SOLVED

Learning Objective 19-1 1) 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 2) Discuss the key internal controls related to the disposal of property, plant, and equipment. 3) The auditor should keep in mind that the amount in insurance expense is a residual amount. A) True B) False Learning Objective 19-2 1) 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. 2) 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 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 4) 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. 5) The auditor must know the client’s capitalization policies to determine whether acquisitions are: A) Recorded in accordance with GAAP Treated consistently with those of the preceding year Necessary Yes Yes Yes B) Recorded in accordance with GAAP Treated consistently with those of the preceding year Necessary Yes No No C) Recorded in accordance with GAAP Treated consistently with those of the preceding year Necessary No No No D) Recorded in accordance with GAAP Treated consistently with those of the preceding year Necessary Yes Yes No 6) 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. 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. 8) 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. 9) 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. 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 1