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WorksheetsACY52 Substantive Test of Receivables and Sales Quiz
Total questions: 45
Worksheet time: 15hrs 27mins
Name
Class
Date
1.
The department approving a sales transaction should be the shipping department.
a)
TRUE
b)
FALSE
2.
Accounts receivable that are written-off should not be turned over to a collection agency.
a)
TRUE
b)
FALSE
3.
An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance foruncollectible accounts.
a)
TRUE
b)
FALSE
4.
Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable.
a)
TRUE
b)
FALSE
5.
Confirmation requests should contain a "business reply" envelope addressed to the auditors at the client's address.
a)
TRUE
b)
FALSE
6.
CPAs use negative accounts receivable confirmation requests more frequently than positive accounts receivable confirmation requests.
a)
TRUE
b)
FALSE
7.
Confirmation of accounts receivable provides some assurance that no lapping or other manipulation affecting accounts receivable is being carried on.
a)
TRUE
b)
FALSE
8.
Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts.
a)
TRUE
b)
FALSE
9.
When it is impossible to confirm accounts receivable, the auditors may be able to satisfy themselves as to the existence of accounts receivable by alternative procedures.
a)
TRUE
b)
FALSE
10.
Material accounts receivable from related parties should be stated separately from other receivables.
a)
TRUE
b)
FALSE
11.
To test the existence assertion for recorded receivables, an auditor would select a sample from the:
a)
A. Sales orders file.
b)
B. Customer purchase orders.
c)
C. Accounts receivable subsidiary ledger.
d)
D. Shipping documents (bills of lading) file.
12.
Which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?
a)
A. Examine bills of lading.
b)
B. Physically examine items sold.
c)
C. Examine correspondence.
d)
D. Examine subsequent cash receipts.
13.
Your client performed the physical count of inventory as of November 30, one month prior to yearend. 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?
a)
A. Sales.
b)
B. Cash.
c)
C. Inventory.
d)
D. Accounts receivable.
14.
Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?
a)
A. The confirmation requests are sent on the client's letterhead.
b)
B. The confirmation requests are mailed to customers by the internal auditors.
c)
C. The client's mailroom personnel closely monitor and inspect confirmation requests during mailing.
d)
D. The return address on the envelope used to send the confirmation request is that of the client.
15.
When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors' confirmation of receivables?
a)
A. The account balances as of year-end will generally be confirmed.
b)
B. The auditors will in general use blank rather than positive confirmation requests.
c)
C. The auditors will be required to confirm accounts as of an interim date (during the year under audit) and as of year end.
d)
D. Confirmation will not in general be used as the auditor will rely primarily upon support such as vendors' invoices, purchase orders and receiving reports.
16.
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?
a)
A. Accounts receivable are overstated at December 31, 20X0.
b)
B. Accounts receivable are understated at December 31, 20X0.
c)
C. Operating expenses are overstated for the 12 months ended December 31, 20X0.
d)
D. Sales returns and allowance are overstated at December 31, 20X0.
17.
Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?
a)
A. Examine sales invoices.
b)
B. Inclusion of the information in the engagement letter.
c)
C. Examine correspondence.
d)
D. Examine any subsequent cash receipts.
18.
Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal control over the revenue cycle?
a)
A.Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables.
b)
B. Claims received from customers for goods returned (and unpaid for) may be intentionally recorded in other customers' accounts permitting a misappropriation of cash.
c)
C. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
d)
D. The failure to prepare shipping documents may lead to an understatement of inventory balances.
19.
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 end?
a)
A. Cash receipts.
b)
B. Payroll.
c)
C. Purchases.
d)
D. Sales.
20.
Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?
a)
A. Examine cash receipts received after year-end.
b)
B. Confirm receivables.
c)
C. Examine dates of purchase orders.
d)
D. Foot the receivables lead schedule.
21.
Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?
a)
A. Merchandise received is not promptly reconciled to the outstanding purchase order file.
b)
B. Obsolete items included in inventory balances are rarely reduced to the lower of cost or market value.
c)
C. The write-off of receivables by personnel who receive cash permits the misappropriation of cash.
d)
D. Fictitious transactions are recorded that cause an understatement of revenue and overstatement of receivables.
22.
Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts?
a)
A. Investigate confirmation exceptions for indication of amounts in dispute.
b)
B. Review accounts which have been written off as uncollectible prior to year-end.
c)
C. Investigate credit ratings for large accounts receivable.
d)
D. Discuss with the credit manager the current status of doubtful accounts.
23.
Which of the following is consistent with effective internal control over sales transactions?
a)
A. The accounting department prepares a shipping report authorizing the shipment of goods.
b)
B. The accounting department accounts for all receiving reports.
c)
C. The billing department accounts for all shipping documents.
d)
D. The accounts payable department annually approves the extension of credit to customers.
24.
Tracing recorded sales transactions to the bills of lading provides evidence about the:
a)
A. Completeness of sales transactions.
b)
B. Collectibility of sales transactions.
c)
C. Occurrence of sales transactions.
d)
D. Billing of all sales transactions.
25.
To obtain the best evidence regarding the completeness of recorded accounts receivable, the auditors:
a)
A. Trace a sample of the bills of lading to sales invoices.
b)
B. Confirm a sample of accounts payable.
c)
C. Review the aging of accounts receivable.
d)
D. Trace a sample of recorded sales to shipping documents.
26.
Which of the following generally provides the least evidence regarding the valuation of the allowance for doubtful accounts?
a)
A. Reviewing an aging of accounts receivable.
b)
B. Examination of cash receipts subsequent to the balance sheet date.
c)
C. Confirming current (0-30 day) year-end accounts receivable.
d)
D. Reviewing credit files for selected account.
27.
Which of the following would indicate the need to use positive accounts receivable confirmation requests?
a)
A. A large population consisting of small balances.
b)
B. Good internal control over accounts receivable.
c)
C. Most accounts are with large reputable companies.
d)
D. A large number of accounts receivable are in dispute.
28.
Which of the following is not true about the confirmation of accounts receivable?
a)
A. Confirmation requests should bear the auditors' return address.
b)
B. Confirmation requests should be signed by the auditors.
c)
C. Confirmation requests should be mailed directly by the auditors.
d)
D. Confirmation requests should include a return envelope addressed to the office of the auditors.
29.
Which of the following is not true about the auditors' verification of notes receivable?
a)
A. The interest revenue on notes receivable is usually audited by independent computation.
b)
B. Inspecting the notes is sufficient evidence of existence of the notes.
c)
C. The auditors may evaluate the collectibility of notes by inspecting credit files.
d)
D.Confirmation of notes payable to banks may be accomplished in conjunction with the confirmation of cash balances.
30.
To verify that all sales that have been shipped to customers have been recorded, a test of transactions should be completed on a representative sample drawn from:
a)
A. The sales journal.
b)
B. The billing clerk's file of sales orders.
c)
C. Duplicate copies of sales invoices.
d)
D. The shipping clerk's file of duplicate copies of bills of lading.
31.
A practical and effective audit procedure for the detection of lapping is:
a)
A. Preparing an interbank transfer schedule.
b)
B. Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank.
c)
C. Tracing recorded cash receipts to postings in customers' ledger cards.
d)
D. Preparing a proof of cash.
32.
Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?
a)
A. A bank lockbox system.
b)
B. Approval of all disbursements by an individual independent of cash receipts.
c)
C. Monthly bank cutoff statements.
d)
D. Prenumbered remittance advices.
33.
Which of the following is not a control that generally is established over cash receipts?
a)
A. To prevent abstraction of cash, a control listing of cash receipts should be prepared by mailroom personnel.
b)
B. To insure accurate posting, the accounts receivable clerk should post the customers' receipts from customers' checks.
c)
C. To insure accuracy of the accounts receivable records, the records should be reconciled monthly to the accounts receivable controlling account.
d)
D. To prevent theft of cash, receipts should be deposited daily.
34.
Which of the following statements is not correct about materiality?
a)
a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important.
b)
b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements
c)
c. Materiality judgments are made in light of surrounding circumstanced and necessarily involve both quantitative and qualitative judgments.
d)
d. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.
35.
In considering materiality for planning purposes, Munda, auditor believes that misstatements aggregating P60,000 would have material effect on an entity's income statement, but that misstatements would have to aggregate P40,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate:
a)
a. P40, 000
b)
b. P50, 000
c)
C. P60, 000
d)
d. P100, 000
36.
