Question 1

The auditor must know the client's capitalization policies to determine whether acquisitions are:
A) 
B) 
C) 
D)

Accepted Answer

D

Question 2

Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off?
A)Compare depreciation expense divided by gross equipment cost with previous years.
B)Compare gross manufacturing cost divided by some measure of production with previous years.
C)Compare accumulated depreciation divided by gross equipment cost with previous years.
D)Compare annual repairs and maintenance accounts with previous years.

Accepted Answer

B

Question 3

Which of the following would generally not be a component of the audit of the acquisition and payment cycle?
A)Adequacy of controls over acquisitions of long-lived assets
B)Tracing disposals of long-lived assets to the fixed asset master file
C)Determining the adequacy of the funds available for capital expenditures
D)Reperformance of recorded depreciation expense

Accepted Answer

The audit of the acquisition and payment cycle focuses on the acquisition of goods and services, as well as the related disbursements. Determining the adequacy of funds available for capital expenditures is more relevant to the capital expenditures cycle and would not typically be considered a component of the audit of the acquisition and payment cycle. The other answer choices are all relevant to the acquisition and payment cycle audit.

Question 4

You are the in-charge auditor for a company who has been an audit client for several years.Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?
A)Verification of depreciation expense
B)Analytical procedures
C)Verification of current-period disposals
D)Verification of the beginning balance in the equipment account

Accepted Answer

Verification of the beginning balance in the equipment account is not typically a category of tests for current-year audits, as it relates to prior periods and is usually verified in the first year of the audit.

Question 5

The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective?
A)Classification
B)Detail tie-in
C)Existence
D)Cut-off

Accepted Answer

"Foot the acquisition schedule" refers to the process of adding up the individual amounts in the schedule to ensure that the total matches the recorded balance in the general ledger. This relates to the detail tie-in audit objective, which involves ensuring that the amounts in the financial statements agree with supporting documentation.

Question 6

Which of the following statements about the audit of fixed assets is the least correct?
A)The primary accounting record for manufacturing equipment and other property, plant and equipment is generally a fixed asset master file.
B)Manufacturing equipment and current assets are normally audited in the same fashion regardless of the activity within a particular account.
C)The emphasis on auditing fixed assets is on verification of current-period acquisitions.
D)Failure to record the acquisition of a fixed asset affects the income statement until the assets are fully depreciated.

Accepted Answer

Manufacturing equipment and current assets are not audited in the same fashion. Current assets are typically tested for existence and valuation, while the audit of fixed assets places emphasis on transactions, current additions, disposals, and impairment. The primary accounting record for fixed assets is a fixed asset master file, and the failure to record the acquisition of a fixed asset affects both the balance sheet and income statement, not just the income statement.

Question 7

A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the:
A)acquisitions journal.
B)depreciation schedule.
C)fixed asset master file.
D)file of purchase requisitions.

Accepted Answer

A fixed asset master file is a record-keeping system that organizes and tracks all of a company's fixed assets, including equipment. This file includes detailed information about the assets such as the date of acquisition, original cost, current year depreciation, and accumulated depreciation. The other options listed do not provide the same level of detailed information for each asset.

Question 8

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?
A)Depreciation expense
B)Insurance expense
C)Estimated liability for warranties
D)Property tax expense

Accepted Answer

The answer of Which of the following expenses is not...

Question 9

Which of the following accounts is not associated with the acquisition and payment cycle?
A)Common stock
B)Property, plant and equipment
C)Accrued property taxes
D)Income tax expense

Accepted Answer

Common stock is not associated with the acquisition and payment cycle as it is related to financing activities, specifically equity financing. The acquisition and payment cycle is concerned with the purchase of goods or services and the subsequent payment for those items. Property, plant and equipment, accrued property taxes, and income tax expense are all related to this cycle.

Question 10

Failure to capitalize a fixed asset at the correct amount would impact which financial statements until the company disposes of the asset?
A)The balance sheet only
B)The income statement only
C)The cash flow statement only
D)Both the income statement and the balance sheet

Accepted Answer

Failure to capitalize a fixed asset at the correct amount would affect the balance sheet as it would be misstated and not reflect the actual value of the asset. It would also impact the income statement as the depreciation expense would be incorrect, leading to inaccurate net income. Hence, both the balance sheet and income statement would be impacted until the asset is disposed of. The cash flow statement would not be impacted as it only reflects changes in cash flows and not changes in asset values.

Question 11

To be capitalized as part of property, plant and equipment, assets must:
A)have expected useful lives of more than one year.
B)not be acquired for resale.
C)be useful in multiple productive capacities within the organization.
D)A and B, but not C.

Accepted Answer

Assets must have expected useful lives of more than one year and not be acquired for resale to be capitalized as part of property, plant, and equipment.

Question 12

Accrued payroll taxes are normally considered to be associated with the acquisition and payment cycle.

Accepted Answer

Accrued payroll taxes are part of the payroll process, which is a sub-process of the acquisition and payment cycle in the accounting process.

Question 13

Which of the following tests are typically not necessary when auditing a client's schedule of recorded disposals?
A)Footing the schedule
B)Tracing schedule totals to the general ledger
C)Tracing cost and accumulated depreciation of the disposals to the property master file
D)All of the above are necessary.

