Question : 7.2   Multiple-Choice Questions 1) Under the periodic inventory method A) inventory account : 1222597

7.2   Multiple-Choice Questions

1) Under the periodic inventory method

A) inventory account is used to record the changes in inventory.

B) cost of goods sold is recorded after each purchase.

C) beginning inventory remains unchanged during the period.

D) inventory account is adjusted only once in three accounting periods.

2) Which of the following enhances client understanding and acceptance through interim (phase) reporting?

A) integrated approach

B) unit approach

C) incremental approach

D) phased approach

3) John Ambre has just accepted a forensic investigative engagement. Which of the following should be the first step to be taken by John?

A) Create a fraud hypothesis.

B) Confirm the reasonableness of the suspicions of fraud.

C) Conduct interviews and gather relevant data and evidence.

D) Test and refine the fraud hypothesis via financial statements analysis.

4) The internal auditor of Trinity, Inc. suspected that the books of accounts did not show a true and fair value of the business. On his advice, the management of the company appointed Ravenwood to investigate into the matter. Ravenwood found that the suspicions of the internal auditor were reasonable. He created a fraud hypothesis and tested and refined the hypothesis via financial statement analysis and journal entry analysis. Which of the following should be Ravenwood’s immediate next step?

A) Present recommendations for resolution and remediation of fraudulent activities.

B) Draw conclusions and communicate results of the analysis.

C) Test and refine the hypothesis via interactive evidence gathering.

D) Determine misappropriations if any and the specific scheme employed.

5) Red Ram, Corp. suspected that the revenues of the company are being overstated. Which of the following conditions can confirm the reasonableness of this suspicion?

A) The competition faced by the company increased due to the entry of a new competitor in the market.

B) The labor-force doubled over the previous year resulting in higher salaries and wages cost.

C) The expenses of the company increased by 150% as compared to the previous year.

D) The finance head has to show high turnover in order to avail a loan for the company’s next project.

6) Ariel, the CFO of Zaria, Corp., suspects that the profits of the company are being overstated. Ariel suspects that someone from the mid-level management is behind this. The bonus of the mid-level managers is directly linked to the growth of net profit. The mid-level managers have received no bonus since three years as the reported profit of Zaria has been declining. The books of accounts are only accessible to Ariel. Which of the following elements of the fraud triangle is missing in this case?

A) need

B) rationalization

C) opportunity

D) integrity

7) Dylan, the accountant of Skylar Constructions, is being suspected for altering entries in the books of accounts and transferring the difference to a separate account. Dylan has recently bought a luxury car. You are appointed to investigate the fraud. Which of the following is a good preliminary hypothesis for the case?

A) Skylar uses perpetual inventory method which reduces the probability of detection of fraud.

B) Dylan shares a good rapport with the auditor of the company, enhancing the opportunity to commit fraud.

C) Dylan recently bought a luxury car, the sources of funds for which is yet to be determined.

D) The financial statements of the company are reported quarterly, increasing the probability of detection.

8) Which of the following is the objective of journal entry testing in a forensic accounting engagement?

A) to create a preliminary hypothesis

B) to identify and assess any inappropriate or unusual activity

C) to confirm the reasonableness of the suspicions of fraud

D) to determine the reliability of the recorded journal entries

9) Which of the following is a characteristic of fraudulent journal entries?

A) These contain exact numbers or inconsistent ending numbers.

B) These are generally recorded at the beginning of the period.

C) These are made to regularly used accounts.

D) These are applied to intercompany or related parties.

10) Which of the following journal entries is most likely a fraudulent journal entry?

A) an entry involving debit to Accounts Receivable and credit to Sales Revenue

B) an adjusting entry involving debit to Sales and credit to Loans to Employees

C) an entry involving debit to Cash and credit to Notes Receivable

D) an adjusting entry involving debit to Depreciation Expense and credit to Furniture