The following questions deal with confirmation of accounts receivable. Choose the best response.

a.In connection with her examination of Beke Supply Corp. for the year ended August 31, 2002, Sylvia Lowe, a public accountant, has mailed accounts receivable confir¬ mations to three groups as follows:

The confirmation responses from each group vary from 10 percent to 90 percent. The most likely response percentages are

b. The negative form of accounts receivable confirmation request is particularly useful except when (1) internal control surrounding accounts receivable is considered to be effective.
(2) a large number of small balances are involved.
(3) the -auditor hasvreason to believe the persons receiv¬ ing the requests are likely to give them considera¬ tion.
(4) individual account balances are relatively large.
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c. Which of the following is the best argument against the use of negative confirmations of accounts receivable?
(1) The cost per response is excessively high.
(2) There is no way of knowing if the intended recipients received them.
(3) Recipients are likely to feel that the confirmation is a subtle request for payment.
(4) The inference drawn from receiving no reply may not be correct.

d. The return of a positive confirmation of accounts receiv¬ able without an exception attests to the (1) collectibility of the receivable balance.
(2) accuracy of the receivable balance.
(3) accuracy of the aging of accounts receivable.
(4) accuracy of the allowance for bad debts.

Transcribed Image Text:

GROUP NUMBER TYPE OF CUSTOMER Wholesale TYPE OF CONFIRMATION Positive 2 Current retail Negative 3 Past-due retail Positive