Chapter 11 HW

As repairs on warranty items take place, the accrual account is __________.

debited

Tax guidelines do not allow the __________ of the accrual for warranty claims.

deduction

When all of a company's products are sold with warranties, the balance in the accrual account should move __________ the balance in sales.

directly with

In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is

entering of the voucher into the voucher register.

Property tax payments are typically __________ in number.

few

Purchase cutoff procedures should be designed to test whether all inventory

purchased and received before the end of the year was recorded.

To gain overall assurance as to the reasonableness of accounts payable, the auditor may consider __________.

ratios

In a properly designed purchasing process, the same employee most likely would match vendors' invoices with receiving reports and also

recompute the calculations on vendors' invoices.

Federal and state governments do not specify the exact __________ to be maintained, but do specify the amounts to be withheld.

records

The accounts payable department is responsible for ensuring that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records.

true

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be

vendors with whom the entity has previously done business.

With respect to auditing product warranty accruals, auditors should be alerted to changes in the client's __________ sold.

products

Which of the following control activities is not usually performed in the accounts payable department? a. Indicating the asset and expense accounts to be debited. b. Matching the vendor's invoice with the related receiving report. c. Accounting for unused prenumbered purchase orders and receiving reports. d. Approving vouchers for payment by having an authorized employee sign the vouchers.

Accounting for unused prenumbered purchase orders and receiving reports.

When goods are received, the receiving clerk should match the goods with

the vendor shipping document and the purchase order.

The principal business objectives of the purchasing process are acquiring goods and services and paying for those goods and services.

true

Following are audit procedures that are normally conducted in the purchasing process and related accounts. 1. Test a sample of purchase requisitions for proper authorization. 2. Test transactions around year-end to determine if they are recorded in the proper period. 3. Review results of confirmation of selected accounts payable. 4. Compare payables turnover to previous years' data. 5. Obtain selected vendors' statements and reconcile to vendor accounts. 6. Compare purchase returns and allowances as a percentage of revenue or cost of sales to industry data. Required:Identify whether the tests listed above are substantive analytical procedures, tests of details of transactions, or tests of details of account balances.

1. Tests of details of transactions 2. Tests of details of transactions 3. Tests of details of account balances 4. Substantive analytical procedures 5. Tests of details of account balances 6. Substantive analytical procedures

When searching for unrecorded liabilities, the auditors consider transactions recorded __________ year-end.

After

When testing other accrued liabilities, auditors may independently calculate the amount and __________ it to management's estimate.

Compare

Accounts payable __________ can be mailed to vendors from whom substantial purchases have been made.

Confirmations

Income taxes withheld from employees but not yet submitted to the government are considered to be a(n) __________.

Liability

When testing customer deposits, auditors typically review a(n) __________ of the individual deposits.

List

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

Receiving department

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all

Receiving reports

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period. B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. C. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. D. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.

Auditors need to compare the percentage of claims accrued to current year __________.

Sales

Which of the following procedures is least likely to be performed before the balance sheet date?

Search for unrecorded liabilities.

Auditors need to consider __________ terms for determining ownership and whether a liability should be recorded.

Shipping

For effective internal control purposes, which of the following individuals should be responsible for mailing signed checks?

Treasurer

Because of the low volume of purchase return transactions, the auditor normally does not test the controls associated with these transactions.

True

Product costs should be matched directly with specific transactions and are recognized upon recognition of revenue.

True

In obtaining evidence in support of financial statement assertions, the auditor develops specific audit procedures to access those assertions. All's Fair Appliance Company is an appliance wholesaler. Select the most appropriate audit procedure from the list below and enter the number in the appropriate place on the grid. (An audit procedure may be selected once, more than once, or not at all.) Audit Procedure: 1. Compare selected amounts from the accounts payable listing with the voucher and supporting documents. 2. Review drafts of the financial statements. 3. Search for unrecorded liabilities. 4. Select a sample of receiving documents for a few days before and after year-end. 5. Obtain a listing of the accounts payable and agree total to general ledger control account. Specific Assertion a. Verify that recorded accounts payable include all amounts owed to vendors. (completeness) b. Verify that all accounts payable are recorded in the correct period. (cutoff) c. Determine whether accounts payable have been properly accumulated from the journal to the general ledger. (accuracy) d. Determine whether recorded accounts payable are valid. (existence/occurrence)

a. 3. Search for unrecorded liabilities. b. 4. Select a sample of receiving documents for a few days before and after year-end. c. 5. Obtain a listing of the accounts payable and agree total to general ledger control account. d. 1. Compare selected amounts from the accounts payable listing with the voucher and supporting documents.

When auditors find unrecorded liabilities, before adjusting they must consider __________.

materiality