Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 22, Problem 17.2MCQ
To determine
Indicate the reason behind, if the auditor observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account.
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Which of the following is a reason that auditors consider any debt covenants?
O to determine the reasonableness of debt covenants
O to explain to management the purpose of the specific debt covenants
O to offer suggestions as to how to avoid debt covenants
O to gain a deeper understanding of which accounts are at risk of material misstatement
The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a statement of financial position and which is based on an estimate of bad debts, is an application of which of the following?
a.
Revenue recognition principle.
b.
Materiality quality.
c.
Consistency characteristic.
d.
Expense recognition principle.
The allowance for doubtful accounts, which appears as a deduction from accounts receivable
on a statement of financial position and which is based on an estimate of bad debts, is an
application of which of the following?
a. Expense recognition principle.
b. Consistency characteristic.
c. Materiality quality.
O d. Revenue recognition principle.
Chapter 22 Solutions
Auditing And Assurance Services
Ch. 22 - List four examples of interest-bearing liability...Ch. 22 - Prob. 2RQCh. 22 - Prob. 3RQCh. 22 - Prob. 4RQCh. 22 - Prob. 5RQCh. 22 - Distinguish between (a) tests of controls and...Ch. 22 - Prob. 7RQCh. 22 - Prob. 8RQCh. 22 - Prob. 9RQCh. 22 - Prob. 10RQ
Ch. 22 - Prob. 11RQCh. 22 - Prob. 12RQCh. 22 - Prob. 13RQCh. 22 - Prob. 14RQCh. 22 - Prob. 15RQCh. 22 - Explain the relationship between the audit of...Ch. 22 - Prob. 17.1MCQCh. 22 - Prob. 17.2MCQCh. 22 - Prob. 17.3MCQCh. 22 - Prob. 18.1MCQCh. 22 - Prob. 18.2MCQCh. 22 - Prob. 18.3MCQCh. 22 - Prob. 19.1MCQCh. 22 - Prob. 19.2MCQCh. 22 - Prob. 19.3MCQCh. 22 - Prob. 20DQPCh. 22 - Prob. 21DQPCh. 22 - Prob. 22DQPCh. 22 - Prob. 23DQPCh. 22 - Prob. 24DQPCh. 22 - Prob. 25DQPCh. 22 - Prob. 26DQPCh. 22 - Prob. 27DQPCh. 22 - Prob. 28DQPCh. 22 - Prob. 29DQPCh. 22 - Prob. 30DQP
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- The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is toa. Evaluate internal control over securities.b. Determine the validity of prepaid interest expense.c. Ascertain the reasonableness of imputed interest.d. Detect unrecorded liabilities.arrow_forwardA disadvantage of basing bad debt expense on the historical relationship between actual bad debts and the outstanding accounts receivable balance at the end of the year is that A it is not a generally accepted accounting procedure. B it is an income statement approach. C it may not recognize the cause and effect relationship between expenses and revenues. D it may not result in a reasonable estimate of the net realizable value of receivables.arrow_forwardThe understatement of debt, whether due to error or fraud, is considered to be a major potential _____________________.arrow_forward
- With respect to Long-Term Debt, please describe the tests of controls and substantive procedures that would ordinarily be preformed to assess the risk of a material misstatement.arrow_forward4. Which of the following statements about promissory notes is incorrect? a. Interest is the revenue to the maker of the note b. The party making the promise to pay is the debtor c. The party to whom payment is to be made is the creditor d. The maturity date of the note is the date when final payment of the note is duearrow_forwardReported earnings become overstated as a result of failure to record which of the following: a. the amortization of premium on bonds payable b. a contingent liability c. the dividends in arrears on the outstanding d. an accrued liabilityarrow_forward
- Which of the following is stated correctly? a. Current liabilities follow non-current liabilities on the statement of financial position under GAAP but non-current liabilities follow current liabilities under IFRS. b. IFRS does not treat debt modifications as extinguishments of debt. c. Bond issuance costs are recorded as a reduction of the carrying value of the debt under GAAP but are recorded as an asset and amortized to expense over the term of the debt under IFRS. d. Under GAAP, bonds payable is recorded at the face amount and any premium or discount is recorded in a separate account. Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used.arrow_forward1. Which of the following statements is incorrect regarding the classification of accounts and notes receivable? a. Valuation accounts should be appropriately offset against the proper receivable accounts. b. Segregation of the different types of receivables is required if they are material. c. Disclose any loss contingencies that exist on the receivables. d. Any discount or premium resulting from the determination of present value in notes receivable transactions is an asset or liability respectively. 2. Which of the following is an appropriate reconciling item to the balance per bank in a bank reconciliation? a. Bank service charge b. Chargeback for NSF check c. Deposit in transit d. Bank interest 3. Which of the following is not true? a. The Petty Cash account is debited when the fund is replenished. b. The imprest petty cash system in effect adheres to the rule of disbursement by check. c. Entries are made to the Petty Cash account only to increase or decrease the size of the…arrow_forwardWhich method delays recognition of bad debt until the specific customer accounts receivable is identified? A. income statement method B. balance sheet method C. direct write-off method D. allowance methodarrow_forward
- Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning thea. Collectability of the balances confirmed.b. Ownership of the balances confirmed.c. Existence of the balances confirmed.d. Internal control over balances confirmed.arrow_forwardWhich of the following is true when accounts receivable are hypothecated against borrowing? Exclude the hypothecated receivables to the total receivables without disclosures Disclose the hypothecated receivables in the notes to financial statement or notes thereto Add the hypothecated receivables to allowance for doubtful accounts Exclude the hypothecated receivables to the total receivables with disclosuresarrow_forwardNonearrow_forward
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