Question 1

When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most?

Accepted Answer

A)  Accounts receivable. 
B)  Cash. 
C)  Marketable securities. 
D)  Property, plant, and equipment.

Question 2

The most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client:

Accepted Answer

A)  Confirmation. 
B)  Observation. 
C)  Recomputation. 
D)  Inquiry.

Question 3

Which of the following would be least likely to address control over the initiation and execution of equipment transactions?

Accepted Answer

A)  Requests for major repairs are approved by a higher level than the department initiating the request. 
B)  Prenumbered purchase orders are used for equipment and periodically accounted for. 
C)  Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. 
D)  Procedures exist to restrict access to equipment.

Question 4

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?

Accepted Answer

A)  Repairs have been capitalized to repair equipment that had broken down. 
B)  Interest has been capitalized for self-constructed assets. 
C)  Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements. 
D)  The cost of freight-in on an acquisition has been capitalized.

Question 5

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?

Accepted Answer

A)  Accounts receivable. 
B)  Cash. 
C)  Current marketable securities. 
D)  Property, plant, and equipment.

Question 6

Which of the following is the most important control procedure over acquisitions of property, plant, and equipment?

Accepted Answer

A)  Establishing a written company policy distinguishing between capital and revenue expenditures. 
B)  Using a budget to forecast and control acquisitions and retirements. 
C)  Analyzing monthly variances between authorized expenditures and actual costs. 
D)  Requiring acquisitions to be made by user departments.

Question 7

In testing for unrecorded retirements of equipment, an auditor might:

Accepted Answer

A)  Select items of equipment from the accounting records and then attempt to locate them during the plant tour. 
B)  Compare depreciation expense with the prior year's depreciation expense. 
C)  Trace equipment items observed during the plant tour to the equipment subsidiary ledger. 
D)  Scan the general journal for unusual equipment retirements.

Question 8

The auditors may expect a proper debit to goodwill due to:

Accepted Answer

A)  Purchase of a trademark. 
B)  Establishment of an extraordinarily profitable product. 
C)  A business combination. 
D)  Capitalization of human resources.

Question 9

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for:

Accepted Answer

A)  Investigation of variances within a formal budgeting system. 
B)  Review and approval of the monthly depreciation entry by the plant supervisor. 
C)  Segregation of duties of employees in the accounts payable department. 
D)  Examination by the internal auditors of vendor invoices and canceled checks for property acquisitions.

Question 10

A plant manager would be most likely to provide information on which of the following?

Accepted Answer

A)  Adequacy of the provision for uncollectible accounts. 
B)  Appropriateness of physical inventory valuation techniques. 
C)  Existence of obsolete production equipment. 
D)  Deferral of certain purchases of office supplies.

Question 11

The auditors are least likely to learn of retirements of equipment through which of the following?

Accepted Answer

A)  Review of the purchase returns and allowances account. 
B)  Review of depreciation. 
C)  Analysis of the debits to the accumulated depreciation account. 
D)  Review of insurance policy riders.

Question 12

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the:

Accepted Answer

A)  Extent of the control risk. 
B)  Extent of property abandoned during the year. 
C)  Adequacy of replacement funds. 
D)  Reasonableness of the depreciation.

Question 13

Evidence of continued ownership of property is obtained by vouching payments to a mortgage trustee.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a control that should be established for purchases of equipment?

Accepted Answer

A)  Establishing a budget for capital acquisitions. 
B)  Requiring that the department in need of the equipment order the equipment. 
C)  Requiring that the receiving department receive the equipment. 
D)  Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization.

Question 15

In violation of company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditors examining Lowell's financial statements would most likely detect this when:

Accepted Answer

A)  Discussing capitalization policies with Lowell's controller. 
B)  Examining maintenance expense accounts. 
C)  Observing, during the physical inventory observation, that the warehouse had been painted. 
D)  Examining the construction work orders supporting items capitalized during the year.

Question 16

The auditors' approach to the audit of property, plant, and equipment largely results from the fact that relatively few transactions occur.

Accepted Answer

A) True 
 B)False

Question 17

Auditors should obtain evidence that there are no significant amounts of unrecorded retirements of property, plant, and equipment.
a. Describe two ways that the auditors obtain evidence that there are no significant amounts of unrecorded retirements of property (land).
b. Describe three ways that the auditors obtain evidence that there are no significant amounts of unrecorded retirements of equipment.

Accepted Answer

The answer of Auditors should obtain evidence that there are...

Question 18

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?

Accepted Answer

A)  Direct audit of the ending balance. 
B)  Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts. 
C)  Audit of changes in the accounts since inception of the company. 
D)  Audit of selected purchases and retirements for the last few years.

Question 19

Which of the following is the best evidence of continuous ownership of property?

Accepted Answer

A)  Examination of the deed. 
B)  Examination of rent receipts from lessees of the property. 
C)  Examination of the title policy. 
D)  Examination of canceled check in payment for the property.

Exam 13: Property, Plant, and Equipment: Depreciation and Depletion

When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most?

The most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client:

Which of the following would be least likely to address control over the initiation and execution of equipment transactions?

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?

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?

Which of the following is the most important control procedure over acquisitions of property, plant, and equipment?

In testing for unrecorded retirements of equipment, an auditor might:

The auditors may expect a proper debit to goodwill due to:

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for:

A plant manager would be most likely to provide information on which of the following?

The auditors are least likely to learn of retirements of equipment through which of the following?

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the:

Evidence of continued ownership of property is obtained by vouching payments to a mortgage trustee.

Which of the following is not a control that should be established for purchases of equipment?

In violation of company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditors examining Lowell's financial statements would most likely detect this when:

The auditors' approach to the audit of property, plant, and equipment largely results from the fact that relatively few transactions occur.

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?

Which of the following is the best evidence of continuous ownership of property?