Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 22, Problem 17.2MCQ
To determine
Indicate the reason behind, if the auditor observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account.
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The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is toa. Evaluate internal control over securities.b. Determine the validity of prepaid interest expense.c. Ascertain the reasonableness of imputed interest.d. Detect unrecorded liabilities.
A disadvantage of basing bad debt expense on the historical relationship between actual bad debts and the outstanding accounts receivable balance at the end of the year is that
A it is not a generally accepted accounting procedure.
B it is an income statement approach.
C it may not recognize the cause and effect relationship between expenses and revenues.
D it may not result in a reasonable estimate of the net realizable value of receivables.
4. Which of the following statements about promissory notes is incorrect?
a. Interest is the revenue to the maker of the note
b. The party making the promise to pay is the debtor
c. The party to whom payment is to be made is the creditor
d. The maturity date of the note is the date when final payment of the note is due
Chapter 22 Solutions
Auditing And Assurance Services
Ch. 22 - List four examples of interest-bearing liability...Ch. 22 - Prob. 2RQCh. 22 - Prob. 3RQCh. 22 - Prob. 4RQCh. 22 - Prob. 5RQCh. 22 - Distinguish between (a) tests of controls and...Ch. 22 - Prob. 7RQCh. 22 - Prob. 8RQCh. 22 - Prob. 9RQCh. 22 - Prob. 10RQ
Ch. 22 - Prob. 11RQCh. 22 - Prob. 12RQCh. 22 - Prob. 13RQCh. 22 - Prob. 14RQCh. 22 - Prob. 15RQCh. 22 - Explain the relationship between the audit of...Ch. 22 - Prob. 17.1MCQCh. 22 - Prob. 17.2MCQCh. 22 - Prob. 17.3MCQCh. 22 - Prob. 18.1MCQCh. 22 - Prob. 18.2MCQCh. 22 - Prob. 18.3MCQCh. 22 - Prob. 19.1MCQCh. 22 - Prob. 19.2MCQCh. 22 - Prob. 19.3MCQCh. 22 - Prob. 20DQPCh. 22 - Prob. 21DQPCh. 22 - Prob. 22DQPCh. 22 - Prob. 23DQPCh. 22 - Prob. 24DQPCh. 22 - Prob. 25DQPCh. 22 - Prob. 26DQPCh. 22 - Prob. 27DQPCh. 22 - Prob. 28DQPCh. 22 - Prob. 29DQPCh. 22 - Prob. 30DQP
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- If receivables are hypothecated against borrowings, the amount of receivables involved should be A. Disclosed in the notes B. Excluded from the total receivables, with disclosure C. Excluded from the total receivables, with no disclosure D. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowingsarrow_forwardReported earnings become overstated as a result of failure to record which of the following: a. the amortization of premium on bonds payable b. a contingent liability c. the dividends in arrears on the outstanding d. an accrued liabilityarrow_forwardWhich of the following is stated correctly? a. Current liabilities follow non-current liabilities on the statement of financial position under GAAP but non-current liabilities follow current liabilities under IFRS. b. IFRS does not treat debt modifications as extinguishments of debt. c. Bond issuance costs are recorded as a reduction of the carrying value of the debt under GAAP but are recorded as an asset and amortized to expense over the term of the debt under IFRS. d. Under GAAP, bonds payable is recorded at the face amount and any premium or discount is recorded in a separate account. Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used.arrow_forward
- Which of the following best describes the proper presentation of accounts receivable in the financial statements?a. Accounts Receivable plus the Allowance for DoubtfulAccounts in the asset section of the balance sheet.b. Accounts Receivable in the asset section of the balancesheet and the Allowance for Doubtful Accounts in theexpense section of the income statement.c. Accounts Receivable less Bad Debt Expense in theasset section of the balance sheet.d. Accounts Receivable less the Allowance for DoubtfulAccounts in the asset section of the balance sheet.arrow_forwardWhich method delays recognition of bad debt until the specific customer accounts receivable is identified? A. income statement method B. balance sheet method C. direct write-off method D. allowance methodarrow_forwardIf the company failed to recognize the discount on non-interest-bearing notes receivable (unearned interest income credit), meaning the note was recorded at face, how would it affect the financial statements? a. the income statement won't be erroneous while the balance will be overstated b. at the end of the year of issuance, the income statement will be understated while the balance sheet will be overstated c. the income statement will be understated while the balance sheet will not be erroneous d. the statement of changes in equity will not affected by this errorarrow_forward
- Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning thea. Collectability of the balances confirmed.b. Ownership of the balances confirmed.c. Existence of the balances confirmed.d. Internal control over balances confirmed.arrow_forwardWhich of the following is true when accounts receivable are hypothecated against borrowing? Exclude the hypothecated receivables to the total receivables without disclosures Disclose the hypothecated receivables in the notes to financial statement or notes thereto Add the hypothecated receivables to allowance for doubtful accounts Exclude the hypothecated receivables to the total receivables with disclosuresarrow_forwardAn audit plan for noncurrent debt should include steps that require a. Inspecting the accounts payable subsidiary ledger b. Examining bond trust indentures. c. Investigating credits to the bond interest income account. d. Verifying the existence of the bondholders. e. Tracing vendor invoices to the account payable subsidiary ledger.arrow_forward
- Which of the following statements concerning receivables is correct? Notes receivable are often listed after short-term investments. Both the gross amount of receivables and the allowance for doubtful accounts should be reported. O Interest revenue and gain on sale of notes receivable are shown under other revenues and gains. O All of these answer choices are correct.arrow_forwardThe advantage of relating the bad debt experience to accounts receivable is that this approacharrow_forwardWhich among the statements is not correct? a. Net realizable value of accounts receivable results when accounts receivable is reduced by allowance for doubtful accounts b. Credit balances in accounts receivable arising from customer's advances should be excluded from accounts receivable c. The allowance method of recording bad debt loss is the one consistent with accrual accounting. d. answer not givenarrow_forward
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