The following questions deal with audit evidence for the sales and collection cycle. Choose the best response.

a. Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the fol¬ lowing possibilities?

(1) Unrecorded sales.

(2) Merchandise purchases being charged to selling and general expense.

(3) Unrecorded purchases.

(4) Fictitious sales.

b. To verify that all sales transactions have been recorded, a test of controls should be completed on a representative sample drawn from

(1) the shipping clerk's file of duplicate copies of bills of lading.

(2) the billing clerk's file of customer purchase orders.

(3) a file of duplicate copies of sales invoices for which all prenumbered forms in the series have been accounted.

(4) entries in the sales journal.

c. A public accountant is examining the financial state¬ ments of a small telephone company and wishes to test whether customers are being billed. One procedure that she might use is to

(1) trace a sample of postings from the billing control to the general ledger accounts receivable account.

(2) balance the outstanding amounts according to the customer master file to the general ledger control account.

(3) check a sample of listings in the telephone directory to the billing control.

(4) confirm a representative number of accounts receiv¬ able.