This Question Tests Your Ability to Perceive the Place(s)where Potential

question 18

Essay

This question tests your ability to perceive the place(s)where potential problems may exist and the type of problem (overstatement or understatement)that may exist.
Required: For each of the items below,identify the account(s)that need(s)to be audited carefully and the reason;for example,"potential overstatement or understatement of _______."
A)Current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same.
B)Current year inventory is larger than last year but the current year gross margin (profit)is larger.
C)Current year long-term liabilities are larger than last year but the interest expense is the same.
D)Current-year fixed assets total is larger than last year but current amortization expense is the same as last year.

• A)Current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same.
• B)Current year inventory is larger than last year but the current year gross margin (profit)is larger.
• C)Current year long-term liabilities are larger than last year but the interest expense is the same.
• D)Current-year fixed assets total is larger than last year but current amortization expense is the same as last year.

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Definitions:

Discrimination

Unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, or sex.

Ingroup/Outgroup Bias

The tendency for people to favor members of their own group (the ingroup) over those from different groups (the outgroup), influencing perceptions and behaviors.

Unique Individuals

Distinct persons characterized by their own specific combination of traits, experiences, and identities.

Engineering Students

Individuals actively engaged in learning the principles and applications of engineering, which often involves studying mathematics, science, and technology.