Regarding Purchase Returns and Allowances, Control Activities Useful in Reducing

question 63

Multiple Choice

Regarding purchase returns and allowances, control activities useful in reducing the risk of misstatements include all of the following except:

• A) all purchase returns should be authorized by the vendor.
• B) goods should be returned only with a proper purchase return authorization.
• C) the computer should match debit memo information with the authorization for purchase return and the shipping documents.
• D) the computer generates a report of all authorized purchase returns that have not been shipped or have not resulted in a debit memo.
• E) all of the above

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Definitions:

Equity Securities

Financial instruments representing ownership interest in a company, such as stocks, which provide voting rights and potential dividends.

Short-Term Investment

Financial assets that are expected to be converted into cash or sold within a year.

Monetary Assets

Monetary assets are financial assets that are cash or can be quickly converted into a known amount of cash with minimal risk of changes in value.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.