Exam (elaborations)

ACG 6635 Exam 3 Questions and answers

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ACG 6635

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ACG 6635

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Chapter 10 Quiz

1. Which of the following is not an issue related to the valuation of accounts

receivable? a.The valuation of revenue that makes up the detail of accounts receivable.
b.A proper allowance for doubtful accounts.
c.The net realizable value of accounts receivable.
d.Proper cutoff.

2. An auditor confirms a representative number of open accounts receivable as of December 31 and
investigates respondents' exceptions and comments. By this procedure, the auditor would be most
likely to learn about which of the following?

a.One of the cashiers has been covering a personal embezzlement by lapping.
b.One of the sales clerks has not been preparing charge slips for credit sales to family and friends.
c.One of the EDP control clerks has been removing all sales invoices applicable to his account from
the data file.
d.The credit manager has misappropriated remittances from customers whose accounts have been written-
off.

3. Cooper, CPA is auditing the financial statements of a small rural municipality. The receivable balances
represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To
determine the existence of the accounts receivable balances at the balance sheet date, Cooper would
most likely

a.send positive confirmation requests.
b.send negative confirmation requests.
c.examine evidence of subsequent cash receipts.
d.inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

4. 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 and receivables and an understatement of
inventory. c.understatement of revenues and receivables and an overstatement
of inventory. d.overstatement of revenues, receivables, and inventory.

5. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger
control account as of October 31. By this procedure, the auditor would be most likely to learn about
which of the following?

a.An October invoice was improperly computed.
b.An October check from a customer was posted in error to the account of another customer with a
similar name.
c.An opening balance in a subsidiary ledger account was improperly carried forward from the previous
accounting period.
d.An account balance is past due and should be written-off.

,6. Which of the following control activities may prevent the failure to bill customers for some shipments?

a.Each shipment should be supported by a prenumbered sales invoice that is accounted for.
b.Each sales order should be approved by authorized personnel.
c.Sales journal entries should be reconciled to daily sales summaries.
d.Each sales invoice should be supported by a shipping document.

7. Which of the following sets of duties would ordinarily be considered basically incompatible in terms
of effective internal control?

a.Preparation of monthly statements to customers and maintenance of the accounts receivable subsidiary
ledger.
b.Posting to the general ledger and approval of additions and terminations relating to the payroll.
c.Custody of unmailed signed checks and maintenance of expense subsidiary ledgers.
d.Collection of receipts on account and maintaining accounts receivable records.

8. Immediately upon receipt of cash, a responsible employee

should a.record the amount in the cash receipts journal.
b.prepare a listing of remittances.
c.update the subsidiary accounts receivable
records. d.prepare a deposit slip in triplicate.

9. Which of the following internal control activities most likely would ensure that all billed sales
are correctly posted to the accounts receivable ledger?

a.Daily sales summaries are compared to daily postings to the accounts receivable
ledger. b.Each sales invoice is supported by a prenumbered shipping document.
c.The accounts receivable ledger is reconciled daily to the control account in the general ledger.
d.Each shipment on credit is supported by a prenumbered sales invoice.

10. Which of the following is the best argument against the use of negative accounts
receivable confirmations?

a.The cost-per-response is excessively high.
b.There is no way of knowing if the intended recipients received them.
c.Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment.
d.The inference drawn from receiving no reply may not be correct.

11. Which of the following is not an inherent risk factor for the revenue

process? a.Complexity of revenue recognition issues.
b.Difficulty of auditing transactions.
c.Special industry practices.
d.The entity does not follow its stated policies for sales order approvals.

,12. Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate
control activities over the invoicing function allow goods to be invoiced that are not shipped. The
inadequate control activities could cause an

a.understatement of revenues, receivables, and inventory.
b.overstatement of revenues and receivables and an understatement of
inventory. c.understatement of revenues and receivables and an overstatement
of inventory. d.overstatement of revenues, receivables, and inventory.

13. Which of the following most likely would be the result of ineffective internal control policies
and procedures in the revenue process?

a. Final authorization of credit memos by personnel in the Sales Department could permit an
employee defalcation scheme.
b. Fictitious transactions could be recorded, causing an understatement of revenues and an
overstatement of receivables.
c. Irregularities in recording transactions in the subsidiary accounts could result in a delay in
goods shipped.
d.Omission of shipping documents could go undetected, causing an understatement of inventory.

14. If the objective of a test of details is to detect the overstatement of sales, the auditor should
trace transactions from the

a.cash receipts journal to the sales journal.
b.sales journal to the cash receipts journal.
c.shipping documents to the accounting records.
d.accounting records to the shipping documents.

15. In which of the following circumstances would the use of the negative form of accounts
receivable confirmation most likely be justified?

a.A substantial number of accounts may be in dispute and the accounts receivable balance arises from
sales to a few major customers.
b.A substantial number of accounts may be in dispute and the accounts receivable balance arises from
sales to many customers with small balances.
c.A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a
few major customers.
d.A small number of accounts may be in dispute and the accounts receivable balance arises from sales to
many customers with small balances.

16. In auditing accounts receivable, the negative form of confirmation request most likely would be
used when

a.recipients are likely to return positive confirmation requests without verifying the accuracy of the
information.
b.the combined assessed level of inherent and control risk relative to accounts receivable is low.
c.a small number of accounts receivable are involved but a relatively large number of errors are expected.

, d.the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

17. The confirmation of customers' accounts receivable rarely provides reliable evidence about
the completeness assertion because

a.many customers merely sign and return the confirmation without verifying its details.
b.recipients usually respond only if they disagree with the information on the request.
c.customers may not be inclined to report understatement errors in their accounts.
d.auditors typically select many accounts with low recorded balances to be confirmed.

18. An aged trial balance of accounts receivable is normally used by the auditor

to a.verify the existence of recorded receivables.
b.ensure that all accounts are promptly credited.
c.evaluate the results of tests of controls.
d.evaluate the provision for bad debts.

19. Which of the following tests of controls most likely would help assure an auditor that goods
shipped are properly billed?

a.Scan the sales journal for sequential and unusual entries.
b.Examine shipping documents for matching sales invoices.
c.Compare the accounts receivable ledger to daily sales summaries.
d.Inspect unused sales invoices for consecutive prenumbering.

20. An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers
in support of management's financial statement assertion of

a.valuation or allocation.
b.completeness.
c.existence or occurrence.
d.rights and obligations.

21. Which one of the following would the auditor consider to be an incompatible operation if the
cashier receives remittances from the mailroom?

a.The cashier prepares the daily deposit.
b.The cashier makes the daily deposit at a local bank.
c.The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
d.The cashier endorses the checks.

22. Auditors are more concerned with the occurrence assertion for revenues than the
completeness assertion because

a.entities are more likely to overstate than understate revenues.
b.entities are more likely to understate than overstate revenues.
c.it is difficult to determine when services have been performed.
d,the allowance for doubtful accounts often is understated.

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Exam (elaborations)

ACG 6635 Exam 3 Questions and answers

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