Ch. 13 HW/Quiz

2. PP&E

a search for overstated PP&E purchases would most likely include: 1. accounts receivable 2. PP&E 3. purchase discounts 4. repairs and maintenance expense

3. transactions that occurred during the year

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. tests of controls over disposals 3. transactions that occurred during the year 4. performing analytical procedures on the beginning balances of the accounts

a. property, plant, and equipment

for which of the following accounts is it most likely that most of the audit work can be performed in advance of the balance sheet date? a. property, plant, and equipment b. cash c. accounts receivable d. current marketable securities

b. investigation of variances within a formal budgeting system

property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for: a. segregation of duties of employees in the accounts payable department b. investigation of variances within a formal budgeting system c. review and approval of the monthly depreciation entry by the plant supervisor d. examination by the internal auditors of vendor invoices and canceled checks for property acquisitions

4. repairs

which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? 1. depreciation 2. accounts payable 3. cash 4. repairs

c. analyzing repairs and maintenance expense accounts

which of the following is used to obtain evidence that the client's equipment accounts are not understated? a. vouching purchases of plant and equipment b. analyzing the miscellaneous revenue account c. analyzing repairs and maintenance expense accounts d. recomputing depreciation expense

c. plant assets were retired during the year

an auditor has identified numerous debits to accumulated depreciation of equipment. which of the following is most likely? a. the prior year's depreciation expense was erroneously understated b. overhead allocations were revised at year-end c. plant assets were retired during the year d. the estimated remaining useful lives of equipment were increased

d. review of the purchase returns and allowances account

the auditors are least likely to learn of retirements of equipment through which of the following? a. review of insurance policy riders b. review of depreciation c. analysis of the debits to the accumulated depreciation account d. review of the purchase returns and allowances account

3. existence of obsolete machinery

the auditors are most likely to seek info from the pant manager with respect to the: 1. adequacy of the provision for uncollectible accounts 2. appropriateness of physical inventory observation procedures 3. existence of obsolete machinery 4. deferral of procurement of certain necessary insurance coverage

4. excessive recurring losses on assets retired

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

b. recomputation

the most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client: a. inquiry b. recomputation c. observation d. confirmation

b. acquisitions are made through and approved by the department in need of the equipment

which of the following policies is an internal control weakness related to the acquisition of factory equipment? a. variances between authorized equipment expenditures and actual costs are to be immediately reported to management b. acquisitions are made through and approved by the department in need of the equipment c. depreciation policies are reviewed only once a year d. advance executive approvals are required for equipment acquisitions

1. a property, plant, and equipment cutoff error near year-end has a more significant effect on net income

which of the following statements is not typical of PP&E as compared to most current asset accounts? 1. a property, plant, and equipment cutoff error near year-end has a more significant effect on net income 2. relatively few transactions occur in PP&E during the year 3. the assets involved with PP&E ordinarily have relatively longer lives 4. PP&E accounts typically have higher collar value

c. procedures exist to restrict access to equipment

which of the following would be least likely to address control over the initiation and execution of equipment transactions? a. requests for purchases of equipment are reviewed for consideration of soliciting competitive bids b. requests for major repairs are approved by a higher level than the department initiating the request c. procedures exist to restrict access to equipment d. prenumbered purchase orders are used for equipment and periodically accounted for

1. deed

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

b. property, plant, and equipment

an auditor would be least likely to use confirmations in connection with the examination of: a. stockholders' equity b. property, plant. and equipment c. inventories d. long-term debt

3. select items of equipment in the accounting records and then locate them in the plant

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

4. purchase returns and allowances

analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment? 1. accumulated depreciation 2. insurance expense 3. PP&E 4. purchase returns and allowances

1. accumulated depreciation

audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? 1. accumulated depreciation 2. cost of goods sold 3. purchase returns and allowances 4. purchase discounts

d. analyze miscellaneous revenue

in testing for unrecorded retirements of equipment, an auditor might: a. compare depreciation expense with the prior year's depreciation expense b. trace equipment items observed during the plant tour to the equipment subsidiary ledger c. scan the general journal for unusual equipment retirements d. analyze miscellaneous revenue

1. existence

in testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. which management assertion is this procedure most directly related to? 1. existence 2. completeness 3. rights 4. valuation

3. utilization of serially numbered retirement work orders

to assure accountability for fixed-asset retirements, management should implement an internal control that includes: 1. continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets 2. periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired 3. utilization of serially numbered retirement work orders 4. periodic observation of plant assets by the internal auditors

2. inspection of equipment and reconciliation with accounting records

to strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: 1. increase in insurance coverage 2. inspection of equipment and reconciliation with accounting records 3. verification of liens, pledges, and collateralizations 4. accounting for work orders

a. agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts

which of the following best describes the auditors' approach to the audit of the ending balance of property, plant, and equipment for a continuing nonpublic client? a. agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts b. audit of selected purchases and retirements for the last few years c. audit of changes in the accounts since inception of the company d. direct audit of the ending balance

2. plant assets were retired during the year

which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated 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 year's depreciation expense was erroneously understated 4. overhead allocations were revised at year-end

2. all purchases of factory equipment are required to be made by the department in need of the equipment

which of the following is an internal control 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, as indicated in depreciation schedules, have expired 4. proceeds from sales of fully depreciated equipment are credited to other income

3. test deductions from accumulated depreciation for assets purchased during the year

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 number of units 3. test deductions from accumulated depreciation for assets purchased during the year 4. perform analytical procedures