Which of the following statements concerning materiality thresholds in incorrect?
a)
a. Materiality thresholds may change between the planning and review stages of the audit. These changes may be due to quantitative and/or qualitative factors.
b)
b. The smallest aggregate level of errors or fraud that could be considered material to any of the financial statements is referred to as a materiality threshold.
c)
c. In general, the more misstatements the auditor expects, the higher should be the aggregate materiality threshold.
d)
d. Aggregate materiality thresholds are a function of the auditor's preliminary judgment concerning audit risk.
37.
Preliminary arrangements agreed to by the auditor and the audit client should be reduced to writing by the auditor. The best place to set forth these arrangements is in
a)
a. A memorandum to be placed in the permanent section of the auditing working papers.
b)
b. An audit engagement letter.
c)
c. A client representation letter.
d)
d. A confirmation letter attached to the constructive services letter.
38.
Engagement letters are widely used in practice for professional engagements for all types. The primary purpose of the engagement letters is to
a)
a. Remind management that the primary responsibility for the financial statements rests with management
b)
b. Provide a written record of the agreement with the client as to the services to be provided
c)
c. Satisfy the requirements of the CPA’s liability for insurance policy
d)
d. Provide a starting point for the auditor’s preparation of the preliminary audit program
39.
When should an auditor obtain an engagement letter?
a)
a. Whenever a prospective client offers to hire the audit firm
b)
b. During the interim audit period, after the auditor has evaluated the client’s internal control and estimated the amount of time required for the audit
c)
c. When a new client is accepted by the auditor
d)
d. At the conclusion of the field work, just prior to signing the audit report
40.
In an integrated audit, which must the auditor communicate in writing to management?
a)
a. Only material weaknesses.
b)
b. Material weaknesses and significant deficiencies.
c)
c. Material weaknesses, significant deficiencies and other control deficiencies.
d)
d. Material weaknesses, significant deficiencies, other control deficiencies, and all suspected and possible employee law violations.
41-44.
41.
How much is the Accounts Receivable (gross) balance at December 31?
4 lines
42.
The total current non-trade receivable balance at December 31 is:
4 lines
43.
The liability for the accounts receivable – assigned is:
4 lines
44.
The total non-trade receivable balance at December 31 is:
4 lines
45-47.
45.
What is the carrying amount of the loan receivable on January 1, 2020?
4 lines
46.
What is the interest income for 2020?
4 lines
47.
What is the carrying amount of the loan receivable on December 31, 2020?
4 lines
48-50.
48.
What is the loan impairment loss for 2020?
4 lines
49.
What is the interest income for 2021?
4 lines
50.
What is the carrying amount of the loan receivable on December 31, 2021?
4 lines
51-55.
How much is the annual collection in relation to the sale to Maria Company?
How much is the interest income to be recognized in 2021 in relation to the sale to Maria Company assuming the first payment is to be made on January 1, 2021?
How much is the amount of receivable to be reported on December 31, 2021 in relation to the sale to Marisa?
How much is the amount of receivable to be reported on December 31. 2021 in relation to the sale to Perfina?
How much is the amount of receivable to be reported on December 31, 2021 in relation to the sale to Perfina assuming instead that Teresa cannot reliably estimate future returns?
51.
How much is the annual collection in relation to the sale to Maria Company?
4 lines
52.
How much is the interest income to be recognized in 2021 in relation to the sale to Maria Company assuming the first payment is to be made on January 1, 2021?
4 lines
53.
How much is the amount of receivable to be reported on December 31, 2021 in relation to the sale to Marisa?
4 lines
54.
How much is the amount of receivable to be reported on December 31. 2021 in relation to the sale to Perfina?
4 lines
55.
How much is the amount of receivable to be reported on December 31, 2021 in relation to the sale to Perfina assuming instead that Teresa cannot reliably estimate future returns?
4 lines
56-60.
56.
How much was paid for inventory purchases?
4 lines
57.
How much was collected from customers?
4 lines
58.
How much is the cashier's accountability at November 15, 2023?
4 lines
59.
What is the adjusted bank balance as of November 15, 2023?
4 lines
60.
The cash shortage as of November 15, 2023, totaled:
4 lines
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