ACCT 4372 Ch. 13 Homework

To achieve effective internal control over fixed-asset additions, a company should establish procedures that require: - performance of recurring fixed-asset maintenance work solely by maintenance department employees. - classification as investments of those fixed-asset additions that are not used in the business. - capitalization of the cost of fixed-asset additions in excess of a specific dollar amount. - authorization and approval of major fixed-asset additions.

Authorization and approval of major fixed-asset additions.

An auditor observes new equipment while walking around a client's factory and vouches the new equipment to schedules of property, plant, and equipment that support the information in the financial statements. Which assertion is supported by the evidence obtained? - Existence - Rights and obligations - Completeness - Valuation and allocation

Completeness

When auditing an entity's reported amount for property, plant, and equipment, which assertion will be supported with evidence obtained by the auditor during an examination of the repairs and maintenance expense account? - Existence - Completeness - Valuation and allocation - Rights and obligations

Completeness

In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to? - Existence - Rights - Valuation - Completeness

Existence

A normal audit procedure is to analyze the current year repairs and maintenance accounts to provide evidence in support of the audit proposition that: - non capitalizable expenditures have been properly expensed. - capital expenditures have been properly authorized. - expenditures for fixed assets have been capitalized. - expenditures for fixed assets have been recorded in the proper period.

Expenditures for fixed assets have been capitalized.

Better evidence of continuing ownership of property is provided by examination of the deed. True or False?

False

The auditors' approach to the audit of property, plant, and equipment largely results from the fact that many transactions occur. True or False?

False

The auditors' principal objective in analyzing depreciation expense is to discover items that should have been capitalized. True or False?

False

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: - Increase in insurance coverage. - Inspection of equipment and reconciliation with accounting records. - Verification of liens, pledges, and collateralizations. - Accounting for work orders

Inspection of equipment and reconciliation with accounting records.

______ assets can be audited at an interim date.

Intangible

Which of the following is the best evidence of real estate ownership at the balance sheet date? - Paid real estate tax bills - Original deed held in the client's safe - Closing statement - Title insurance policy

Paid real estate tax bills

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts? - The prior year's depreciation expense was erroneously understated. - The estimated remaining useful lives of plant assets were revised upward. - Overhead allocations were revised at year-end. - Plant assets were retired during the year

Plant assets were retired during the year.

An effective procedure for identifying unrecorded retirements of equipment is to: - Foot related property records. - Recalculate depreciation on the related equipment. - Select items of equipment in the accounting records and then locate them in the plant. - Select items of equipment and then locate them in the accounting records.

Select items of equipment in the accounting records and then locate them in the plant.

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: - All transactions resulting in the ending balance - Tests of controls over disposals - Transactions that occurred during the year - Performing analytical procedures on beginning balances of the accounts.

Transactions that occurred during the year.

An important control for plant and equipment is the plant and equipment budget. True or False?

True

In the audit of depletion the auditors must often rely on the work of specialists. True or False?

True

Material purchases of assets from an affiliated company should be disclosed in the financial statements. True or False?

True

A client has disposed of several pieces of manufacturing equipment at a significant gain. This raises questions as to which assertion in regard to property, plant, and equipment? - Existence - Rights and obligations - Valuation and allocation - Completeness

Valuation and allocation

Most of the work on property can be done _____ the balance sheet date.

before

In a first year audit, auditors must get comfortable with the ______ balances in property.

beginning

While testing property at an interim date, ____ can be tested in coordination with property

depreciation

When property is tested at an interim date, audits must roll forward procedures to the ______ date

year-end

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? - Depreciation - Accounts Payable - Cash - Repairs and Maintenance

Repairs and Maintenance

The auditors typically vouch major additions to plant and equipment recorded during the period under audit. True or False?

True