Question 1

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

Determining the adequacy of funds available for capital expenditures relates to the financing cycle rather than the acquisition and payment cycle. The other options listed are components of the audit of the acquisition and payment cycle.

Question 2

The types of assets, expenses, and liabilities associated with the acquisition and payment cycle will differ by company.

Accepted Answer

The types of assets, expenses, and liabilities associated with the acquisition and payment cycle will vary based on the nature of a company's operations, size, legal structure, and industry. Therefore, it is true that the types of assets, expenses, and liabilities associated with the acquisition and payment cycle will differ by company.

Question 3

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

Examining vendor invoices of closely related accounts such as repairs and maintenance can help identify any equipment purchases that were incorrectly expensed rather than capitalized, thus addressing the completeness of the equipment accounts.

Question 4

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

Accepted Answer

The equipment account is debited when acquiring new equipment. Therefore, the source of debits in the equipment account is the acquisitions schedule, which records the purchase of new equipment.

Question 5

The billing of customers and collection of the related accounts receivable are normally considered to be associated with the acquisition and payment cycle.

Accepted Answer

The billing of customers and collection of the related accounts receivable are normally associated with the revenue cycle, not the acquisition and payment cycle. The acquisition and payment cycle relates to the purchase of goods and services and the payment of those purchases.

Question 6

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. It is instead associated with the financing cycle, as it represents the capital contributed by investors to finance the company's operations. Property, plant and equipment, accrued property taxes, and income tax expense are all accounts that are associated with the acquisition and payment cycle, as they relate to the purchase and payment for assets and expenses incurred in the normal course of business.

Question 7

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 of the above.

Accepted Answer

Verifying all large transactions, all unusual transactions, and a representative sample of typical additions is a comprehensive approach to ensure the accuracy and legitimacy of additions to property, plant, and equipment. This method balances the need for thoroughness with practical considerations of time and resource constraints.

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

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) the company has a policy of selling relatively new assets.

Accepted Answer

Excessive recurring losses on retired assets may indicate that the depreciation charges are insufficient, meaning that the book value of the assets may not have been properly depreciated over time. This can result in a higher loss on retirement of the asset, which is reflected in the financial statements. A large number of fully depreciated assets or a policy of selling relatively new assets may also be factors, but they do not directly explain the presence of excessive recurring losses. Insured values being greater than book values may be an indication of over-insurance, but this does not necessarily relate to the excessive losses on retired assets.

Question 10

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

The foot the acquisition schedule is a form of detail tie-in procedure which involves verifying that the total of the acquisition schedule foots to the general ledger. Therefore, the related balance-related audit objective is detail tie-in.

Question 11

Which of the following tests are typically not necessary when auditing a client's schedule of recorded disposals?
A) footing the schedule
B) tracing the totals on the schedule to the recorded disposals in 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 mentioned procedures (footing the schedule, tracing the totals to the general ledger, and tracing cost and accumulated depreciation to the property master file) are necessary steps in auditing a client's schedule of recorded disposals to ensure accuracy and completeness of the recorded information.

Question 12

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 normally audited in the same fashion, as they have different characteristics and risks associated with them. Current assets tend to be smaller and more frequent transactions, while manufacturing equipment and fixed assets tend to be larger and less frequent transactions. The audit of fixed assets is also not solely focused on verification of current-period acquisitions, as auditors must also consider issues such as impairment, disposals, and the accuracy of depreciation calculations. The other statements are generally correct.

Question 13

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

Examining vendor invoices and receiving reports would provide evidence for the existence of the equipment in the fixed asset master file, as it would show that the company actually received and paid for the equipment. Reviewing transactions near the balance sheet date would not necessarily provide evidence for the existence of the equipment, as it does not confirm that the equipment actually exists. Recalculating vendor invoices would not provide evidence for existence, as it would only verify the accuracy of the invoice amounts. Examining vendor invoices for correct accounting treatment would only verify whether the equipment was recorded properly, but would not provide evidence for whether the equipment actually exists.

Question 14

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 includes information such as purchase date, cost, depreciation schedule, and location. The depreciation ledger is a secondary record that is used to track the depreciation expense and accumulated depreciation on fixed assets. The asset inventory and equipment roster are related to physical counts and tracking of assets, but they do not provide the required accounting information for financial reporting purposes.

Question 15

Other accrued expenses are normally considered to be associated with the acquisition and payment cycle.

Accepted Answer

Other accrued expenses, such as salaries, rent, and utilities, are typically recognized and recorded as part of the acquisition and payment cycle. This cycle involves the process of acquiring goods and services from vendors and paying for them in a timely and accurate manner. Accrued expenses are recorded when the expense is incurred but not yet paid.

Question 16

Which is not one of the tests that would be used in the audit of equipment, depreciation expense, and accumulated depreciation?
A) Verify the ending balance in the asset account.
B) Send confirmations to the sales personnel who sold the equipment to the company.
C) Perform substantive analytical procedures.
D) Verify current year acquisitions.

Accepted Answer

Sending confirmations to sales personnel would not be relevant to the audit of equipment, depreciation expense, and accumulated depreciation. The other three tests listed would be commonly used in this audit.

Question 17

Which of the following is a substantive 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

The answer of Which of the following is a substantive...

Question 18

Failure to capitalize a fixed asset at the correct amount would impact which financial statements?
A) the balance sheet
B) the income statement
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 impact both the income statement and the balance sheet. On the balance sheet, the asset would be understated, leading to an understatement of total assets and owner's equity. On the income statement, the correct amount of depreciation would not be recorded, resulting in an understatement of net income.

Question 19

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 typically part of the audit procedures for the prior year, not the current year. The focus for the current year would be on transactions and events affecting the equipment account during the current period, such as depreciation expense, disposals, and additions, rather than re-verifying the beginning balance.

Question 20

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

Accepted Answer

The answer of The auditor must know the client's capitalization...

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

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

The types of assets, expenses, and liabilities associated with the acquisition and payment cycle will differ by company.

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?

The source of debits in the equipment account is the

The billing of customers and collection of the related accounts receivable are normally considered to be associated with the acquisition and payment cycle.

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

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

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

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

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

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

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

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?

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

Other accrued expenses are normally considered to be associated with the acquisition and payment cycle.

Which is not one of the tests that would be used in the audit of equipment, depreciation expense, and accumulated depreciation?

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

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

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