Inventories-Asuncion

d. Verifying that all inventory owned by the client is on hand at the time of count

1. Which of the following is not one of the independent auditor's objectives regarding examination of inventories? a. Verifying that inventory counted is owned by the client b. Verifying that the client has used proper inventory pricing c. Ascertaining the physical quantities of inventory on hand d. Verifying that all inventory owned by the client is on hand at the time of count

b. For subsequent comparison with the completed inventory listing

10. Which of the following best describes the reason that the auditors record their inventory test counts in the working papers? a. To document every test count b. For subsequent comparison with the completed inventory listing c. To document compliance with GAAP d. For use in subsequent audits

d. Included in the final inventory schedule

11. The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are: a. Owned by the client b. Not obsolete c. Physically present at the time of the preparation of the final inventory schedule d. Included in the final inventory schedule

b. Represented by inventory tags are included in the listing

12. After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: a. Included in the listing have been counted b. Represented by inventory tags are included in the listing c. Included in the listing site represented by inventory tags d. Represented by inventory tags are bona fide

a. Completeness

13. An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? a. Completeness b. Legality c. Existence d. Valuation

c. Vendor's invoices

14. An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: a. Merchandise received b. Canceled checks c. Vendor's invoices d. Receiving reports

b. Purchase cutoff procedures

15. To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the: a. Terms of the open purchase orders b. Purchase cutoff procedures c. Contractual commitments made by the purchasing department d. Purchase invoices received on or around year-end

c. Holds legal title to the merchandise

16. Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company if the company: a. Has paid for the merchandise b. Has physical possession of the merchandise c. Holds legal title to the merchandise d. Holds the shipping documents for the merchandise issued in the company's name

c. Sales billed to customers were actually shipped

17. Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that a. Shipments to customers were properly billed b. Entries in the accounts receivable subsidiary ledger were for sales actually shipped c. Sales billed to customers were actually shipped d. No duplicate shipments to customers were made

b. Tour the manufacturing plant or production facility

18. In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in the inventory are properly identified? a. Test the computation of standard overhead rates b. Tour the manufacturing plant or production facility c. Compare the inventory balances to anticipated sales volume d. Review inventory experience and trends

b. Recording as sales items that the company retains as of year-end

19. A "bill and hold" scheme is most likely to include: a. Shipment of items to a customer beyond what the customer has ordered b. Recording as sales items that the company retains as of year-end c. Billing of items that are held by customers for future revenue production purposes. d. Selling items at substantial discounts near year-end

b. The existence of inventories is inherently difficult to substantitiate.

2. Which of the following is not a reason for the special significance attached by auditors to the verification of inventories? a. The determination of inventory valuation directly affects net income. b. The existence of inventories is inherently difficult to substantitiate. c. Special valuation problems often exist for inventories. d. Inventories are often the largest current asset of an enterprise.

c. Cost of goods sold

20. To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: a. Net sales b. Operating income c. Cost of goods sold d. Gross sales

d. The existence of obsolete merchandise

21. An inventory turnover analysis is useful to the auditor because it may detect: a. Inadequacies in inventory pricing b. Methods of avoiding cyclical holding cost c. The optimum automatic reorder points d. The existence of obsolete merchandise

d. Valuation

22. Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management's assertion of: a. Completeness b. Rights and obligations c. Existence d. Valuation

d. Invoices

23. In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the purchase a. Journal b. Orders c. Requisitions d. Invoices

c. Receiving reports

24. Tbe accuracy of the perpetual inventory records may be established, in part, by comparing perpetual inventory records with a. Purchase requisitions b. Purchase orders c. Receiving reports d. Vendor payments

d. Materials requisitions

25. The auditor tests the quantity of materials charged to work in process by tracing these quantities to a. Cost ledgers b. Receiving reports c. Perpetual inventory records d. Materials requisitions

c. The auditor's observation addresses the existence assertion.

3. Which of the following is true about the auditor's observation of the client's physical inventory? a. The count must be made at year-end. b. The auditor should supervise the client's personnel. c. The auditor's observation addresses the existence assertion. d. The auditor should justify any omission of the observation in the audit report.

b. The auditors should make certain that consigned items from suppliers are included in physical inventories totals.

4. Which of the following is not true relating to the auditor's observation of the client's physical inventory? a. The auditors should evaluate the client's planning of the physical inventory. b. The auditors should make certain that consigned items from suppliers are included in physical inventories totals. c. The auditors should evaluate the adequacy of the client's counting procedures. d. The auditors should take test counts of the client's inventory

b. Observe merchandise and raw materials during the client's physical inventory taking.

5. Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? a. Compare the physical quantities of slow-moving items with corresponding quantities of the prior year. b. Observe merchandise and raw materials during the client's physical inventory taking. c. Review the management's inventory representation letter fpr accuracy. d. Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

a. Testing the entity's computation of standard overhead rates.

6. Which of the following audit procedures most like would provide assurance that a manufacturing entity's inventory valuation is proper? a. Testing the entity's computation of standard overhead rates. b. Obtaining confirmation of inventories pledged under loan agreements. c. Reviewing a cutoff procedure for inventories. d. Tracing test counts to the entity's inventory listing.

b. Sales

7. The client's physical quantity count of inventories is lower than the inventory quantities in the perpertual records. This could be a result of a failure to record: a. Purchases b. Sales c. Purchase discounts d. Sales discounts

b. Inventory

8. Your client performed the physical count of inventory as of November 30, one month prior to year-end. Subsequently, your client closed the sales journal on 12/29/15, two days before year-end, and reported those two days' credit sales in January of the next year. Assuming the client uses a perpetual inventory system which of the following is most likely to be overstated relating to the year 2015 financial statements? a. Sales b. Inventory c. Cash d. Accounts Receivable

d. Corresponding with the government regulator regarding the authenticity of the public warehouse.

9. Which of the following is not a procedure that is typically used by auditors in their examination of a client's goods held in the custody of a public warehouse? a. Confirmation b. Obtaining reports on internal control at the warehouse c. Observation d. Corresponding with the government regulator regarding the authenticity of the public warehouse.