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EarthWear Case
Chapter 5 - Inventory Testing
© McGraw-Hill Education 2014

In this B10case you will test inventory for EarthWear Clothiers. EarthWear has a calendar year-end
and conducted their inventory observation on 1 January, 2015. Inventory was counted at two different
foreign distribution centers (Germany and Japan) where the international inventory is stored. There
was no movement of inventory on January 1st. A brief description of the Inventory Count process has
been provided below. Additional information regarding inventory counts is available in Chapter 13.

Physical Inventory
Count Description

INSTRUCTIONS:

To test the completeness of inventory (i.e. "floor to sheet"), begin with Work Paper 5-3 and note that
some inventory items have already been completed. For the inventory items not yet completed, locate
the corresponding Inventory Count Tag and record the quantity from the tag onto Work Paper 5-3 (The
Inventory Count Tags and Inventory Status Reports are PDF files that you download from the website -
a link is also provided below). Then locate the item on the Inventory Status Report and enter the
quantity recorded onto Work Paper 5-3. Compare the two quantities recorded and if the count differs
for an inventory item, briefly describe which management assertion(s) appear to be violated.

Fields you are to complete on work papers are coloured yellow. The colour will disappear when the field is completed.
You should download the PDF files required to complete this case from the
EarthWear Hands-On-Cases section of the Student Online Learning Center.
http://www.mcgraw-hill.co.uk/textbooks/eilifsen
To test the existence of inventory (i.e. "sheet to floor"), enter the quantities from the Inventory Status
Report downloaded from the website for the items indicated on Work Paper 5-4. Some inventory items
selected for review have already been completed. Please note that the order of the Inventory Status
Report and Inventory Count Tag columns is the reverse of Work Paper 5-3 to reflect the change in the
order of observation (i.e. switching from "floor to sheet" to "sheet to floor"). Then locate the Inventory
Tag in the PDF files downloaded from the website to confirm the existence and accuracy of the
inventory item. In an actual inventory observation, the auditor would make selections from the
Inventory Status Report and the client would take the auditor to the actual inventory item and the
attached count tag. For this exercise, you will vouch the selections from the Inventory Status Report
(i.e. the "sheet") to the tag provided in the file above (i.e. the "floor"). Compare the quantity from the
Inventory Status Report with the quantity on the tag. For inventory items where the counts differ, briefly
describe which management assertion(s) appear to be violated.

Fields you are to complete on work papers are coloured yellow. The colour will disappear when the field is completed.

When you are finished with steps 1 and 2, enter your initials in the yellow box in the upper right-hand
corner of Work Paper 5-3 and Work Paper 5-4 (box indicates "Initial Here").

Please print a hard copy of Work Paper 5-3 and Work Paper 5-4 to submit unless your instructor
requests an electronic submission. The work papers are formatted to fit on one page.
 Name:

Class:
EARTHWEAR CLOTHIERS 5-3
Inventory Floor to Sheet Test Counts Initial Here
31 December 2014 Date:

GERMANY
Quantity on Quantity on
Inventory Count Inventory Status
Inventory ID Description Tags Report Difference Describe any Violations of Management's Assertions
101-2089 Medium T-shirt 32,789 32,789 0
102-5573 M Sweater Enter Qty. HereEnter Qty. HereEnter Tag Coun
102-8637 XL Sweater 94,202 94,202 0
103-2538 Photo 5 X 7 23,842 23,842 0
103-7994 Photo 11 X 17 Enter Qty. HereEnter Qty. HereEnter Tag Coun
104-9326 Duffel Bag 7,560 7,560 0

JAPAN
Quantity on Quantity on
Inventory Count Inventory Status
Inventory ID Description Tags Report Difference Describe any Violations of Management's Assertions
101-2089 Medium T-shirt 23,324 23,324 0
102-5573 M Sweater Enter Qty. HereEnter Qty. HereEnter Tag Coun
102-8637 XL Sweater 19,805 19,805 0
103-2538 Photo 5 X 7 23,901 23,901 0
103-7994 Photo 11 X 17 Enter Qty. HereEnter Qty. HereEnter Tag Coun
104-9326 Duffel Bag 18,345 18,345 0
 Name:

Class:
EARTHWEAR CLOTHIERS 5-4
Inventory Sheet to Floor Test Counts Initial Here
31 December 2014 Date:

GERMANY
Quantity on Quantity on
Inventory Status Inventory Count
Inventory ID Description Report* Tags* Difference Describe any Violations of Management's Assertions
100-2545 Fishing Vest 11,894 11,894 0
101-1348 Small T-shirt 8,349 8,349 0
101-3573 Large T-shirt 28,239 28,239 0
103-5037 Photo 8 1/2 X 11 53,838 53,838 0
104-3501 Briefcase 84,900 84,900 0
104-4510 Large suitcase 19,007 19,007 0

JAPAN
Quantity on Quantity on
Inventory Status Inventory Count
Inventory ID Description Report* Tags* Difference Describe any Violations of Management's Assertions
100-2545 Fishing Vest 9,498 9,498 0
101-1348 Small T-shirt 8,645 8,645 0
101-3573 Large T-shirt Enter Qty. Here 0 Enter Report Q
103-5037 Photo 8 1/2 X 11 8,907 8,907 0
104-3501 Briefcase Enter Qty. Here 43,487 Enter Report Q
104-4510 Large suitcase 24,389 24,389 0