Chapter 13 - PPE

Hwang purchased land for a new plant that is 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 land Adjusting Entry?

No

Which of the best describes the auditors approach to the audit of the ending balance of PPE for a continuing nonpublic client? A) Direct audit of the ending balance B) Agreement of the B/B to priors years working papers and audit of significant changes in the accounts C) Audit of changes in the accounts since inception of the company D) Audit of selected purchases and retirements for the last few years

B

Which of the following is not a control that should be established for purchases of equipment? A)Establishing a budget for capital expenditures B)Requiring that the department in need of the equipment order the equipment C)Requiring that the receiving department receive the equipment D)Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization

B

In the examination of PPE the auditor tries to determine all of the following except the: A)Extent of the control risk B)Extent of property abandoned during the year C)Adequacy of replacement funds D)Reasonableness of the depreciation

C

To assure accountability for fixed assets retirements, management should implement an I/C that includes: A) Continous 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 utilized C) Utilization of serially numbered retirement work orders D) Periodic observation of plant assets by the I/C

C

Which of the following best describes the auditors typical observation of PPE? A)Observe PPE annually B)Observe all additions to PPE made during the year C)Observe all Major PPE items in the clients accounts each year D)Observe major additions to PPE made during the year.

D

Subsequent to the land purchase, Hwang purchased certain equipment from a vendor who had filed for bankruptcy. Hwangs management believes that the equipment was purchased for an amount equal to approx half of what at least one other supplier sells it for. Hwang recorded the transaction at its cost. adjusting entry?

No

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. Adjusting entry?

Yes

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

Yes

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: 1) all transactions resulting in the ending balance 2) test of controls over disposals 3) Transactions that occurred during the year 4) Performing analytical procedures on B/B of the accounts

3

Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment? 1) Acc depreciation 2) Insurance expense 3) PPE 4) Purchase returns and allowances

4

Audit of which of the following accounts is more likely to reveal evidence relating to recorded retirements of equipment? 1) Acc depreciation 2) COGS 3) purchase returns and allowances 4) Purchase discounts

1

In testing plant and equipment balances, an auditor may select recorded additions in the analysis of PPE and inspect the actual assets involved. Which management assertion is this procedure most likely related to? 1) existence 2) completeness 3) Rights 4) Valuation

1

The auditors are lest likely to learn of retirements of equipment through which of the following? A)Review of the purchase returns and allowances account B)Review of depreciation C)Analysis of the debits to the accumulated depreciation account D)Review of insurance policy riders

A

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

The audit of intangible assets typically involves 1) Vouching the cost of asset, Testing allocation methods 2) Vouching the cost of asset 3) Testing Allocation methods 4 Nothing

1

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 examination of the related: 1) deed 2) canceled checks 3) closing statement 4) interest expense

1

Which of the following statements is NOT typical of PPE as compared to most current assets accounts? 1) A PPE cutoff error near year end has more significant effect on net income 2) Relatively few transactions occur in PPE during the year 3) The assets involved in PPE ordinarily have relatively longer lives 4) PPE accounts typically have a higher dollar value

1

A search of overstated PPE purchases would most likely include? 1) A/R 2) PPE 3) Purchase discounts 4) Repairs and maintenance expense

2

To strengthen I/C over the custody of heavy mobile equipment, the client would most likely institute a policy requiring periodic: 1) Increase in insurance coverage 2) Inspection of equipment and reconciliation with accounting records 3)Verification of liens, pledges, and collarealizations 4) Accounting for work orders

2

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the acc depreciation accounts 1) The estimated remaining useful lives of plant assets were revised upward 2) Plant assets were retired during the year' 3) The prior years depreciation expense was erroneously understated 4) Overhead allocation was revised at year end

2

Which of the following is an I/C weakness related to factory equipment? 1) Checks issued in payment of purchases of equipment are not signed by the controller 2) All purchases of factory equipment are required to be made by the department in need of the equipment 3) factory equipment replacements are generally made when estimated useful lives, indicated in depreciation schedules, have expired 4) Proceeds from sales of fully depreciated equipment are credited to other income

2

An effective procedure for identifying unrecorded retirements of equipment is to 1) Foot related property records 2) Recalculate depreciation on the related equipment 3) Select items of equipment in the accounting records and then locate them in the plant 4) Select items of equipment and then locate them in the accounting records.

3

The auditors are most likely to seek information from the plant manager with respect to the 1) Adequacy of the provision for uncollectible accounts 2) Appropriateness of physical INV observation procedures 3) Existence of obsolete machinery 4) Deferral of procurement of certain necessary insurance coverage

3

Which of the following is NOT an overall test of the annual provision for depreciation expense? 1) Compare rates used in the current year with those used in prior years 2) Test computation of depreciation provisions for a representative # of units 3) Test deductions from acc depreciation for assets purchased during the year 4) Perform analytical procedures

3

The auditors may conclude that depreciation charges are insufficient by noting: 1) Insured values greatly in excess of book values 2) Large amounts of fully depreciated assets 3) Continuous trade-ins of relatively new assets 4) Excessive recurring losses on assets retired

4

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to PPE are not understated? 1) Depreciation 2) A/P 3) Cash 4) Repairs

4

A continuing audit of clients PPE and A/R have appropriately the same year-end balance. In this circumstance, when compared to PPE one would normally expect the audit of A/R to require: A)More time B)Less time C)Same D)Similar confirmation process

A