Final answer:
The misstatements discovered during the audit of Arthur Ltd. Company for the year ending 31 December 2020 include sales and accounts receivable being overstated, a loan confirmation revealing an accrued expense, merchandise purchased on account not being included in inventories, a clerical error in accrued rent, and a car not being recorded as contributed capital.
Step-by-step explanation:
The misstatements discovered during the audit of Arthur Ltd. Company for the year ending 31 December 2020 include the following:
- Sales and accounts receivable were overstated by $50,000 due to cutoff errors. Cutoff errors can occur when sales or invoices are recorded in the wrong period, resulting in a misstatement of revenue and accounts receivable.
- The loan confirmation from the bank revealed a $5,200 accrued expense. An accrued expense is an expense that has been incurred but not yet paid. This expense should have been recorded and recognized in the financial statements.
- The company's inventories did not include $20,000 of merchandise purchased on account. If the inventory does not include all purchases made, it will result in an understatement of inventory and an overstatement of cost of goods sold.
- A clerical error resulted in the December accrued rent of $5,000. Accrued rent is an expense that is recognized when incurred but not yet paid. This error resulted in an incorrect amount being recorded for the accrued rent.
- The company did not record a $60,000 car as a contributed capital asset on May 1, 2020. When a company receives a noncash asset as a contribution from its owner, it should be recorded as contributed capital. This omission resulted in an understatement of contributed capital.