Auditing: Future Earnings Management Activities at Maynard Manufacturing Company

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Future Earnings Management Activities at Maynard Manufacturing Company (Page 54) Examples| GAAP-based | Latitude by GAAP| Fraud?|
1| Yes| Yes (Gray Area)| No|
2| Yes| Yes (Gray Area)| No|
3| Yes| Yes (Black Area)| No|
4| Yes| Yes (White Area)| No|
5| Yes| Yes (Gray Area)| No|
6| Yes| Yes (Black Area)| No|
7| Yes| Yes (Black Area)| Yes|
8| Yes| Yes (White Area)| No|
9| No| Black Area| Yes|
10| Yes| Yes (White Area)| No|
11| Yes| Yes (Gray Area)| No|
12| Yes| Yes (White Area)| No|

Problem 3.50
a) I would not propose an audit adjustment to the management estimate. The estimate of the inventory from $82,000 to $97,000. Even though, the management estimate of inventory is relative high; however it is within the reasonable range. b) If management’s estimate of inventory market had been $80,000, the estimate of the inventory from the management is high compare to the audit estimate adjustment. Hence, we would propose an audit adjustment. Problem 3.46

Estimation of the five items:
Write off deferred subscription costs$2 millions to $3 millions
Provide allowance for bad debts $3 millions to $4 millions
Provide for expected warranty expense$2 millions to $5 millions
Lower of cost or market inventory write-down$2 millions to $3 millions
Loss on government contract refund
Total write-offs and losses$9 millions to $16 millions

Multiple Choices Questions:
1. A
2. C
3. A
4. B
5. A
6. D
7. A
8. C
9. D
10. B
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