Ch 13 HW

error

A gain recorded on an exchange of non-monetary assets that lacks commercial substance. error or fraud?

Property, plant, and equipment.

A search for overstated property, plant, and equipment purchases would most likely include: Accounts receivable. Property, plant, and equipment. Purchase discounts. Repairs and maintenance expense.

inherent

After obtaining an understanding of the client and its environment, auditors must identify the ___________ risks related to the accounts.

Plant assets were retired during the year.

An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely? The estimated remaining useful lives of equipment were increased. Plant assets were retired during the year. The prior year's depreciation expense was erroneously understated. Overhead allocations were revised at year-end.

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

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.

An understatement of property, plant, and equipment.

An overstatement of repairs and maintenance expense may be due to: An overstatement of accounts receivable. An understatement of property, plant, and equipment. An understatement of accounts payable. An overstatement of intangible assets.

Purchase returns and allowances.

Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment? Accumulated depreciation. Insurance expense. Property, plant, and equipment. Purchase returns and allowances.

Accumulated depreciation.

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? Accumulated depreciation. Cost of goods sold. Purchase returns and allowances. Purchase discounts.

detail ledgers

Auditors must confirm that the _____ ________ of property, plant and equipment agree with the general ledger.

control

Auditors test effectiveness of controls to ensure they can justify their planned levels of _________ risk.

A business combination.

The auditors may expect a proper debit to goodwill due to: Purchase of a trademark. Establishment of an extraordinarily profitable product. A business combination. Capitalization of human resources.

False

The auditors' approach to the audit of property, plant, and equipment is influenced by the large number of transactions that occur. True or False?

True

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

Fraud

Expenditures for repairs and maintenance intentionally recorded as property, plant and equipment to overstate income. Error or Fraud?

Transactions that occurred during the year.

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

No

Hwang Corporation has engaged in a number of expenditures relating to a land acquisition for a future plant. For each of the following, indicate whether you as the auditor of Hwang Corporation would propose an adjusting entry. Assume all transactions are material. Yes—indicates a proposed adjusting entry is necessary. No—indicates no proposed adjusting entry is necessary. 1. Hwang purchased land for a new plant that it intends to construct. A portion of the cost was a commission paid to a real estate agent. That commission was capitalized as part of the cost of the land.

yes

Hwang Corporation has engaged in a number of expenditures relating to a land acquisition for a future plant. For each of the following, indicate whether you as the auditor of Hwang Corporation would propose an adjusting entry. Assume all transactions are material. Yes—indicates a proposed adjusting entry is necessary. No—indicates no proposed adjusting entry is necessary. 2. The Purchased land was in part financed through obtaining a loan from a bank. Interest on that loan is being capitalized as part of the cost of the land.

yes

Hwang Corporation has engaged in a number of expenditures relating to a land acquisition for a future plant. For each of the following, indicate whether you as the auditor of Hwang Corporation would propose an adjusting entry. Assume all transactions are material. Yes—indicates a proposed adjusting entry is necessary. No—indicates no proposed adjusting entry is necessary. 3. An existing building on the land was torn down to allow construction of a new building on the land. The cost of the demolition was capitalized as part of the cost of the new building. *Hint: Land should be capitalized, not building.

no

Hwang Corporation has engaged in a number of expenditures relating to a land acquisition for a future plant. For each of the following, indicate whether you as the auditor of Hwang Corporation would propose an adjusting entry. Assume all transactions are material. Yes—indicates a proposed adjusting entry is necessary. No—indicates no proposed adjusting entry is necessary. 4. Subsequent to the land purchase, Hwang purchased certain equipment from a vendor who had filed for bankruptcy. Hwang's management believes that the equipment was purchased for an amount equal to approximately half what at least one other supplier sells it for. Hwang recorded the transaction at its cost.

yes

Hwang Corporation has engaged in a number of expenditures relating to a land acquisition for a future plant. For each of the following, indicate whether you as the auditor of Hwang Corporation would propose an adjusting entry. Assume all transactions are material. Yes—indicates a proposed adjusting entry is necessary. No—indicates no proposed adjusting entry is necessary. 5. Hwang cut down a number of trees on the land and sold the wood. Other income was recorded on the transaction for the amount of the cash received.

