Ch. 12 Review Questions

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

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 Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins:

Can issue an unqualified opinion without disclosing that she did not observe year-end inventories

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

Cost accounting standards board

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

Direct labor, raw material, and factory overhead

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

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

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

Existence

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

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

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

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

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

Preparation of a shipping document

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

Uses a standard cost system that produces variance reports

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

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

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

Well-kept records of perpetual inventory are maintained