Diamonds Forever Inventory Familiarization Essay
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages
Diamonds Forever Inventory Familiarization Essay
MODULE 1: CASE FOR COMPLETION Background of the Company: DiamondsForever
Diamonds Forever has been operating in the diamond business for four years and deals almost exclusively in investment diamonds. Although they occasionally purchase other stones, these purchases are on the basis of special order requests from existing clients. These special order stones are bought from local suppliers and are generally sold within a few days and, as such, they are never material to the total inventory.
Diamonds Forever purchases both certified individual diamonds and non-certified parcels of diamonds from a single supplier, Diamonds Last. The certified diamonds arrive wrapped in individual soft paper wrappers that show the diamond categorization details on the front. The recorded details include color (which indicates quality), cut (which indicates shape), clarity (which indicates defects), and carat (which indicates weight).
A unique inventory number is assigned to each diamond wrapper and is written on the top right-hand corner of the front of the wrapper. These details are also recorded in the inventory records, along with the purchase price extracted from the supplier invoice. The inventory of wrapped diamonds is stored in inventory number order in a diamond storage box holding similarly classified diamonds. The storage boxes are held in the safe located in the CEO’s office. The CEO is the only person to have the safe code.
The non-certified diamonds included in each purchase arrive as a single diamond parcel in a zip-seal plastic bag. The total carat weight is shown on the front of this bag. The diamonds purchased as a diamond parcel are sorted and split into smaller parcels. These smaller parcels are constructed by sorting and categorizing the purchased parcel of diamonds according to color, cut, clarity, and carat.
The categorized diamonds are then stored in parcels in small pre-numbered zip- seal plastic bags. These parcels are sold by Diamonds Forever according to the parcel carat weight. Each of the categorized diamond parcel bags includes an inventory record sheet identifying the parcel number, the total quantity and total carat weight of the diamonds in the parcel, as well as the color, cut, clarity, and carat of each diamond in the parcel.
This inventory record sheet is used as a subsidiary inventory record, with only the total number, total carat weight, and apportioned purchase price of the diamonds included in the main inventory records. To establish the purchase price of each small parcel, the total purchase price of the original purchased parcel is apportioned on a per-carat basis using the following formula: total purchase price 3 (carat weight of small parcel/ total carat weight of purchased parcel).
Similar to the individually wrapped diamonds, the diamond parcel zip-seal bags are stored in inventory number order in a diamond storage box. The storage boxes are held in the safe located in the CEO’s office, along with the storage boxes for the individually wrapped certified diamonds.
Instructions and Requirements for Completing Module 1 in the Classroom
You are the new audit senior on the 20X1 year-end audit of DiamondsForever. In planning for this audit, your audit manager has asked you to familiarize yourself with both the physical inventory and the inventory recording system for the diamond parcels. Your audit manager has asked that you specifically consider the key audit assertions that need to be considered in relation to the audit of the diamond parcel inventory and the individually wrapped certified diamonds.
Requirement 1: Inventory
Using the sample inventory diamond parcel and the sample of individually wrapped certified diamonds provided, familiarize yourself with both the physical diamond inventory and the diamond inventory record for the diamond parcel as well as the wrapped diamonds.
Discuss and complete Answer Template A. As part of your inventory familiarization process, you are required to discuss and provide answers to the following two questions by completing Answer Template A, provided in Exhibit 1. [Note: To assist you in answering the questions, Answer Template A lists the account balance assertions]:
(a) Discuss and determine the key Account Balance Assertions that may be at risk for the diamond inventory, and
(b) Discuss and determine whether the sample of individually wrapped certified diamonds and the sample inventory parcel, including the inventory record, provides evidence that indicates any specific Account Balance Assertion is at risk for the 20X1 year-end audit.
EXHIBIT 1 Answer Template A: Inventory Familiarization
Note: To assist you in completing this Answer Template, recall that the Account Balance Assertions include: Existence, Rights and Obligations, Completeness, and Valuation and Allocation.
Answer Template B: Transaction-Level Assertions for Sales and Purchases
Requirement 2: Sales Transaction
Assume that the sales transaction outlined below has been selected for detailed testing as part of the 20X1 year-end audit procedures:
Sales transaction details. A new client, Innovative Investments, placed an urgent purchase order with DiamondsForever four days prior to year-end for the following diamonds:
Five Rose-colored diamonds (one carat, F color rating, brilliant cut) with a sale price of $25,000 each; and
Ten White diamonds (one carat, G color rating, princess cut) with a sale price of $6,000 each.
This order was able to be filled using two diamond parcels currently in the Diamonds Forever inventory. Specifically, diamond parcel number PX1-5 and diamond parcel number PX1-7, which were the 5th and 7th diamond parcels, respectively, constructed from diamonds purchased by Diamonds Forever during 20X1, were identified as containing diamonds matching this order.
To ensure these diamonds were not able to be sold to another client, the inventory records and the sales journal were updated to reflect this transaction one day after receiving the order. Diamonds Forever shipped diamond parcel PX1-5 to Innovative Investments on the last day of the financial year, and diamond parcel PX1-7 was shipped on the first day of the new financial year.
In relation to this transaction, you are required to discuss and provide answers to the following five-part question by completing Panel A of Answer Template B, provided in Exhibit 1: What evidence would you need to obtain in order to support each of the following five assertions for this recorded transaction?
(a) the occurrence assertion—in other words, how do you know that the sale to Innovative Investments actually took place?
(b) the completeness assertion—in other words, how do you know that the entire sale was recorded?
(c) the accuracy assertion—in other words, how do you know that the details of the sale, e.g., the sale amount, were correctly recorded?
- (d) the cut-off assertion—in other words, how do you know that the transaction was recorded as a sale in the correct accounting period?
- (e) the classification assertion—in other words, how do you know that the sale was recorded in the proper accounts?
Requirement 3: Purchases Transaction
Assume that the purchases transaction outlined below has been selected for detailed testing as part of the 20X1 year-end audit procedures:
Purchase transaction details. JGems, a valued customer of Diamonds Forever, placed an order for three sapphires of approximately one carat each on November 30, 20X1. Diamonds- Forever recorded a purchase for the three stones on December 5, when they were able to source the required stones from September Stones. September Stones delivered the stones in two separate parcels on December 20 (consisting of one 1.1 carat sapphire) and 14 days later (consisting of two sapphires, each 1.2 carats). In both cases, the sapphires were sold and delivered to JGems two days after taking delivery.
In relation to this transaction, you are required to discuss and provide answers to the following five-part question by completing Panel B of Answer Template B, provided in Exhibit 1: What evidence would you need to obtain in order to support each of the following five assertions for this recorded transaction?
- (a) the occurrence assertion—in other words, how do you know that the purchase actually took place?
- (b) the completeness assertion—in other words, how do you know that the entire purchase was recorded?
- (c) the accuracy assertion—in other words, how do you know that the details of the purchase, e.g., the purchase amount, were correctly recorded?
- (d) the cut-off assertion—in other words, how do you know that the transaction was recorded as a purchase in the correct accounting period?
- (e) the classification assertion—in other words, how do you know that the purchase was recorded in the proper accounts?
Diamonds Forever Inventory Familiarization Essay
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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