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    the revenue cycle

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    1. Which of the following accounts in a merchandising company is affected by both the revenue cycle and another cycle?
    a. sales
    b. sales returns and allowances
    c. inventory
    d. accounts receivable
    e. accounts payable

    2. The audit objective, "The accounts receivable balance represents gross claims on customers and agrees with the sum of the accounts receivable subsidiary ledger" is derived from the assertion of:
    a. existence or occurrence.
    b. completeness.
    c. rights and obligations.
    d. valuation or allocation.
    e. presentation or disclosure.

    3. The bonding of employees will normally be expected to:
    a. "weed out" dishonest employees already hired.
    b. eliminate the need for separation of duties in the cash receipts area.
    c. guarantee that all employee fraud will be prevented.
    d. provide reasonable assurance that all employees will perform their jobs with the utmost integrity.
    e. serve as a deterrent to dishonesty.

    4. A company policy states that annual vacations are mandatory for all employees. This policy is most important for employees who:
    a. are not bonded.
    b. handle cash receipts.
    c. maintain the detailed accounting records.
    d. have access to the general ledger.
    e. serve as inventory clerks.

    5. In a credit-merchandising environment, which of the following documents usually initiates the activity in the sales cycle?
    a. shipping document
    b. customer order
    c. material requisition
    d. sales invoice
    e. sales order

    6. Controls designed to reduce the risk of omissions, duplications, incorrect pricing, and other types of errors in the billing process include all of the following except:
    a. comparison of control totals for shipping documents with corresponding totals for sales invoices.
    b. computer matching of sales invoice information with purchase order information.
    c. computer matching of sales invoice information with sales order and shipping information.
    d. computer-programmed checks on the mathematical accuracy of sales invoices.
    e. computer matching of sales prices with an authorized price list and sales order prices in preparing the sales invoices.

    7. Use of modern point-of-sale terminals to record over-the-counter cash sales provides all of the following except:
    a. an immediate visual display for the customer to verify the accuracy of price and cash tendered.
    b. a printed receipt for the customer.
    c. an internal record of the transaction on a computer file or tape locked inside the terminal/register.
    d. assurance that all cash sales are processed through the system.
    e. printed control totals of the day's receipts processed on the device.

    8. The use of a lockbox system enhances controls over cash receipts because the post office box is directly controlled by the:
    a. mailroom staff.
    b. internal audit department.
    c. treasurer.
    d. chief financial officer.
    e. company's bank.

    9. In most merchandising firm audits, the auditor's concern over sales adjustment transactions is based upon the:
    a. sheer number and value of these transactions.
    b. implication these transactions have for operating efficiency.
    c. poor controls normally found over these transactions and the inherent lack of documentation.
    d. lack of proper authorization for these transactions.
    e. potential use of these transactions to conceal a theft of cash.

    17. The taking of a physical inventory by a client is normally done according to a plan or a list of instructions. The client's instructions should include the following matters except:
    a. date of the counts.
    b. names of employees responsible for observing the inventory taking.
    c. locations to be counted.
    d. segregation or identification of goods not owned.
    e. detailed instructions on how the counts are to be made.

    18. Inherent risk for the valuation or allocation assertion will be high in the personnel services cycle when:
    a. employee turnover is low.
    b. factory workers are paid based on production.
    c. payroll checks are drawn from a separate imprest bank account.
    d. pay periods are weekly.
    e. employee absenteeism is minimal.

    23. The substantive test of inspecting plant asset additions is categorized under:
    a. initial procedures.
    b. analytical procedures.
    c. tests of details of transactions.
    d. tests of details of balances.
    e. presentation and disclosure.

    24. The following procedures may be useful to the auditor in determining whether all retirements have been recorded except:
    a. analyze the miscellaneous expense account for proceeds from sales of plant assets.
    b. investigate the disposition of facilities associated with discontinued product lines and operations.
    c. trace retirement work orders and authorizations for retirements to the accounting records.
    d. review insurance policies for termination or reductions of coverage.
    e. make inquiry of management as to retirements.

    25. The financing cycle interfaces with the:
    a. investing cycle.
    b. expenditure cycle.
    c. revenue cycle.
    d. production cycle.
    e. personnel services cycle.

    26. The specific financing cycle audit objective, long-term debt and related income statement balances and stockholders' equity balances are properly identified and classified in the financial statements, relates to the:
    a. rights and obligations assertion.
    b. completeness assertion.
    c. existence or occurrence assertion.
    d. valuation or allocation assertion.
    e. presentation or disclosure assertion.

