In Evaluating the Adequacy of the Allowance for Doubtful Accounts

question 31

Multiple Choice

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of:

• A) existence.
• B) completeness.
• C) rights and obligations.
• D) valuation or allocation.
• E) occurrence.

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Definitions:

Cost of Capital

The cost of capital is the rate of return a company must earn on its investments to maintain its market value and attract funds, including the cost of equity and debt.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, weighted according to the proportion of equity and debt in the company's capital structure.

Cost of Equity Financing

This represents the return a company must offer investors to entice investment, effectively the cost of new equity capital.

Required Rate of Return

The least percentage of yearly return needed to entice entities or individuals to invest in a particular project or security.