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For each of the independent situations described below select the appropriate inherent risk factor described and the effect (overstatement or understatement) of the inherent risk factor on the companys net income using the following: Risk factors: Complexity Estimate Volume Industry Susceptibility to theft Situation Inherent Risk Factor Effect of Inherent Risk Factor on Companys Net Income

a. Sales orders for a textbook distributor have increased 100% over the last year. Additionally, the companys inventory turnover has doubled since the previous year.

b. Gold Miner, Inc. has gold mines in a number of states. To hedge the price of its gold inventory, Gold Miner purchases gold futures contracts. The fair value of gold has declined significantly in the last few months.

c. Metal, Inc. supplies copper pipes to home builders. During year 1, copper prices doubled. At any given time, a significant amount of inventory is in transit or located at job sites.

d. Joes Computers provides three-year money-back warranties on all laptops. During year 1, warranty claims decreased significantly and the company has not reduced the warranty reserve.

e. Global Co. imports most of its products from a foreign supplier. During year 1, a new technology made part of the Global Co. inventory obsolete. ________________________________________

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