Question

Shawn Hiwa is performing year-end testing over DULL's account balances. Which of the following situations would give Shawn the most concern that an unrecorded liability may exist?

a. a customer with a year-end balance of $2,000 sent in a $4,000 payment to DULL shortly after year-end
b. a customer with a year-end balance of $4,000 sent in a $2,000 payment to DULL shortly after year-end
c. shortly after year-end, DULL sent a $2,000 payment for a vendor with a year-end balance of $4,000
d. shortly after year-end, DULL sent a $4,000 payment for a vendor with a year-end balance of $2,000

Answer 1

The scenario where DULL sent a $4,000 payment for a vendor with a year-end balance of $2,000 is most concerning for an unrecorded liability. It implies there may be liabilities not reflected in the year-end financials.

Step-by-step explanation:

Shawn Hiwa's concern about the possibility of an unrecorded liability is reinforced when the scenario with DULL's $4,000 payment to a vendor with a year-end balance of $2,000 is examined. This disparity suggests that DULL may have had more outstanding commitments beyond what was officially documented at the end of the fiscal year. The payment being greater than the stated amount raises a red signal, indicating the possibility of unrecorded liabilities or oversights in the financial records. Such discrepancies highlight the significance of meticulously reviewing and adjusting financial data to ensure correct portrayal, and Shawn's concern demonstrates a cautious dedication to financial transparency and honesty.