Exhibit 7 2

Lakeside Company
Account 585, Estimated Bonus Expense, for Nine Months ended
September 30, 2011 and 2012
STORE
Sales
Sales Returns
Cost of Sales
Dir. Salary Exp.
Rent
Bonus Basis
X 2011 Bonus %

BONUS EXPENSE

BONUS EXPENSE

(2)

STORE

STORE

No.1
No. 2
No. 3
No. 4
No. 5
No. 6
547,000 795,600 472,200 484,600 746,000 221,600
15800
50380
23900
28100
60020
22600
325200
478600
276400
274400
458000
136200
90400
118400
78600
77200
109600
64600
19200
56800
24000
26400
60000
24000
96400
91420
69300
78500
58380
(25800)
2%
2%
2%
2%
2%
2%
_______ _______ _______ _______ _______ _______
1928.00 1828.40 1386.00 1570.00 1167.60
0

STORE

Sales
Sales Returns
Cost of Sales
Dir. Salary Exp.
Rent
Bonus Basis
X 2012 Bonus %

2011 Bonus Plan

STORE
STORE
STORE

No.1
639,800
24400
370600
102400
21000
121400
4%
_______
4856.0

2012 Bonus Plan

STORE
STORE
STORE
No. 2
797,800
59800
456800
118600
66000
96600
4%
_______
3864.0

No. 3
917,600
99000
462000
80800
26400
249400
4%
_______
9976.0

No. 4
530,800
44700
304800
82400
28000
70900
4%
_______
2836.0

STORES
326,7000
200800
1948800
538800
210400
368200
2%
_________
7880.00

STORE

STORE

TOTAL ALL

No. 5
729,200
96500
436000
110200
64000
22500
4%
_______
900.0

No. 6
242,400
22400
147600
64400
24000
(16000)
4%
_______
0

STORES
385,7600
346800
2177800
558800
229400
544800
4%
_________
22432.0

Completed worksheet by inserting appropriate amounts from the Trial Balance

Computed Bonus Basis by subtracting rent and direct salary expense from GP
The rate of the bonus basis was given
Computed bonus expense by X bonus basis by the given bonus %
Comparison of Bonus Expense

TOTAL ALL

Bonus Expense
Bonus Expense Calculated
Lakeside Accrued Bonus Expense

2011
7,880
12,000

2012
22,432
39,000

In 2011 and 2012, there are clear differences in bonus expenses that are
calculated by the auditor and the Lakeside accrued bonus expense accounts.
These differences can not be considered as a material because as these would
not affect the decision of the users of the statements. Accrued bonus expense is
a liability account in the balance sheet and it shows that this liability account is
overstated. If there is exclusion of accrued expense then it would be considered
highly material.
There are several plausible reasons for these differences in the bonus expense
accounts. The biggest reason could be that the company is not taking into
account the cost of goods sold and sales returns when calculating the bonus
expenses. The other reason could be the use of correct cut-off period. The
payroll in Lakeside Company is paid on the 15 th of every month. This represent
that the bonus expense for last 15 days of September has also been accrued.
The management of internal control is another key factor. This reflects that
employees are not complying with the policies and procedures of the company.
Also, the bonus is paid on each stores based on net income, there are
possibilities those managers and assistant managers are overstating the sales of
their stores to benefit from the bonuses paid out.
There is clearly a substantive difference in the bonus expenses calculated and
bonus expenses accrued for 2011 and 2012. Lakesides bonus expense was
overstated by $16,568. Lakeside Company should adjust this differences to show
a fair representation of the amounts. The company could make the following
adjustment if the misstatement was higher than the tolerable amount:
DR Estimated Bonus Liability $16,568
CR Estimated Bonus Expense

$16,568