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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Students have asked these similar questions
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
When is itpermissible to record bad debt expense only at the time when receivables actually prove uncollectible?
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.
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 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.arrow_forwardThe 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_forwardIf receivables are hypothecated against borrowings, the amount of receivables involved should be A. Disclosed in the notes B. Excluded from the total receivables, with disclosure C. Excluded from the total receivables, with no disclosure D. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowingsarrow_forward
- Which of the following does not relate to credit risks? Select one: A. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations B. Credit risk also describes the risk that an insurance company will be able to pay a claim. C. It refers to the risk that a lender may not receive the owed principal and interest D. Credit risk describes the risk that a bond issuer may fail to make payment when requested E. Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loanarrow_forwardWhich 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_forward
- Reported 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_forwardChoose the one correct answer Which of the following statements is valid relating to confirmation of accounts receivable? * a. A positive confirmation provides more reliable evidence than the negative confirmation because the auditor can perform follow-up procedures if no response is received from the debtorB. A negative form of confirmation is preferable to use when individual account balances of customers are relatively largec. In positive confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation requestd. An auditor must consider using the negative form of confirmation when there is reason to believe that there may be a substantial number of accounts in dispute or with inaccuracies or irregularitiese. None of the abovearrow_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_forwardA contingency that need not be disclosed in the financial statements or in the notes thereto is: A. pending litigation B. possibility of strike. C. deficiency tax assessment. D. note receivable discounted. Of the following items, the one which should be classified as a current liability is: A. an accommodation endorsement. B. a cash dividend declared before the balance sheet date when the date of record is subsequent to the balance sheet date. C. unfunded past service cost of a pension plan. D. dividends in arrears on cumulative preferred stock. Which of the following statements is true concerning contingent liabilities? A. Such liabilities should include obligations of known existence but of unknown amount B. If the definite amount is involved, it is not a contingent liability. C. Such liabilities are generally reported and totaled with other liabilities to make up the liability section of most balance sheets. D. Such liabilities should include obligations known in amount but…arrow_forward1. An entity determines that the credit risk on a loan receivable has not increased significantly since initial recognition. The entity should recognize loss allowance equal to a. the 12-month expected credit losses on the instrument. b. the lifetime expected credit losses on the instrument. c. sum of a and b d. none; credit losses should be recognized only when there is objective evidence of a loss event.arrow_forward
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