As audit partner for Grupo and Rijo you are in

As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual
items that have occurred during the current year. The following material items have come to
your attention.1. A merchandising company incorrectly overstated its ending inventory 2 years
ago. Inventory for all other periods is correctly computed.2. An automobile dealer sells for
$137,000 an extremely rare 1930 S type Invicta which it purchased for $21,000 10 years ago.
The Invicta is the only such display item the dealer owns.3. A drilling company during the
current year extended the estimated useful life of certain drilling equipment from 9 to 15 years.
As a result, depreciation for the current year was materially lowered.4. A retail outlet changed its
computation for bad debt expense from 1% to ½ of 1% of sales because of changes in its
customer clientele.5. A mining concern sells a foreign subsidiary engaged in uranium mining,
although it (the seller) continues to engage in uranium mining in other countries.6. A steel
company changes from the average cost method to the FIFO method for inventory costing
purposes.7. A construction company, at great expense, prepared a major proposal for a
government loan. The loan is not approved.8. A water pump manufacturer has had large losses
resulting from a strike by its employees early in the year.9. Depreciation for a prior period was
incorrectly understated by $950,000. The error was discovered in the current year.10. A large
sheep rancher suffered a major loss because the state required that all sheep in the state be
killed to halt the spread of a rare disease. Such a situation has not occurred in the state for 20
years.11. A food distributor that sells wholesale to supermarket chains and to fast-food
restaurants (two distinguishable classes of customers) decides to discontinue the division that
sells to one of the two classes of customers.InstructionsFrom the foregoing information, indicate
in what section of the income statement or retained earnings statement these items should be
classified. Provide a brief rationale for your position.View Solution:
As audit partner for Grupo and Rijo you are in
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