Existence.

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. Completeness. Rights. Valuation.

implemented

It is important for the auditor to verify that the controls described by the employees during the auditor's survey of controls over property, plant, and equipment have actually been __________.

error

Purchases of equipment are erroneously reported in a maintenance and expense account. Error or Fraud?

Option 1

The audit of intangible assets typically involves 1) Vouching the Cost of Assets: Yes, Testing Allocation Methods: Yes 2) Vouching the Cost of Assets: Yes, Testing Allocation Methods: No 3) Vouching the Cost of Assets: No, Testing Allocation Methods: Yes 4) Vouching the Cost of Assets: No, Testing Allocation Methods: No

Existence of obsolete machinery.

The auditors are most likely to seek information from the plant manager with respect to the: Adequacy of the provision for uncollectible accounts. Appropriateness of physical inventory observation procedures. Existence of obsolete machinery. Deferral of procurement of certain necessary insurance coverage.

Excessive recurring losses on assets retired.

The auditors may conclude that depreciation charges are insufficient by noting: Insured values greatly in excess of book values. Large amounts of fully depreciated assets. Continuous trade-ins of relatively new assets. Excessive recurring losses on assets retired.

There is little activity in plant assets accounts and the amount of depreciation is similar to the prior year. There are few gains or losses on disposals of assets retired.

The auditors may conclude that depreciation charges are relatively accurate when: Insured values exceed book values by significant amounts. Goodwill for the company increases. There are many trade-ins for new assets. There is little activity in plant assets accounts and the amount of depreciation is similar to the prior year. There are few gains or losses on disposals of assets retired.

Utilization of serially numbered retirement work orders

To assure accountability for fixed-asset retirements, management should implement an internal control that includes: Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets. Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. Utilization of serially numbered retirement work orders. Periodic observation of plant assets by the internal auditors.

Inspection of equipment and reconciliation with accounting records

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.

Deed

Treetop Corporation acquired a building and arranged mortgage financing during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the related Deed. Canceled checks. Closing statement. Interest expense.

Tests of controls and limited tests of current year property and equipment transactions.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: Tests of controls and extensive tests of property and equipment balances at the end of the year. Analytical procedures for current year property and equipment transactions. Tests of controls and limited tests of current year property and equipment transactions. Analytical procedures for property and equipment balances at the end of the year.

Repairs.

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.

Plant assets were retired during the year.

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

All purchases of factory equipment are required to be made by the department in need of the equipment.

Which of the following is an internal control weakness related to factory equipment? Checks issued in payment of purchases of equipment are not signed by the controller. All purchases of factory equipment are required to be made by the department in need of the equipment. Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. Proceeds from sales of fully depreciated equipment are credited to other income.

Test deductions from accumulated depreciation for assets purchased during the year.

Which of the following is not an overall test of the annual provision for depreciation expense? Compare rates used in the current year with those used in prior years. Test computation of depreciation provisions for a representative number of units. Test deductions from accumulated depreciation for assets purchased during the year. Perform analytical procedures

Acquisitions are made through and approved by the department in need of the equipment.

Which of the following policies is an internal control weakness related to the acquisition of factory equipment? Acquisitions are made through and approved by the department in need of the equipment. Advance executive approvals are required for equipment acquisitions. Variances between authorized equipment expenditures and actual costs are to be immediately reported to management. Depreciation policies are reviewed only once a year.

A property, plant, and equipment cutoff error near year-end has a more significant effect on net income.

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts? A property, plant, and equipment cutoff error near year-end has a more significant effect on net income. Relatively few transactions occur in property, plant, and equipment during the year. The assets involved with property, plant, and equipment ordinarily have relatively longer lives. Property, plant, and equipment accounts typically have a higher dollar value.

Procedures exist to restrict access to equipment.

Which of the following would be least likely to address control over the initiation and execution of equipment transactions? Requests for major repairs are approved by a higher level than the department initiating the request. Prenumbered purchase orders are used for equipment and periodically accounted for. Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. Procedures exist to restrict access to equipment.

estimates

Which of the following would the auditor NOT be testing for by examining lease agreements?

error

an asset that has been replaced is discarded due to lack of value, with no entry to the general ledger. error or fraud?