Question 1

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 have different audit procedures as manufacturing equipment is subject to depreciation and impairment testing, while current assets are not. Therefore, the audit procedures for these two types of assets are different. The other statements are generally correct.

Question 2

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 audit procedure of "footing the acquisition schedule" is a detail tie-in procedure where the auditor ensures that the total of the acquisition schedule agrees with the general ledger balance for the same account. Therefore, the related audit objective is detail tie-in, which deals with ensuring that the details in the accounting records agree with the supporting documentation. The other options, including classification, existence, and cut-off, do not directly relate to the procedure of footing the acquisition schedule.

Question 3

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

C

Question 4

Inadequate controls and misstatements discovered through tests of controls and substantive tests of transactions are an indication of the likelihood of misstatements in:
A) the balance sheet.
B) the income statement.
C) the cash flow statement.
D) both the income statement and the balance sheet.

Accepted Answer

Inadequate controls and misstatements discovered through tests of controls and substantive tests of transactions can affect both the income statement and the balance sheet as it can affect the accuracy of financial statements as a whole. While the cash flow statement is impacted by these misstatements, it is not a primary indicator of the likelihood of misstatements.

Question 5

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 describes the initial issuance of stock to investors and is recorded in the financing cycle. The acquisition and payment cycle involves transactions related to purchasing goods and services, accounts payable, and cash disbursements. Property, plant and equipment, accrued property taxes, and income tax expense all relate to the acquisition and payment cycle.

Question 6

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 adequacy of funds available for capital expenditures is not directly related to the acquisition and payment cycle. The other choices are typical components of the audit of this cycle.

Question 7

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 detailed information on each asset, such as its purchase price, date of acquisition, estimated useful life, and depreciation method. The depreciation ledger is a subsidiary record that tracks the depreciation expense and accumulated depreciation for each asset, but it is not the primary record. The asset inventory and equipment roster are lists of assets, but they do not contain detailed accounting information.

Question 8

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

The answer of Which of the following tests are typically...

Question 9

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

The answer of Normally it may be unnecessary to examine...

Question 10

Which of the following would indicate a deficiency in internal controls in the acquisition and payment cycle?
A) Repairs and maintenance accounts are reviewed for unusual entries each quarter
B) Acquisitions are made and approved by the department that will use the equipment
C) Acquisitions of equipment greater than $1,000 are to be capitalized
D) Acquisitions of equipment less than $1,000 are to be expensed as incurred

Accepted Answer

Allowing the department that will use the equipment to make and approve acquisitions can lead to conflicts of interest and lack of oversight, indicating a deficiency in internal controls.

Question 11

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

The fixed asset master file contains a comprehensive set of records for each piece of equipment, including its descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation. This information is used to track the value and use of the equipment over time and is necessary for accurate financial reporting. The other options (acquisitions journal, depreciation schedule, and file of purchase requisitions) do not provide the same level of detail and information as the fixed asset master file.

Question 12

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

To be capitalized as part of property, plant and equipment, assets must have expected useful lives of more than one year and not be acquired for resale. However, they do not need to be useful in multiple productive capacities within the organization. Therefore, option D is correct.

Question 13

You are auditing the acquisition and payment cycle and 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 insuffient.
D) company has a policy of selling relatively new assets.

Accepted Answer

The presence of excessive recurring losses on retired assets indicates that the depreciation charges may be insufficient. This means that the assets are not being fully depreciated over their useful lives, leading to higher losses when they are retired. Insured values being greater than book values may indicate overinsurance or a lack of adjustment for depreciation. A large number of fully depreciated assets is not necessarily problematic as long as they have been appropriately retired and removed from the accounting records. Selling relatively new assets also would not lead to excessive recurring losses on retired assets.

Question 14

The auditor should keep in mind that the amount in insurance expense is a residual amount.

Accepted Answer

Insurance expense is calculated based on the premiums paid for insurance policies, as well as any adjustments for claims, policy cancellations or additions. Therefore, the amount in insurance expense is a residual amount after all these calculations are considered.

Question 15

You are the in-charge auditor for a long-term client. 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 accumulated depreciation.

Accepted Answer

The answer of You are the in-charge auditor for a...

Question 16

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 audit procedure that would be most correct in determining the audit objective of existence for the equipment account in the fixed asset master file is examining vendor invoices and receiving reports. This would provide evidence that the equipment actually exists and was received by the company. Reviewing transactions near the balance sheet date, recalculating vendor invoices, and examining vendor invoices for correct accounting treatment are not directly relevant to the existence of equipment in the fixed asset master file.

Question 17

Discuss the key internal controls related to the disposal of property, plant, and equipment.

Accepted Answer

The answer of Discuss the key internal controls related to...

Question 18

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...

Question 19

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 impact both the income statement and the balance sheet until the company disposes of the asset. The income statement would be affected because the company would not be recognizing the correct amount of depreciation expense, which would affect the net income figure. The balance sheet would also be affected because the value of fixed assets would be understated, which would affect the total assets figure and potentially the company's financial ratios.

Question 20

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...

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

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

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

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

Inadequate controls and misstatements discovered through tests of controls and substantive tests of transactions are an indication of the likelihood of misstatements in:

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

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

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

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:

Which of the following would indicate a deficiency in internal controls in the acquisition and payment cycle?

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:

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

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

The auditor should keep in mind that the amount in insurance expense is a residual amount.

You are the in-charge auditor for a long-term client. Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?

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?

Discuss the key internal controls related to the disposal of property, plant, and equipment.

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

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

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?