1.

Best Products is a retailer of appliances that offers “layaway” sales to its customers
twice a year. Best retains the merchandise, sets it aside in its inventory, and collects
a cash deposit from the customer. The customer signs an installment note at the
time the initial deposit is received, but no payments are due until 30 days after
delivery.
2. The company you are auditing, Thomson Telecom, maintains an inventory of
telecommunications equipment. Bayone Telephone Company placed an order for
10 new transformers valued at $5 million, and Thomson delivered them just prior
to December 31. Thomson's normal business practice for this class of customer
is to enter into a written sales agreement that requires the signatures of all the
authorized representatives of Thomson and its customer before the contract is
binding. However, Bayone has not signed the sales agreement because it is
awaiting the requisite approval by the legal department. Bayone's purchasing
department has orally agreed to the contract, and the purchasing manager has
assured you that the contract will be approved the first week of next year.