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In-Line Company Records Accounts Receivable from Customers Arising from Both

question 56

Essay

In-Line Company records accounts receivable from customers arising from both the sale of in-line skates and the provision of repair service. The CPA firm of King & King is auditing the financial statements of In-Line Company. Lyon, the audit manager, is aware that the confirmation of customer accounts receivable is a substantive procedure normally used in the audit of accounts receivable. Selected balances from In-Line's financial statements are as follows: accounts receivable, $7,000; current assets, $322,000; total assets, $630,000; shareholders' equity, $570,000; net income, $190,000.
Required:
A) How can Lyon justify deciding not to confirm In-Line's accounts receivable?
B) Briefly describe two types of positive confirmation Lyon could send to In-Line's customers.
C) What alternative procedures can Lyon perform if In-Line's customers fail to respond to the confirmation requests?

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