Question 1

Tracing recorded sales transactions to the bills of lading provides evidence about the:

Accepted Answer

A) Completeness of sales transactions. 
B) Collectibility of sales transactions. 
C) Occurrence of sales transactions. 
D) Billing of all sales transactions.

Question 2

CPAs use negative accounts receivable confirmation requests more frequently than positive accounts receivable confirmation requests.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not a primary objective of the auditors in the examination of accounts receivable?

Accepted Answer

A) Determine the approximate realizable value. 
B) Consider the adequacy of internal control. 
C) Establish the existence of receivables. 
D) Determine the expected day of collection of each of the receivables.

Question 4

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year.This may indicate that

Accepted Answer

A) Obsolete inventory has not yet been reduced to fair market value. 
B) There was an improper cutoff of sales at the end of the year. 
C) An unusually large receivable was written off near the end of the year. 
D) The aging of accounts receivable was improperly performed in both years.

Question 5

Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

Accepted Answer

A) Footing the sales journal. 
B) Confirming accounts receivable. 
C) Tracing the total sales in the sales journal to the general ledger. 
D) Observation of the physical inventory count at year-end.

Question 6

Which of the following would indicate the need to use positive accounts receivable confirmation requests?

Accepted Answer

A) A large population consisting of small balances. 
B) Good internal control over accounts receivable. 
C) Most accounts are with large reputable companies. 
D) A large number of accounts receivable are in dispute.

Question 7

Once a CPA has determined that accounts receivable have increased due to slow collections in a "tight money" environment,the CPA would be likely to:

Accepted Answer

A) Increase the balance in the allowance for bad debts accounts. 
B) Review the going concern ramifications. 
C) Review the credit and collection policy. 
D) Expand tests of collectibility.

Question 8

Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

Accepted Answer

A) Examine sales invoices. 
B) Inclusion of the information in the engagement letter. 
C) Examine correspondence. 
D) Examine any subsequent cash receipts.

Question 9

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1,shipped FOB shipping point,which were recorded in December of 20X0 as credit sales?

Accepted Answer

A) Accounts receivable are overstated at December 31, 20X0. 
B) Accounts receivable are understated at December 31, 20X0. 
C) Operating expenses are overstated for the 12 months ended December 31, 20X0. 
D) Sales returns and allowance are overstated at December 31, 20X0.

Question 10

Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts.

Accepted Answer

A) True 
 B)False

Question 11

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year.However,the allowance for doubtful accounts as a percentage of accounts receivable remained about the same.Which of the following client explanations would satisfy the auditor?

Accepted Answer

A) A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year. 
B) Internal control activities over the recording of cash receipts have been improved since the end of the prior year. 
C) The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet. 
D) The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings.

Question 12

For effective internal control,the billing function should not be performed by the:

Accepted Answer

A) Sales department. 
B) Accounting department. 
C) Finance department. 
D) Information Processing department.

Question 13

You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation.This might be explained by the fact that:

Accepted Answer

A) The cash receipts journal was closed before year-end. 
B) The cash receipts journal was held open after year-end. 
C) There are many unrecorded liabilities. 
D) The sales journal was held open after year-end.

Question 14

Your client performed the physical count of inventory as of November 30,one month prior to year-end.Subsequently,your client closed the sales journal on 12/29/XX,two days before year end,and reported those two days' credit sales in January of the next year.Assuming the client uses a perpetual inventory system which of the following is most likely to be overstated relating to the year XX financial statements?

Accepted Answer

A) Sales. 
B) Cash. 
C) Inventory. 
D) Accounts receivable.

Question 15

Which of the following is consistent with effective internal control over sales transactions?

Accepted Answer

A) The accounting department prepares a shipping report authorizing the shipment of goods. 
B) The accounting department accounts for all receiving reports. 
C) The billing department accounts for all shipping documents. 
D) The accounts payable department annually approves the extension of credit to customers.

Question 16

The confirmation process may be performed using a(n): $\begin{array}{c}
& \text { Paper form} & \text { electronic form} \
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 17

The individual looking for guidance on revenue recognition is most likely to appropriately review:

Accepted Answer

A) APB 99. 
B) SAB 104. 
C) ASR 44. 
D) B1 Document.

Question 18

Material accounts receivable from related parties should be stated separately from other receivables.

Accepted Answer

A) True 
 B)False

Question 19

Confirmation requests should contain a "business reply" envelope addressed to the auditors at the client's address.

Accepted Answer

A) True 
 B)False

Question 20

Tracing copies of sales invoices to shipping documents will provide evidence that all

Accepted Answer

A) Shipments to customers were recorded as receivables. 
B) Billed sales were shipped. 
C) Debits to the subsidiary accounts receivable ledger are for sales shipped. 
D) Shipments to customers were billed.

Exam 11: Accounts Receivable, Notes Receivable, and Revenue

Tracing recorded sales transactions to the bills of lading provides evidence about the:

CPAs use negative accounts receivable confirmation requests more frequently than positive accounts receivable confirmation requests.

Which of the following is not a primary objective of the auditors in the examination of accounts receivable?

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year.This may indicate that

Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

Which of the following would indicate the need to use positive accounts receivable confirmation requests?

Once a CPA has determined that accounts receivable have increased due to slow collections in a "tight money" environment,the CPA would be likely to:

Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1,shipped FOB shipping point,which were recorded in December of 20X0 as credit sales?

Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts.

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year.However,the allowance for doubtful accounts as a percentage of accounts receivable remained about the same.Which of the following client explanations would satisfy the auditor?

For effective internal control,the billing function should not be performed by the:

You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation.This might be explained by the fact that:

Which of the following is consistent with effective internal control over sales transactions?

The individual looking for guidance on revenue recognition is most likely to appropriately review:

Material accounts receivable from related parties should be stated separately from other receivables.

Confirmation requests should contain a "business reply" envelope addressed to the auditors at the client's address.

Tracing copies of sales invoices to shipping documents will provide evidence that all