SOLVED

Learning Objective 21-3 1) Auditor tests of the physical controls over raw materials, work in process, and finished goods are generally limited to: A) observation and confirmation. B) observation and inquiry. C) inquiry and reconciliation. D) observation and reconciliation. 2) Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control? A) perpetual inventory master files B) segregated, limited-access storage areas C) custody of assets assigned to specific responsible individuals D) approved prenumbered documents for authorizing movement of inventory 3) Which department within a manufacturing company is often responsible for the review of production and scrap reports? A) Purchasing B) Accounts Payable C) Accounting D) Production 4) Johnson Co.’s physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record: A) sales. B) sales returns. C) purchases. D) purchase discounts. 5) Which of the following controls would be appropriate regarding the release of materials from a stockroom? A) Production employees request materials be delivered to their work areas as they need them. B) Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock — no written records are maintained. C) Production employees submit approved requisition forms to the stockroom for materials needed. D) Production employer in need of materials should personally pick up needed materials from the stockroom. 6) To assure proper segregation of duties, who should maintain the perpetual inventory master files? A) production personnel B) inventory storeroom personnel C) inventory receiving personnel D) accounting department personnel 7) In any company involved in manufacturing, an adequate cost accounting internal control system is necessary to indicate the relative profitability of the various products for management planning and control and to: A) determine variances from standards. B) determine variances from budgets. C) value inventories for financial statement purposes. D) value inventories for audit verification. 8) A well-designed computerized system of perpetual inventory master files includes information about the: A) units of inventory purchased, sold, and on hand. B) unit costs of inventory purchased, sold, and on hand. C) units of raw materials, work-in-process, and finished goods. D) units and unit costs of inventory purchased, sold, and on hand. 9) Which of the following is a significant audit concern related to the transfer of inventory from one location to another? A) recorded transfers occurred B) transfers were properly transported C) transfers were properly planned D) transfers represent efficient movement of assets 10) The auditor’s tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually restricted to: A) observation and inquiry. B) documentation and observation. C) documentation and confirmation. D) documentation and inquiry.