Mod 1-3 Review

Question 0

Accounts receivable turnover ratio:

If sales for each month are 20% higher than the previous year, one would expect…

Answer 0

A prorata increase in accounts receivable, resulting in no

Change in the accounts receivable turnover ratio

Question 1

Not including a sale in the current year or in year end accounts receivable would…

Why?

Answer 1

Decrease accounts receivable turnover ratio

equivalent amounts are not included in the numerator and denominator and the denominator has a larger impact on The ratio

Question 2

Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:

A decrease may occur in the numerator through…

Answer 2

An understatement of sales

Question 3

Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:

A decrease may occur in the denominator through…

Answer 3

An overstatement of accounts receivable

Question 4

Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:

Can occur through a combination of…

Answer 4

Misstatements of sales and accounts receivable that decrease the
ratio

Question 5

Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:

Recoding the consignment as sales…

Answer 5

Overstates both sales and accounts receivable by an identical
Amount

Thus decreasing the accounts receivable turnover ratio

Question 6

Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:

Not recording the credit memo for returned merchandise…

Answer 6

Overstates both sales and accounts receivable by an identical
Amount

Thus decreasing the accounts receivable turnover ratio

Question 7

When sales returns and allowances are recorded, how are they recorded in a journal entry?

2) when this entry is not recorded it…

Answer 7

Sales returns and allowances. Xxx
Accounts receivable. Xxx

2) overstates accounts receivable and decreases the accounts
Receivable turnover ratio

Question 8

The level of inventory does not effect…

Answer 8

The accounts receivable turnover ratio

Question 9

Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:

If a larger percentage of sales occurred during the last month of the year as compared to the prior year, sales for the year will…

Answer 9

Remain at the expected level, while accounts receivable

At year end will be higher than average level due to year end sales

Question 10

Increase in effective income tax rate could…

Answer 10

Decrease profit when compared to the prior year

Question 11

Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:

3 reasons the percentage of allowance for doubtful accounts as a percentage of accounts receivable would decrease

Answer 11

1 decrease in allowance for doubtful accounts

2 increase in accounts receivable

3 combination of misstatements that decrease ratio

Question 12

Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:

An increase in the consignment as a sale results in…

Answer 12

Increase of accounts receivable

Question 13

Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:

Not recording credit memos for merchandise returns…

Answer 13

Overstates accounts receivable

And decreases the ratio of allowance for doubtful accounts to
accounts receivable

Question 14

Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:

Larger percentage of sales occurring during the last month of the year results in…

Answer 14

A/R at year end being higher due to average level of year end sales

This decreases the ratio of allowance for doubtful accounts to
accounts receivable

Question 15

Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:

The smaller and same percentage of sales does not…

Answer 15

Decrease the ratio of allowance for doubtful accounts to accounts
Receivable

Question 16

Control deficiency is a condition in which operation of a control does not allow management, or employees, in the normal course of performing their functions to prevent or detect misstatements on a timely basis, what does a control deficiency not explicitly consider?

Answer 16

Does not explicitly consider the likelihood of loss

Question 17

Material weaknesses are also…

2) however not all…

Answer 17

Control deficiencies

2) control deficiencies are material weaknesses

Question 18

“All control deficiencies must be communicated to the audit committee” this statement is not true because…

Answer 18

Only significant deficiencies and material weaknesses must be
Communicated

Question 19

A material weakness is determined by whether there is…

2) the actual loss identified can…

Answer 19

More than a remote likelihood of a material loss occurring
Due to a control deficiency

2) be either material or immaterial

Question 20

In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks?

Answer 20

Treasurer

Question 21

In meeting the control objective of safeguarding of assets, which department should be responsible for custody of unclaimed paychecks?

Answer 21

Treasurer

Question 22

Custody of payroll checks should not be performed by…

Why?

Answer 22

Payroll department, because they provide the record keeping

function

Question 23

Under proper internal control, what 3 duties should be segregated?

Answer 23

1 record keeping

2 custody

3 authorization

Question 24

According to AU-C 265, an auditor’s letter to the audit committee should…3

Answer 24

1 indicate that the audit’s purpose was to report on financial
Statements and not express an opinion on internal control
2 include definition of significant deficiency
3 restrict distribution of the report

Question 25

On CPA exam question, unless specified, you should assume the question is about…

Answer 25

Nonpublic companies

Question 26

Initial selection of significant accounting policies in emerging areas that lack authority, who would communicate this to the audit committee?

Answer 26

It is management’s responsibility to communicate it to the audit
Committee

The auditor does not need to communicate it, but must make sure
Management communicates it

Question 27

Disagreements with management about matters significant to the entity’s financial statements at have been satisfactorily resolved. Who communicates this to the audit committee? Why?

Answer 27

Required, for auditor to communicate this to audit committee

Question 28

In a flow chart a trapezoid represents…

Answer 28

A manual operation

Question 29

Flowchart:

An approved voucher enters the flowchart after this step, therefore…

Answer 29

The voucher is being prepared and approved in this step

Question 30

Flowchart:

Since a document is being prepared through a computerized billing program it is…

Answer 30

The sales invoice

Question 31

Flowchart:

What 4 transactions occur in the computerized processing department’s computerized billing program?

Answer 31

1 retrieve shipping data
2 enter price data
3 prepare sales transaction file
4 prepare sales invoice

Question 32

Flowchart:

A copy of the sales invoice is sent to the customer and the other copy of the sales invoice…

Answer 32

Informs accounts receivable department that sale has been both
Processed and shipped

Question 33

Flowchart:

What file is used, when the step below includes updating master files?

Answer 33

General ledger master file