Accepted Answer

All of the listed tests are necessary to ensure the accuracy and completeness of the client's schedule of recorded disposals. Footing the schedule checks arithmetic accuracy, tracing totals to the general ledger ensures consistency, and tracing cost and accumulated depreciation verifies the accuracy of disposals recorded in the property master file.

Question 14

Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify:
A)all large transactions.
B)all unusual transactions.
C)a representative sample of typical additions.
D)all three of the above.

Accepted Answer

All large transactions, unusual transactions, and a representative sample of typical additions should be verified to ensure accuracy and completeness in financial reporting.

Question 15

You are auditing the acquisition and payment cycle and note the presence of excessive recurring losses on retired assets.You may conclude that:
A)insured values are greater than book values.
B)there are a large number of fully depreciated assets.
C)depreciation charges may by insufficient.
D)company has a policy of selling relatively new assets.

Accepted Answer

Excessive recurring losses on retired assets may indicate that depreciation charges are insufficient. This means that the company may not be accounting for the true decrease in value of these assets over time, resulting in higher losses when they are retired. Insured values being greater than book values would indicate that the company is over-insuring their assets, but this would not necessarily lead to excessive losses on retired assets. A large number of fully depreciated assets or a policy of selling relatively new assets may result in losses, but not necessarily excessive ones.

Question 16

The source of debits in the equipment account is the:
A)sales journal.
B)cash disbursements journal.
C)cash receipts journal.
D)acquisitions journal.

Accepted Answer

The acquisitions journal is where all acquisitions of equipment are recorded, which includes debits to the equipment account.

Question 17

The primary accounting record for manufacturing equipment and other fixed assets is the:
A)depreciation ledger.
B)fixed asset master file.
C)asset inventory.
D)equipment roster.

Accepted Answer

The fixed asset master file is the primary accounting record for manufacturing equipment and other fixed assets. It contains information such as acquisition cost, useful life, and depreciation schedule. The other options (depreciation ledger, asset inventory, equipment roster) may be supporting documents, but they are not the primary accounting record for fixed assets.

Question 18

In testing acquisitions the auditor needs to understand the appropriate accounting guidance related to acquisition accounting.Which of the following is not an accounting consideration for the auditor as regards to acquisition cost?
A)Inclusion of material transportation and installation costs
B)Recording of trade-in costs
C)Allocating costs when building and equipment are purchased at one price
D)Verifying that purchased equipment amounts correspond to the budgeted amount

Accepted Answer

Verifying that purchased equipment amounts correspond to the budgeted amount is not an accounting consideration for the auditor as regards to acquisition cost. It would be more related to budgeting and expense control. The other options are related to accounting considerations for the acquisitions.

Question 19

You are auditing Manufacturing Company and testing the audit related objective of completeness for the equipment accounts.Which of the following audit procedures is most likely to achieve your objective?
A)Examine vendor invoices and receiving reports.
B)Physically examine assets.
C)Examine vendor invoices of closely related accounts such as repairs and maintenance.
D)Trace individual acquisitions to the fixed asset master file.

Accepted Answer

The answer of You are auditing Manufacturing Company and testing...

Question 20

Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file?
A)Examine vendor invoices and receiving reports.
B)Review transactions near the balance sheet date.
C)Recalculate vendor invoices.
D)Examine vendor invoices for correct accounting treatment.

Accepted Answer

The most correct audit procedure for determining the audit objective of existence for the equipment account in the fixed asset master file would be to examine vendor invoices and receiving reports. This would help the auditor confirm that the equipment actually exists and was received by the company. Reviewing transactions near the balance sheet date may not necessarily provide evidence of existence, and recalculation of vendor invoices and examination of vendor invoices for correct accounting treatment are not directly tied to the existence objective.

Quiz 19: Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

The auditor must know the client's capitalization policies to determine whether acquisitions are:

Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off?

Which of the following would generally not be a component of the audit of the acquisition and payment cycle?

You are the in-charge auditor for a company who has been an audit client for several years.Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?

The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective?

Which of the following statements about the audit of fixed assets is the least correct?

A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the:

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?

Which of the following accounts is not associated with the acquisition and payment cycle?

Failure to capitalize a fixed asset at the correct amount would impact which financial statements until the company disposes of the asset?

To be capitalized as part of property, plant and equipment, assets must:

Accrued payroll taxes are normally considered to be associated with the acquisition and payment cycle.

Which of the following tests are typically not necessary when auditing a client's schedule of recorded disposals?

Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify:

You are auditing the acquisition and payment cycle and note the presence of excessive recurring losses on retired assets.You may conclude that:

The source of debits in the equipment account is the:

The primary accounting record for manufacturing equipment and other fixed assets is the:

In testing acquisitions the auditor needs to understand the appropriate accounting guidance related to acquisition accounting.Which of the following is not an accounting consideration for the auditor as regards to acquisition cost?

You are auditing Manufacturing Company and testing the audit related objective of completeness for the equipment accounts.Which of the following audit procedures is most likely to achieve your objective?

Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file?