An Auditor Discovered That a Client's Accounts Receivable Turnover Is

question 16

Multiple Choice

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year.This may indicate that:

• A)Obsolete inventory has not yet been reduced to fair market value.
• B)There was an improper cutoff of sales at the end of the year.
• C)An unusually large receivable was written off near the end of the year.
• D)The aging of accounts receivable was improperly performed in both years.

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Definitions:

Average Variable Cost

The variable cost per unit of output, obtained by dividing the total variable cost by the total output.

Marginal Cost

The change in total production cost that comes from making or producing one additional unit.

Shut Down

A short-term decision by a firm to cease operations and production when the market price is below its variable costs, to minimize losses.

Economic Loss

A situation where total costs exceed total revenues, leading to a negative economic profit.