Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 16, Problem 20.2MCQ
To determine
Indicate the causes of the decrease in
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Which of the following best describes the objective of estimating bad debt expense with the percentage of credit sales method?
a.To estimate the amount of bad debt expense based on an aging of accounts receivable.
b.To estimate bad debt expense based on a percentage of credit sales made during the period.
c.To determine the amount of uncollectible accounts during a given period.
d.To facilitate the use of the direct write-off method.
Question Which of the following changes in credit standards and conditions would cause an improvement in profit?
A) An increase in the percentage of doubtful collections.
B) An increase in collection expenses.
C) Decrease in units sold
D) Increase in the turnover of accounts receivable.
Question Which of the following changes in credit standards and conditions would cause an improvement in profit?
A) Increase in the turnover of accounts receivable
B) Decrease in units sold
C) Increase in collection expenses
D) An increase in the percentage of doubtful accounts receivable.
Chapter 16 Solutions
Auditing And Assurance Services
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Explain why you agree or disagree with the...Ch. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 10RQ
Ch. 16 - Prob. 11RQCh. 16 - Under what circumstances is it acceptable to...Ch. 16 - Prob. 13RQCh. 16 - Prob. 14RQCh. 16 - Prob. 15RQCh. 16 - Prob. 16RQCh. 16 - Prob. 17RQCh. 16 - Prob. 18RQCh. 16 - Prob. 19RQCh. 16 - Prob. 20.1MCQCh. 16 - Prob. 20.2MCQCh. 16 - Prob. 20.3MCQCh. 16 - The following questions deal with confirmation of...Ch. 16 - Prob. 21.2MCQCh. 16 - Prob. 21.3MCQCh. 16 - Prob. 22.1MCQCh. 16 - Prob. 22.2MCQCh. 16 - Prob. 22.3MCQCh. 16 - Prob. 23.1MCQCh. 16 - Which of the following is least likely to be a...Ch. 16 - The following questions concern auditor...Ch. 16 - Prob. 24DQPCh. 16 - Prob. 25DQPCh. 16 - Prob. 26DQPCh. 16 - The following misstatements are sometimes found in...Ch. 16 - Prob. 28DQPCh. 16 - Prob. 29DQPCh. 16 - Prob. 30DQPCh. 16 - Prob. 31DQPCh. 16 - Prob. 32DQPCh. 16 - Prob. 33DQPCh. 16 - Prob. 34DQPCh. 16 - Prob. 35DQPCh. 16 - Prob. 36DQPCh. 16 - Prob. 38DQPCh. 16 - Prob. 39ICA
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- The Allowance for Doubtful Accounts represents: a. The amount of uncollected accounts written off to date b. Bad debt losses incurred in the current period c. The difference between the recorded value of accounts receivable and the net realizable value of accounts receivable d. The difference between total sales made on credit and the amount collected from those credit salesarrow_forwardWhich of the following methods of estimating bad debts expense considers the length of time past due for the outstanding accounts: a. Percentage of sales method b. Percent of accounts receivable method c. Aging of investments method d. Aging of accounts receivable methodarrow_forwardAn auditor’s preliminary analysis of accounts receivable turnover revealed thefollowing rates over these accounting periods2013 2012 20114.3 6.2 7.3Which of the following is the most likely cause of the decrease in accounts receivableturnover?(1) Increase in the cash discount offered(2) Liberalization of credit policy(3) Shortening of due date terms(4) Increased cash salesarrow_forward
- An auditor is required to confirm accounts receivable if the accounts receivable balances area. Older than the prior year.b. Material to the financial statements.c. Smaller than expected.d. Subject to valuation estimates.arrow_forwardWhich of the following procedures provides the most relevant information to determine the adequacy of the allowance for doubtful accounts receivable? A. Confirm the receivables. B. Test the controls over the write-off of accounts receivable to ensure that management approves all write-offs. Ⓒ Analyze the following month's payments on the accounts receivable balances outstanding. D. Analyze the allowance through an aging of receivables and an analysis of current economic data.arrow_forwardWhen analyzing financial statements, what can you conclude when the accounts receivable turnover ratio decreases from 9.0 to 6.0 over a three year period. Group of answer choices None of the above b. The collection period has increased over time a. Collections are within standard terms c. The collection period has decreased over timearrow_forward
- Which of the following best describes the concept of the aging method of receivables? a.An accurate estimate of bad debt expense may be arrived at by multiplying historical bad debt rates by the amount of credit sales made during a period. b.Accounts receivable should be directly written off when the due date arrives and the customers have not paid the bill. c.Estimating the appropriate balance for the allowance for doubtful accounts results in the appropriate value for net accounts receivable on the statement of financial position. d.The precise amount of bad debt expense may be arrived at by multiplying historical bad debt rates by the amount of credit sales made during a period.arrow_forwardIndicate the most likely effect of the following changes in credit policy on the receivables turnoverratio and days to collect ( 1 for increase, 2 for decrease, and NE for no effect).a. Granted credit with shorter payment deadlines.b. Granted credit to less-creditworthy customers.c. Increased effectiveness of collection methods.arrow_forward2. In determining the validity of accounts receivable, which of the following would the auditor consider most reliable? a. Direct telephone communication between the auditor and debtor b. Confirmation replies received directly from customers c. Credits to accounts receivable from the cash receipts book after the close of business at year end d. Documentary evidence that supports the accounts receivable balancearrow_forward
- What relationship exists between the average collection period and accounts receivable turnover? Select one: a. There is a direct and proportional relationship. b. Both ratios are expressed in number of days. c. As average collection period increases (decreases) the accounts receivable turnover decreases (increases). d. Both ratios are expressed in number of times receivables are collected per year.arrow_forwardThe numerator in calculating the accounts receivable turnover is a. average accounts receivable b. accounts receivable at year-end c. sales d. total assetsarrow_forwardWhich of the following statements is true regarding aging accounts receivable? Multiple Choice The aging method of estimating uncollectible accounts is based on the assumption that the longer an account receivable remains outstanding, the less likely it is to be collected. All of the statements are true. The aging of accounts receivable involves applying lower uncollectible percentage estimates to older receivables. An aging schedule is used to improve the estimate used in the percent of revenue method of determining the uncollectible accounts expense.arrow_forward
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