    27. The classes of transactions associated with the audit of plant assets do not include:
    a. disposals of fixed assets.
    b. repair and maintenance transactions.
    c. depreciation expense.
    d. board minutes authorizing asset acquisitions.
    e. manufacture of fixed assets.

    33. Which of the following is correct concerning the inspecting and counting of securities on hand?
    a. All securities should be controlled by the auditor until the count is completed.
    b. The custodian need not be present during the count.
    c. A receipt should be provided by the auditor to the custodian when the securities are returned.
    d. The auditor should observe the broker's advice number on the document.
    e. The auditor should observe the name of the broker.

    34. Which of the following is not true concerning the confirmation of securities held by outsiders for safekeeping?
    a. Confirmations should be requested as of the date other securities are counted.
    b. The auditor must control the mailings.
    c. The auditor should receive responses directly from the custodian.
    d. The data confirmed are the same as the data that should be noted when the auditor is able to inspect the securities.
    e. Either positive or negative confirmations can be used.

    35. Initial procedures for substantive tests of investments would not ordinarily include:
    a. understanding investment policies regarding the proportion of investments in government securities, corporate bonds, and equity securities.
    b. understanding an entity's policy for investing excess cash, its financing activities, and its ability to generate free cash flow.
    c. checking the mathematical accuracy of client-prepared schedules of investments.
    d. determining that subsidiary investment ledgers agree with related general ledger control account balances.
    e. understanding economic drivers that allow an entity to engage in investing activities.

    36. The specific audit objective, recorded cash balances exist at the balance sheet date, is derived from the:
    a. existence or occurrence assertion.
    b. completeness assertion.
    c. rights and obligations assertion.
    d. valuation or allocation assertion.
    e. presentation or disclosure assertion.

    37. Which of the following is not among the characteristics of the procedures performed in completing the audit?
    a. They are optional since they have only an indirect impact on the opinion to be expressed.
    b. They involve many subjective judgments by the auditor.
    c. They are performed after the balance sheet date.
    d. They are usually performed by audit managers or other senior members of the audit team who have extensive audit experience with the client.
    e. They do not pertain to specific transaction cycles or accounts.

    38. Which of the following is not among the specific auditing procedures the auditor performs to obtain additional audit evidence?
    a. making subsequent events review
    b. reading minutes of meetings
    c. reviewing evidence concerning litigation, claims, and assessments
    d. obtaining client representation letter
    e. performing analytical procedures

    39. By definition, subsequent events occur between:
    a. the interim and balance sheet date.
    b. the balance sheet date and the report date.
    c. the report date and the date the report is issued.
    d. the date the report is approved and the date the report is issued.
    e. the balance sheet date and the date the report is issued.

    40. Pro forma data attached to the financial statements are only required with:
    a. a material type 1 subsequent event.
    b. a very material type 1 subsequent event.
    c. a material type 2 subsequent event.
    d. a very material type 2 subsequent event.
    e. either a material type 1 or a very material type 2 subsequent event.

    41. Which of the following events in a subsequent period is an example of a type 1 subsequent event?
    a. issuance of long-term bonds
    b. settlement of warranties in excess of recorded amounts
    c. purchase of a business
    d. issuance of preferred stock
    e. casualty loss resulting from a flood

    42. Which of the following events in the subsequent period is an example of a Type 2 subsequent event?
    a. realization of recorded year-end receivables at a different amount than recorded
    b. settlement of recorded year-end estimated product warranty liabilities at a different amount than recorded
    c. purchase of a machine
    d. purchase of a business
    e. sale of equipment

    43. Ordinarily, type 1 subsequent events require:
    a. adjustment.
    b. adjustment and disclosure.
    c. a disclaimer.
    d. inclusion as a reportable condition.
    e. Disclosure.

    44. In working with the minutes of meetings of stockholders, board of directors, and its subcommittees, the auditor should:
    a. read the minutes of all important meetings.
    b. read the minutes of all meetings.
    c. read the significant items in all meetings.
    d. read the minutes of all stockholders' meetings.
    e. scan the minutes of all meetings.

    45. Which of the following is not an example of a loss contingency?
    a. guarantees of obligations of others
    b. income tax disputes under appeal
    c. the client's claim against another for patent infringement
    d. secondary endorsements
    e. product warranties

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    Solution Summary

    This answer provides you an excellent discussion on the revenue cycle