Audit Chapter 13

The auditors may conclude that depreciation charges are insufficient by noting:

Excessive recurring losses on assets retired.

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic:

Inspection of equipment and reconciliation with accounting records.

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on:

Transactions that occurred during the year.

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.

yes

The purchased land was in part financed through obtaining a loan from a financial institution. Interest on that loan is being capitalized as part of the cost of the land.

yes

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.

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment?

Accumulated depreciation.

The auditors are most likely to seek information from the plant manager with respect to the:

Existence of obsolete machinery.

Which of the following is an internal control weakens related to factory equipment?

Proceeds from sales of fully depreciated equipment are credited to other income.

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?

Repairs

An effective procedure for identifying unrecorded retirements of equipment is to:

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

Which of the following is not an overall test of the annual provision for deprecation expense?

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

To assure accountability for fixed asset retirements, management should implement an internal control that includes:

Utilization of serially numbered retirement work orders.

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.

no

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.

no

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.

no