EBK AUDITING+ASSURANCE SERVICES
17th Edition
ISBN: 9780135171219
Author: ARENS
Publisher: PEARSON CO
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Chapter 8, Problem 23.2MCQ
To determine
Identify the correct option for the existence of related parties.
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Which of the following is most likely to indicate the existence of related parties?a. Elimination of obsolete inventory before the end of the yearb. Does not correct weaknesses in the client's internal control structurec. Unexplained increase in gross profitd. Borrowing money at an interest rate that is much lower than the market interest rate
The following misstatements are sometimes found in the sales and collection cycle’s account balances:a. Cash received from collections of accounts receivable in the subsequent period is recorded as current period receipts.b. The allowance for uncollectible accounts is inadequate because of the client’s failure to reflect depressed economic conditions in the allowance.c. Several accounts receivable are in dispute as a result of claims of defective merchandised. The pledging of accounts receivable to the bank for a loan is not disclosed in the financial statements.e. Goods shipped and included in the current period sales were returned in the subsequent period.f. Several accounts receivable in the accounts receivable master file are not included in the aged trial balance.g. One account receivable in the accounts receivable master file is included on the aged trial balance twice.
h. Long-term interest-bearing notes receivable from affiliated companies are included in accounts receivable.i.…
Please answer with reason for all why the option is correct and why the other options are incorrectPlease answer correct otherwise skip it
Which of the following factors could contribute to mistreatments in the revenue cycle? (select all that apply):
A. Difficulties in estimating the likelihood of collection within the next year.
B. Strict definition of the timing and amount of revenue to be recognized.
C. Low volume of sales, cash receipts, and sales adjustment transactions
D. Misappropriation of liquid assets generated through cash receipt transactions.
Chapter 8 Solutions
EBK AUDITING+ASSURANCE SERVICES
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - Prob. 9RQCh. 8 - Prob. 10RQCh. 8 - Prob. 11RQ
Ch. 8 - Prob. 12RQCh. 8 - Prob. 13RQCh. 8 - Your client, Harper Company, has a contractual...Ch. 8 - Prob. 15RQCh. 8 - Prob. 16RQCh. 8 - Prob. 17RQCh. 8 - Prob. 18RQCh. 8 - Prob. 19RQCh. 8 - Prob. 20RQCh. 8 - Prob. 21RQCh. 8 - Prob. 22RQCh. 8 - Prob. 23.1MCQCh. 8 - Prob. 23.2MCQCh. 8 - Prob. 23.3MCQCh. 8 - Prob. 24.1MCQCh. 8 - Prob. 24.2MCQCh. 8 - Prob. 24.3MCQCh. 8 - Which one of the following statements is correct...Ch. 8 - Prob. 25.2MCQCh. 8 - Prob. 25.3MCQCh. 8 - Prob. 26.1MCQCh. 8 - Prob. 26.2MCQCh. 8 - Prob. 26.3MCQCh. 8 - Prob. 27DQPCh. 8 - Prob. 28DQPCh. 8 - Prob. 32DQPCh. 8 - Prob. 33DQPCh. 8 - Prob. 34DQPCh. 8 - Prob. 35DQP
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- Which 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_forwardA 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.arrow_forwardWhich of the following is most likely to be detected by an auditor's review of an entity's sales cutoff? Multiple Choice lapping of year-end accounts receivable unrecorded sales for the year excessive sales discounts unauthorized goods returned for credit 3 Multiple Choice Which of the following is most likely to be detected by an auditor's review of an entity's sales cutoff? C lapping of year-end accounts receivable unrecorded sales for the year excessive sales discounts unauthorized goods returned for creditarrow_forward
- Question 6 Which of the following substantive procedures would most likely help an auditor determine whether accounts payable have been misstated? Examining reported purchases orders that appear to be too low. Reviewing disbursements subsequent to year end to determine if liabilities have been properly recorded on the year-end balance sheet. Searching customer returned goods that were not reported as returns. None of the answers providedarrow_forwardWhen using the allowance method for accounting for bad debts, accounts receivable is reported on the balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately is determined to be uncollectible and is written off, the recording of this event will Group of answer choices A)decrease the net realizable value of the accounts receivable. B)have an effect that is not determinable from the information given. C)increase the net realizable value of the accounts receivable. D)decrease total current assets. e)None of the abovearrow_forwardA tradeoff between enhancing qualitative characteristics often occurs. For example, when a company records sales revenue, it is required to simultaneously estimate and record an expense for potential bad debts (uncollectible accounts). Including this estimated expense is considered to represent the economic event faithfully and to provide relevant information about the net profi ts for the accounting period. Th e information is timely and understandable; but because bad debts may not be known with certainty until a later period, inclusion of this estimated expense involves a sacrifi ce of verifi ability. Th e bad debt expense is simply an estimate. It is apparent that it is not always possible to simultaneously fulfi ll all qualitative characteristics. Companies are most likely to make tradeoff s between which of the following when preparing fi nancial reports? A . Relevance and materiality. B . Timeliness and verifi ability. C . Relevance and faithful representation.arrow_forward
- Imagine that the auditor of QRS has expressed concerns that the bad debts expense recorded for the year is not high enough. What would be the impact on the reported value of the following items if the auditor requires an adjustment to be made? Select higher, lower or no effect from the drop down menu. Indicate higher/lower/no effect for: Cash Accounts Receivable Allowance for Doubtful Debts Bad debts expense Current Assets Net Profitarrow_forwardWhich of the following audit findings would be considered a deficiency in internal controls in the revenue cycle? A. No evidence that price and quantity on an invoice was compared with supporting documentation. B. Quantity shipped differed from quantity billed. C. Recording sales several days before the shipment date. D. All of the above. E. None of the above.arrow_forwardWhat can be the effect of inventory errors on the financial reports? How can these errors be corrected?arrow_forward
- Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? a. Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables b. Claim received from customers for goods returned may be intentionally recorded in other customer’s accounts. c. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash d. The failure to prepare shipping documents may cause an overstatement of inventory balancesarrow_forwardwhat basic accounting principle is the basis for criticizing the direct charge off method for recording uncollectible accounts?arrow_forward7. Which of the following statements regarding the gross and net methods for trade accounts payable is not true? a. the net method overstates accounts payable at the end of the accounting periodb. the net method highlights management inefficiency because purchase discounts lost arerecorded whenever an invoice is paid after the cash discount period has expiredc. the gross method is more widely used in practiced. the net method more accurately measures liquidityarrow_forward
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