AUDIT OF ACCOUNTS RECEIVABLE

Question 1

On September 1, 2020, an entity received a two-year interest-bearing note on which the principal and interest are payable on September 1, 2022. How many months of accrued interest should be
reported for accrued interest on December 31, 2021?
a. 4 months
b. 8 months
c. 16 months
d. 24 months

Answer 1

c. 16 months

Question 2

Which of the following statements is not true regarding trade discounts?
a. Trade discounts are means of converting a catalog list price to the prices actually charged to the buyer
b. Trade discounts are used to avoid frequent changes in catalogs and to hide the true invoice price from competitors
c. Trade discounts are recognized for financial accounting purposes
d. Trade discounts are always deducted from the list price in recording accounts receivable arising from a credit sale transaction

Answer 2

c. Trade discounts are recognized for financial accounting purposes