justification for Adjustment Widgets0-10mm Widgets-5mm Hex Bolts