Audit Ch 13 - PPE; depreciation and depletion

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? a) accumulated depreciation b) cost of goods sold c) purchase returns and allowances d) purchase discounts

a) accumulated depreciation

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: a) deed b) canceled checks c) closing statement d) interest expense

a) deed

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 in this procedure most directly related to? a) existence b) completeness c) rights d) valuation

a) existence

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

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

A search for overstated property, plant, and equipment purchases would most likely include: a) accounts receivable b) property, plant, and equipment c) purchase discounts d) repairs and maintenance expense

b) property, plant, and equipment

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? a) depreciation b) accounts payable c) cash d) repairs

d) repairs

Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment? a) accumulated depreciation b) insurance expense c) property, plant, and equipment d) purchase returns and allowances

d) purchase returns and allowances

Which of the following is an internal control weakness related to factory equipment? a) checks issued in payment of purchases of equipment are not signed by the controller. b) all purchases of factory equipment are required to be made by the department in need of the equipment c) factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expires. d) proceeds from sales of fully depreciated equipment are credited to other income

b) all purchases of factory equipment are required to be made by the department in need of the equipment

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: a) increase in insurance coverae b) inspection of equipment and reconciliation with accounting records c) verification of liens, pledges, and collateralization d) accounting for work orders

b) inspection of equipment and reconciliation with accounting records

Which of the following explanation most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts? a) the estimated remaining useful lives of plant assets were revised upward b) plant assets were retired during the year c) the prior year's depreciation expense was erroneously understated d) overhead allocations were revised at year-end

b) plant assets were retired during the year

The auditors are most likely to seek information from the plant manager with respect to the a) adequacy of the provision for uncollectible accounts b) appropriateness of physical inventory observation procedures c) existence of obsolete machinery d) deferral of procurement of certain necessary insurance coverage

c) existence of obsolete machinery

An effective procedure for identifying unrecorded retirements of equipment is to: a) foot related property records b) recalculate depreciation on the related equipment c) select items of equipment in the accounting records and then locate them in the plant d) select items of equipment and the locate them in the accounting records

c) select items of equipment in the accounting records and then locate them in the plant

Which of the following is not an overall test of the annual provision for depreciation expense? a) compare rates used in the current year with those used in prior years b) test computation of depreciation provisions for a representative number of units c) test deductions from accumulated depreciation for assets purchased during the year d) perform analytical procedures

c) test deductions from accumulated depreciation for assets purchased during the year

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: a) all transactions resulting in the ending balance b) tests of controls over disposals c) transactions that occurred during the year d) performing analytical procedures on beginning balances of the accounts

c) transactions that occurred during the year

To assure accountability for fixed asset retirements, management should implement an internal control that includes: a) continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets b) periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired c) utilization of serially numbered retirement work orders d) periodic observation of plant assets by the internal auditors

c) utilization of serially numbered retirement work orders

The auditors may conclude that depreciation charges are insufficient by noting: a) insured values greatly in excess of book values b) large amounts of fully depreciated assets c) continuous trade-ins of relatively new assets d) excessive recurring losses on assets retired

d) excessive recurring losses on assets retired