CH 12 HW

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the:

Bill of lading

During the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to:

Completeness

T/F Inventory is ordinarily valued at the lower of cost or market.

Correct

T/F The client need not count every item.

Correct

Which of the following should be included as a part of inventory costs of a manufacturing company?

Direct Labor(yes), Raw Material(yes), Factory Overhead(yes)

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of good sold?

Establish that the client includes only inventory on hand at year-end in inventory totals

An auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to :

Existence

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is:

Existence

The primary objectives of a CPA's observation of a client's physical inventory count is to:

Obtain direct knowlegde that the inventory exists and has been properly counted

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and:

Valuation

An auditor most likely would analyze inventory turnover rates to obtain evidence about:

Valuation

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the:

Cost Accounting Standard Board

T/F Inventory items "consigned in" should be included in the client's inventory totals.

Incorrect

What should be the determination for the following callout: "exceed current market values of the items."

Replace with "equal or are less than current market prices of the items."

What should be the determination for the following callout: "analyze the client's aging of receivables."

Retain the original text.

Inventory turnover (as measured by cost of goods sold/ending inventory) went from 7.95 in 20X7 to 10.52 in 20X8. Which of the explanations is consistent with the change in inventory turnover?

A larger percentage of sales occurred during the last month of 20X8, as compared to 20X7.

T/F Auditors must count all inventory items during the inventory count.

Incorrect

The receiving department is LEAST likely to be responsible for the:

Preparation of the shipping document

What should be the determination for the following callout: "It would seem that the client has a policy of making no depreciation entries related to acquisitions or disposals during the year and we should consider the propriety of this policy."

Replace with "We should inquire of the client as to details of this year's depreciation calculation and entry."

What should be the determination for the following callout: "no changes in shareholders occurred during the year."

Replace with "no stock was issued or repurchased by Keystone during the year."

What should be the determination for the following callout: "vouch the cash disbursement."

Retain the original text.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address:

Valuation

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:

Want the client to schedule the physical count at the end of the year

Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and:

Well-kept records of perpetual inventory are maintained

T/F Ordinarily, the auditors will leave a copy of all their counts with the client so the client can correct misstatements.

Incorrect

The gross profit percentage (gross profit/revenue) changed from .166 in 20X7 to .154 in 20X8. Which of the explanations is consistent with the change in gross profit percentage?

Increases in costs of purchases were not completely passed on to customers through higher selling prices.

Which of the following is the best audit procedure for the discovery of the damaged merchandise in a client 's ending inventory

Observe marchandise and raw materials during the client's physical inventory taking

What should be the determination for the following callout: "Vouch invoices in support of the change in leasehold improvements. "

Replace with "Consider the reasonableness of amortization of leasehold improvements during the year."

What should be the determination for the following callout: "Cash—First National Bank."

Replace with "Line of credit."

What should be the determination for the following callout: "We should carefully inspect items for pledging status during the count of inventory."

Replace with "We should examine cash confirmations and debt agreements."

What should be the determination for the following callout: "indicates that the allowance for doubtful accounts seems adequate as of year-end and that no adjusting entry is necessary."

Replace with "should be written off as of year-end with a debit to the allowance for doubtful accounts and a credit to accounts receivable and we should perform further procedures on the adequacy of the allowance for doubtful accounts."

What should be the determination for the following callout: "we should determine that all "slow moving" items are valued at zero."

Replace with "we should calculate turnover ratios of inventory items."

Net income increased in 20X8. Which of the explanations is most consistent with the changes in net income?

The percentage of tax included in the provision for income taxes for 20X8 is less than the percentage used in 20X7.

The auditor's analytical procedures will be facilitated if the client:

Uses a standard cost system that produces variance reports

Even though the auditors are unable to obtain evidence regarding the fairness of beginning inventories, they may still issue an unmodified opinion on the client's __________ .

balance sheet

McPherson Corp does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullin, CPA, observes such counts as the deems necessary and is able to satisfy herself as to the reliability of the client

can issue an unqualified opinion disclosing that she did not observe year-end inventories.

Inventories stored in public warehouses should be __________ with the custodians.

confirmed

The auditors observe the inventory taking primarily to obtain evidence of the __________ assertion and to a certain extent the client's rights to the inventories.

existence

A decreasing rate of inventory turnover suggests the possibility of inventory __________.

obsolescence

Tracing __________ for several days before and after year-end to recorded purchases is designed to test the proper cutoff of purchase transactions.

receiving documents