An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertions of:Understandabilityand classificationExistence
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1 .Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol is the company's most profitable product; tridol is the least profitable. Which one of the following events will definitely decrease the firm's overall breakeven point for the upcoming accounting period?
A An increase in anticipated sales of petrol relative to sales of septine and tridol. B An increase in the overall market for septine. C The installation of new computer-controlled machinery and subsequent layoff of assembly-line workers. D An increase in petrol's raw material cost.
2 .An auditor may achieve audit objectives related to particular assertions by:
A Increasing the level of detection risk. B Adhering to a system of quality control. C Preparing audit documentation. D Performing analytical procedures.
3 .A company is offered a one-time special order for its product and has the capacity to take this order without losing current business. Variable costs per unit and fixed costs in total will be the same. The gross profit for the special order will be 10%, which is 15% less than the usual gross profit. What impact will this order have on total fixed costs and operating income?
A Total fixed costs increase, and operating income decreases. B Total fixed costs increase, and operating income increases. C Total fixed costs do not change, and operating income increases. D Total fixed costs do not change, and operating income does not change.
4 .Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable?
A Sending a confirmation to the lender requesting verification of the loan's outstanding balance. B Multiplying the average outstanding loan balance by the interest rate and comparing the result to interest expense actually recorded. C Performing calculations to determine if the company is in compli...
5 .Which of the following statements is true regarding opportunity cost?
A Idle space that has no alternative use has an opportunity cost of zero. B Opportunity cost is representative of actual dollar outlay. C Opportunity cost is recorded in the accounts of an organization that has a full costing system. D The potential benefit is not sacrificed when selecting an altern...
7 .A static budget contains which of the following amounts?
A Actual costs for budgeted output. B Budgeted costs for actual output. C Actual costs for actual output. D Budgeted costs for budgeted output.
8 .Symbol A most likely represents:
A Cash disbursements transaction file. B Accounts receivable master file. C Receiving report file. D Remittance advice file.
9 .For the month of December, Crystal Clear Bottling expects to sell 12,500 cases of Cranberry Sparkling Water at USD24.80 per case and 33,100 cases of Lemon Dream Cola at USD32.00 per case. Sales personnel receive 6 percent commission on each case of Cranberry Sparkling Water and 8 percent commission on each case of Lemon Dream Cola. In order to receive a commission on a product, the sales personnel team must meet the individual product revenue quota. The sales quota for Cranberry Sparkling Water is USD500,000, and the sales quota for Lemon Dream Cola is USD1,000,000. The sales commission that should be budgeted for December is:
A USD82,152 B USD103,336 C USD4,736 D USD84,736
10 .An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year-end?
A Resend confirmations for any significant customer balances remaining at year-end. B Send confirmations for all new customer balances incurred from the interim date to year-end. C Review supporting documents for new large balances occurring after the interim date, and evaluate any significant chang...
