.
Using the allowance method, the uncollectible accounts for the year is estimated to be $35,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 debit before adjustment, what is the amount of bad debt expense for the period?
$44,000
Our client uses the allowance method to estimate uncollectible accounts receivable. The company produced the following aging of the accounts receivable at year end. % Balance Uncollectible Total $375,0000-30 $222,000 1%31-60 $90,000 4%61-90 $38,000 5%91-120 $10,000 6%> 120 $15,000 10% Calculate the total estimated bad debts based on the above information.
$9,820
Smithson Corporation's unadjusted trial balance includes the following balances (assume normal balances): - Accounts Receivable $2,238,000 - Allowance for Doubtful Accounts $42,600 (credit balance) Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts expense will the company record?
$91,680
Which of the following is most likely to be considered a material weakness in internal control?
(1) Ineffective oversight of financial reporting by the audit committee.
An employee strike is called.
(ND) the event need not be disclosed.
We provide negative assurance only in what type of engagement?
A compliance engagement
A material weakness is a control deficiency (or combination of control deficiencies) that results in a reasonable possibility that a misstatement of at least what amount will not be prevented or detected?
A material amount.
Which of the following best describes the internal auditing function?
A part of the organization's monitoring controls.
Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts?
A property, plant, and equipment cutoff error near year-end has a more significant effect on net income.
What is something we need to test completeness of liabilities?
A reciprocal population
In which of the following reports should a CPA not express negative (limited) assurance?
A standard compilation report on financial statements of a nonpublic entity.
Understatement of which of the following is most likely to overstate net income?
Accounts payable.
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? (HINT: Use your knowlege of when title and risk of loss transfers on "FOB Shipping Point" to answer this question)
Accounts receivable are overstated at December 31, 20X0.
Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment?
Accumulated depreciation.
Which of the following would an auditor most likely question being included in their client's calculation of the overhead rate for a company that manufactures a product?
Advertising expense.
Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?
Aging of accounts receivable.
Which of the following forms of accountant association always leads to a report intended solely for certain specified parties?
Agreed-upon procedures.
Do privately held companies have to file their annual report though?
Ain't no way
If the business environment is experiencing a recession, the auditor most likely would focus increased attention on which of the following accounts?
Allowance for doubtful accounts.
Your client acquired a tract of land during the year. The land is to be the future site of the company's new headquarters, which will be constructed next year. Commissions were paid to the real estate agent used to acquire the land, and expenditures were made to relocate the previous owner's equipment. These commissions and expenditures were expensed and are excluded from "Property, plant, and equipment." Which of the following is the best answer relative to a potential adjusting journal entry?
An adjusting entry is needed since commissions paid to real estate agents are costs directly related to the acquisition of the property and should be included in the land cost.
The proper report by an auditor relating to summarized financial statements includes:
An opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements.
Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?
Are direct borrowings on notes payable authorized by the board of directors?
An audit of internal control over financial reporting ordinarily assesses internal control:
As of the last day of the fiscal period.
Which of the following would provide the most assurance concerning the valuation of accounts receivable?
Assess the allowance for uncollectible accounts for reasonableness.
The type of engagement that provides assurance as to whether some subject matter, or an assertion about the subject matter, is in accordance with suitable criteria is an
Attestation engagement.
Most assurance engagements are also considered
Attestation engagements.
Select which of the following statements concerning the audit of cash is incorrect.
Auditors typically do not devote a signifcant amount of time to audit cash since it usually has a much smaller balance than inventories and property, plant, and equipment (PP&E)
The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the:
Bill of lading.
What is the key internal control framework?
COSO
McPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins:
Can issue an unqualified opinion without disclosing that she did not observe year-end inventories.
When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments?
Capitalization.
An auditor who is auditing for treasury stock acquired will normally expect to see an entry in which journal?
Cash disbursements.
The audit of which of the following balance sheet accounts does not normally result in verification of a related income statement account?
Cash.
When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited?
Cash.
Who is responsible for the financial statements?
Client Management
The employees of our client, a manufacturing concern, are paid once a month, on the 4th day of the month following the balance sheet date. What audit issue(s) pertaining to labor costs exists at year end?
Completeness & Cutoff.
Ordinarily, the most significant assertion relating to accounts payable is:
Completeness.
Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?
Completeness.
Which of the following controls over PP&E may be the most impractical for an auditor to execute?
Conduct a physcial inventory of property, plant, and equipment at the end of the year.
Which of the following is not typically performed when the auditors are performing a review of client financial statements?
Confirmation of accounts receivable
The search for unrecorded liabilities for a public company includes procedures usually performed through the:
Date of the auditors' report.
Which of the following is not among the criteria that ordinarily exist for revenue to be recognized?
Delivery has occurred or is scheduled to occur in the near future.
An audit of the balance in the accounts payable account is ordinarily not designed to:
Detect accounts payable that are substantially past due.
Which of the following is least likely to be an audit objective for debt?
Determine that the client has rights to receive proceeds relating to the redemption of debt.
Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:
Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
Which of the following is NOT a reason why payroll fraud is difficult to conceal
Employees that are paid an incorrect amount will always complain
An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely?
Equipment assets were retired during the year.
Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold?
Establish that the client includes only inventory on hand at year-end in inventory totals.
The auditors' program for the examination of long-term debt should include steps that require the:
Examination of copies of debt agreements
Which of the following procedures is least likely carried out in the audit of capital stock for a public company?
Examine all outstanding stock certificates for completeness.
Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?
Examine cash receipts received after year-end.
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?
Examine selected cash disbursements in the period subsequent to year-end.
The auditors may conclude that depreciation charges are insufficient by noting:
Excessive recurring losses on assets retired.
In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test?
Existence.
In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to?
Existence.
When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is:
Existence.
A compilation provides LIMITED assurance over financial statements
Falsest false
An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated:
February 10, 20X9.
B sheet: AR
Inc. st. bad debt
B sheet: PP&E
Inc. st.: depreciation
Comfort letters to underwriters are normally signed by the:
Independent auditor.
A proper compilation report on financial statements that omit note disclosures:
Indicates that management has omitted such information.
To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:
Individual who signs the checks.
Which of the following would most likely be detected by an auditor's review of the client's sales cutoff?
Inflated sales for the year.
The auditors would be most likely to find unrecorded long-term liabilities by analyzing:
Interest payments.
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 12/29/2019, 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 2019 financial statements?
Inventory.
A possible loss, stemming from past events that will be resolved as to existence and amount by some future event, is referred to as a(n):
Loss contingency.
What is something we would ask the client regarding our testing of allowance for doubtful accounts?
Management rep letter
Which of the following need not be included in management's report on internal control under Section 404(a) of the Sarbanes-Oxley Act of 2002?
Management's acknowledgment of its responsibility to establish and maintain internal control that detects all significant deficiencies.
What is the most severe control problem?
Material Weakness (MW)
Which of the following is defined as a weakness in internal control that allows a reasonable possibility of a misstatement that is material?
Material weakness.
All corporate capital stock transactions should ultimately be traced to the:
Minutes of the board of directors.
Concerning interim quarterly financial statements, management of public companies:
Must engage CPAs to review the statements.
Which of the following would generally not be considered a Presentation and Disclosure item regarding their accounting for inventory.
Names of key suppliers if your client is in the retail business, such as WalMart or Target.
An auditor is most likely to trace treasury stock purchase transactions to the:
Numbered stock certificates on hand.
Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory?
Observe merchandise and raw materials during the client's physical inventory taking.
he primary objective of a CPA's observation of a client's physical inventory count is to:
Obtain direct knowledge that the inventory exists and has been properly counted.
Which of the following auditing procedures is typically dated as of the audit report and Professor Reffner feels is only as good as the client's (management) underlying process?
Obtaining a management representation letter.
In the continuing audit of a manufacturing company of medium size, which of the following areas would you expect to require the least amount of audit time?
Owners' equity.
Which of the following procedures is most likely to be included in the final review stage of an audit?
Perform analytical procedures.
Which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?
Physically examine items shipped.
Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?
Plant assets were retired during the year.
What type of confirmation gives us the most evidence as an auditor?
Positive confirmation
The receiving department is least likely to be responsible for the:
Preparation of a shipping document.
An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of:
Presentation and disclosure.
Which of the following is an example of an accrued liability?
Product warranty liability.
For which of the following accounts is it most likely that most of the audit work can be performed in advance of the balance sheet date?
