Question

1. Consider the following statements:

      I. Lapping involves covering a theft related to accounts receivable by using a later cash receipt to

         cover the previous theft.

     II. A “positive confirmation” requests that customers respond whether they agree or not with

          the amount due to the entity stated in the confirmation.

      a. I is true;   II is true

      b. I is true;   II is false

      c. I is false; II is true

      d. I is false; II is false

2. Tracing bills of lading to sales invoices provides evidence that
     a. Shipments to customers were properly authorized.
   b. Shipments to customers were ordered.
     c. Billed sales were shipped.
     d. Shipments to customers were billed.

3. Which of the following terms involves “arrangements that are used to alter the terms and conditions

      of the recorded sales” (see textbook page 338)?

     a. Early revenue recognition

     b. Fictitious sales.

     c. (Hidden) Side agreements.

     d. Related-party agreements.

4. In auditing accounts receivable, the “negative” form of confirmation request most likely

      would be used when

     a. Accounts receivable consist of a number of accounts with small customer balances.
     b. Control Risk and Inherent Risk are assessed to be High.

     c. Recipients are likely to return positive confirmation requests without verifying the accuracy of the

          information.
     d. The auditor performs a dual-purpose test that assesses control risk and obtains substantive

          evidence.

5. As part of the revenue process, what is used to BILL the customer?

      a. Credit Approval Form.

      b. Shipping Document.

      c. Sales Invoice.

      d. Sales Journal.

6. A CPA auditing an electric utility wishes to determine whether all customers are being billed. The

     CPA's best direction of test is from the
     a. Meter department records to the billing (sales) register.
     b. Billing (sales) register to the meter department records.
     c. Accounts receivable ledger to the billing (sales) register.
     d. Billing (sales) register to the accounts receivable ledger.

7. Auditors sometimes use ratios as audit evidence. For example, an unexplained INCREASE in the ratio

      of gross profit to sales may suggest which of the following possibilities?
     a. Fictitious purchases.
     b. Unrecorded sales.

     c. Fictitious sales.
     d. Selling expense recorded as general expense.

8. If a “positive” accounts receivable confirmation request is not returned to the auditor, alternative

     procedures would be performed. An alternative procedure would be:

      a. send a second request to the customer.

      b. select a new customer balance for confirmation.

      c. examination of specific subsequent cash receipts.

      d. research and determine the “credit score” of the customer.

9.  Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control

     activities over the invoicing function allow goods to be shipped that are not invoiced. The

      inadequate control activities could cause an

     a. Understatement of revenues, receivables and inventory

     b. Overstatement of revenues, receivables and inventory

     c. Understatement of revenues, receivables and an overstatement of inventory

     d. Overstatement of revenues, receivables and understatement of inventory

10.   A way to test accounts receivable for completeness [understatement] is to test sales for

         understatement.

      a. Statement is False.

      b. Statement is True

11. An aged trial balance of accounts receivable is normally used by the auditor to evaluate the

        adequacy of the allowance for doubtful accounts involving accounts receivable. The company’s

       credit terms are 2% 10, net 30. The aged trial balance was made on December 31, year 1. The

       auditor reviews the work on January 30, year 2. An outstanding accounts receivable on December

       31, year 1 was for a sale invoiced on November 22, year 1 would be classified on the aged trial

       balance as:

     a. Current.

      b. Past due

       c. More than 30 days past due.

       d. More than 60 days past due.

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first four questions should be answered. Kindly take note of it.

Part 1

Answer is option A

a. I is true;   II is true

In Positive confirmation, the respond from customer is sought in case of agreement and disagreement both.

Part 2

Answer is option D

d. Shipments to customers were billed

The tallying of bills of lading with sales invoice indicates the goods that are shipped to consumers after billing.

Part 3

Answer is option C

c. (Hidden) Side agreements

The objective of such arrangements is to entice customers to accept goods/services delivery.

Part 4

Answer is option A

a. Accounts receivable consist of a number of accounts with small customer balances.

Negative confirmation request are effective in case of detection risk being low.