Correct Answer: B

Explanation:

Choice "b" is correct. The auditor's responsibility to express an opinion on the FS is explicitly represented

in the last sentence of the opening paragraph: "Our responsibility is to express an opinion on these

financial statements based on our audit."

Choice "a" is incorrect. The responsibility to express an opinion is explicitly represented (i.e., clearly

stated), not implicitly represented (i.e., assumed).

Choice "c" is incorrect. There are no words in the scope paragraph that represent an auditor's

responsibility to express an opinion.

Choice "d" is incorrect. The opinion paragraph includes the auditor's opinion, but does not specifically

mention the auditor's responsibility to express an opinion.

Correct Answer: C

Explanation:

Choice "c" is correct. Both the risk of material misstatement (including control risk and inherent risk) and

detection risk may be assessed in quantitative terms such as percentages or in nonquantitative terms that

range, for example, from a minimum to a maximum.

Choices "a", "b", and "d" are incorrect, based on the above explanation.

Correct Answer: B

Explanation: Choice "b" is correct. Analytical procedures applied during the final review stage should be used to determine whether adequate evidence has been gathered in response to unusual or unexpected balances identified during the audit. Choice "a" is incorrect. Analytical procedures generally involve comparison of recorded amounts to auditor expectations. Reassessing the factors used to establish materiality levels and audit risk would not involve such comparisons. Choice "c" is incorrect. Analytical procedures generally involve comparison of recorded amounts to auditor expectations. Summarizing uncorrected misstatements would not involve such comparisons. Choice "d" is incorrect. Analytical procedures generally involve comparison of recorded amounts to auditor expectations. Calculating projected uncorrected misstatements would not involve such comparisons.

Correct Answer: C

Explanation: Choice "c" is correct. The most likely result of ineffective internal control policies and procedures in the revenue cycle is that final authorization of credit memos by personnel in the sales department could permit a salesman to sell, collect, and pocket the collection, then cover it up by issuing a credit memo. Final authorization of credit memos should be performed by an employee who is independent of the sales department such as the credit manager in the treasury department. Choice "a" is incorrect. The shipment of goods is an activity that takes place before the transaction is recorded. Irregularities in recording transactions in the subsidiary accounts therefore would have no impact on the timeliness of the goods being shipped. Choice "b" is incorrect. If shipping documents are omitted, then the inventory levels would be overstated since the reduction of inventory would not be recorded. Choice "d" is incorrect. If fictitious transactions in the revenue cycle are recorded, then the impact on revenues and receivables would be the same; either both would be overstated (the most likely case) or both would be understated.

Correct Answer: D

Explanation:

Choice "d" is correct. The inflation rate measures the rate of increase in the overall price level in the

economy.

Choice "a" is incorrect. The inflation rate is associated with price level changes not changes in the nominal

value of output.

Choice "b" is incorrect. Inflation refers to a sustained increase in the overall price level. Not the price of a

particular good.

Choice "c" is incorrect. The inflation rate is associated with price level changes not interest rate changes.

Correct Answer: B

Explanation:

Choice "b" is correct. A consumer boycott will decrease demand for the product being boycotted.

Choice "a" is incorrect. Increasing price will further reduce the quantity demanded. The effect on revenue is

uncertain.

Choice "c" is incorrect. Supply will be unaffected by a boycott.

Choice "d" is incorrect. A boycott of a particular product will reduce the overall profits of the industry.

Correct Answer: C

Explanation:

Choice "c" is correct. Investment bankers are paid their fees partly by being allowed to purchase the new

securities they are underwriting for a discount and then reselling those securities on the market. This is

known as the underwriting spread.

Choices "a" and "d" are incorrect, as both of these describe either fees or commissions and not an

underwriting spread.

Choice "b" is incorrect. The underwriting spread is the difference between the discount price paid and the

resale price.

Correct Answer: D

Explanation:

Choice "d" is correct. The formula for calculating the cost of a credit policy is:

Therefore, the cost of customers taking this discount is 36.7% of the invoice price of the sale. Choices "a", "b", and "c" are incorrect, per the above answer.

Correct Answer: D

Explanation:

Choice "d" is correct. The summary of significant accounting policies should include "policies." The only

policy in the choices listed is the revenue recognition policies.

Choice "a" is incorrect. A description of current year equity transactions is not a policy. It should be

disclosed somewhere in the footnotes but not in the summary of significant accounting policies.

Choice "b" is incorrect. A summary of long-term debt outstanding is not a policy. It should be disclosed

somewhere in the footnotes but not in the summary of significant accounting policies.

Choice "c" is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere in the

footnotes but not in the summary of significant accounting policies.

Correct Answer: B

Explanation:

Choice "b" is correct. Yes - Yes.

Advertising costs may be accrued or deferred to provide an appropriate expense in each period for both

"interim" and "year-end" financial reporting.