Property, plant, and equipment.
Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment?
Purchase returns and allowances.
A client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record:
Purchases.
For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the:
Receiving report and the purchase order.
A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?
Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
A "bill and hold" scheme is most likely to include:
Recording as sales items that the company retains as of year-end.
For which of the following ledger accounts would the auditor be most likely to analyze the details to identify understatements of equipment acquisitions?
Repairs and maintenance expense.
Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated?
Repairs.
Which of the following is NOT a testing step for an auditor to substantiate the value of accrued liabilities:
Review accounts payable transactions made prior to the balance sheet date to assure completeness and accuracy.
Which of the following procedures is least likely a procedure that is completed near the end of the engagement?
Review accumulated depreciation.
In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable?
Sales and Bad Debt Expense.
A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this?
Sales.
Which of the following procedures is least likely to be completed before the balance sheet date?
Search for unrecorded liabilities
In an audit of a sole proprietorship, a common difficulty is lack of:
Segregation of personal net worth and business capital.
An effective procedure for identifying unrecorded retirements of equipment is to:
Select items of equipment in the accounting records and then locate them in the plant.
The least likely approach in auditing management's estimate relating to an accrued liability is to:
Send confirmations relating to the estimate.
Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements?
Settlement of litigation.
A transfer agent and a registrar are most likely to provide the auditor with evidence on:
Shares issued and outstanding.
To determine that all sales have been recorded, the auditors would select a sample of transactions from the:
Shipping documents file.
In verifying credits to perpetual inventory records of a nonmanufacturing firm, the auditor would be most interested in examining the:
Shipping documents.
The practitioner may perform an attest engagement only if he or she has reason to believe that the
Subject matter is capable of evaluation against an assertion available to users.
Which of the following is not considered an attestation service?
Tax advisory services.
Which of the following is least likely to be considered a substantive procedure relating to payroll?
Test whether employee time reports are approved by supervisors.
Which of the following is not true relating to the auditors' observation of the client's physical inventory?
The auditors should make certain that consigned items from suppliers are included in physical inventory totals.
Which of the following is true about the auditors' observation of the client's physical inventory?
The auditors' observation addresses the existence assertion.
Financial statements prepared following which of the following are most likely to be considered a special-purpose financial reporting framework?
The cash basis of accounting
The CPAs' examination report on a financial forecast should include all of the following except:
The estimated probability of achieving the forecast results.
You are auditing intangible assets of Blackberry, Inc and notice they have a patent on the books for the keyboard used on their smarphones. The patent is good for another 10 years and has been appropriately amortized. As an auditor, you would be most concerned about what risk?
The patented technlogy no longer has any commercial value and should either be impaired or fully writeen off.
To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to:
The purchase order.
Which of the following is NOT a qualitative factor that an auditor might use to determine materiality?
The sum of all errors noted by the auditor as a result of their testing is very close to their level of a material misstatement
control walkthroughs help auditors gain evidence on:
Their understanding of the effectiveness of controls
Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:
There is likely to be other reliable external evidence available to support the balances.
Which of the following best describes the reason for the auditors' review of the client's cost accounting system?
To obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold.
Which of the following intangible assets would be classified as having an indefinate life?
Trademark
For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on:
Transactions that occurred during the year.
The auditor's analytical procedures will be facilitated if the client:
Uses a standard cost system that produces variance reports.
To assure accountability for fixed asset retirements, management should implement an internal control that includes:
Utilization of serially numbered retirement work orders.
Which of the following would NOT be considered an Entity Wide Control.
Verification of A/R balances with your client's customers
Which of the following would not be a substantive test that an auditor would conduct for property, plant and equipement (PP&E)
Verify additions to PP&E for the past 2 years
A procedure that involves tracing a transaction from origination through the company's information systems until it is reflected in the company's financial report is referred to as a(n):
Walk-through
When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:
Want the client to schedule the physical inventory count at the end of the year.
Which of the following is not one of the Attribute Standards of the IIA's Standards for the Professional Practice of Internal Auditing?
Working papers.
A registrar/transfer agent system relating to capital stock is most likely used by:
a large, publicly traded company.
