Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 4

Auditing an Accounting Estimate. Suppose management estimated the market valuation of some obsolete inventory at $99,000; this inventory was recorded at $120,000, which resulted in recognizing a loss of $21,000. The auditors obtained the following information: The inventory in question could be sold for an amount between $78,000 and $92,000. The costs of advertising and shipping could range from $5,000 to $7,000.
Required:
a. Would you propose an audit adjustment to the management estimate? Prepare the appropriate accounting entry.
b. If management's estimate of inventory market (lower than cost) had been $80,000, would you propose an audit adjustment? Prepare the appropriate accounting entry.