A lawsuit that was begun a year ago is settled after the Balance sheet date.
adjusted
Which of the following should be included as a part of inventory costs of a manufacturing company? Direct Labor, Raw Materials, Factory Overhead
all yes
An internal auditor's independence is most likely to be assured if she reports to the:
audit committee of the board of directors.
error or fraud: Recording of sales made in the subsequent period.
audit procedure: Comparing recorded sales several days before and after the balance sheet date with shipping documents.
error or fraud: Recording fictitious accounts receivable.
audit procedure: Confirming a sample of accounts receivable.
error or fraud: Failing to inform the auditors of pledged accounts receivable.
audit procedure: Reviewing standard confirmations from financial institutions.
error or fraud: Failing to record all sales transactions.
audit procedure: Tracing a sample of shipping documents to recorded sales transactions.
As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should:
consider the possibility of a misstatement in the financial statements.
An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a:
debit to Bad Debt Expense for $5,600
An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a:
debit to Bad Debts Expense for $2,800
When performing a financial type of audit for a governmental entity auditors generally do not report on:
economy and efficiency.
The auditors should determine that the issuance of bonds were approved by the company's stockholders.
false
B sheet: intangible assets
inc. st.: Amortization
B sheet: securities or other investments
inc. st.: gain on sale
B sheet: Notes payable
inc. st.: interest
An auditor must be independent to:
issue a review report.
We id a material weakness during the year. The client remediates the issue and we with the correction. We would:
issue an unmodified opinion
The auditor will most likely perform extensive tests for possible understatement of:
liabilities.
A typical objective of an operational audit is for the auditors to:
make recommendations for improving performance.
According to the SOX, a material weakness involves a reasonable possibility that what size misstatement is not prevented
material
What do we do with interim reports (10Qs)
must be reviewed by CPAS before it is filed with the SEC
The review of audit working papers by the audit partner is normally completed:
near the completion of the audit.
Do privately held companies have to file a 10Q?
no
If using Monetary Unit Sampling (MUS), if your calculated Upper Limit of Misstatement is greater than your Tolerable Misstatement, the population is considered
not materially correct
If order for a company to book a loss contingency in their financial records, the event must be.
probable and reasonable estimated
An engagement in which specified users agree with the CPAs on the procedures to be performed is:
referred to as an agreed-upon procedures engagement.
The auditors' search for unrecorded liabilities is completed:
subsequent to the balance sheet date.
Auditors must communicate internal control "significant deficiencies" to:
the audit committee.
Changes in and/or additions to capital stock accounts should normally be approved by:
the board of directors.
A major customer of the company is lost.
the event need not be disclosed.
A new subsidiary is purchased.
the event should be disclosed in the financial statements
A plant of the company is destroyed by fire.
the event should be disclosed in the financial statements
A significant decline in the value of inventories occurs.
the event should be disclosed in the financial statements
Auditors generally consider the evidence regarding accounts payable in the client's possession as more reliable than that for accounts receivable.
true
Loss contingencies should be disclosed in the notes to the financial statements when it is at least reasonably possible that a loss has been sustained; no financial entry is required.
true
Subsequent events that provide additional evidence as to conditions that existed at the balance sheet date may result in adjusting journal entries.
true
The amount of transactions in an account balance will have an impact on our testing approach
true
The auditors identified a material weakness in internal control in August. The client was informed and the client corrected the material weakness prior to year-end (December 31); the auditors concluded that management eliminated the material weakness prior to year-end. The appropriate audit report on internal control is:
unqualified
Does an auditor have to communicate a known material weakness to the audit committee?
yes
Does an auditor have to communicate known significant deficiencies to the audit committee?
yes
In an integrated audit, which of the following lead(s) to an adverse opinion on internal control? Known Material Weaknesses Known Significant Deficiencies
yes and no
In an integrated audit, which of the following must be communicated by management to the audit committee? Known Material Weaknesses Known Significant Deficiencies
yes and yes
In an integrated audit, which of the following must the auditors communicate to the audit committee? Known Material Weaknesses Known Significant Deficiencies
yes and yes
The aggregated misstatement in the financial statements is made up of: Known Misstatements Projected Misstatements Other Misstatements
yes to all
A client uses a perpetual inventory system. Would one expect a credit to which of the following accounts at the point of sale?
yes to both sales and inventory
