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Homework answers / question archive / University of the Philippines Diliman ACCOUNTING 20165345 1)Which of the following cash transfers results in a misstatement of cash at December 31, 2003?                                     Bank Transfer Schedule                Disbursement  Receipt Recorded            Paid by Recorded            Received in books                           bank                      in books                               in bank a

University of the Philippines Diliman ACCOUNTING 20165345 1)Which of the following cash transfers results in a misstatement of cash at December 31, 2003?                                     Bank Transfer Schedule                Disbursement  Receipt Recorded            Paid by Recorded            Received in books                           bank                      in books                               in bank a

Accounting

University of the Philippines Diliman

ACCOUNTING 20165345

1)Which of the following cash transfers results in a misstatement of cash at December 31, 2003?

 

 

                                Bank Transfer Schedule                Disbursement  Receipt

Recorded            Paid by Recorded            Received in books                           bank                      in books                               in bank

a.            12/31/03              1/4/04   12/31/03              12/31/03

b.            1/4/04   1/5/04   12/31/03              1/4/04

c.             12/31/04              1/5/4     12/31/03              1/4/04

d.            1/4/04   1/11/04 1/4/04   1/4/04

 

2.            Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate:

a.            Board of Directors.

b.            Treasurer.

c.             Controller.

d.            Executive committee.

 

3.            In a properly designed internal control structure, the same employee may be permitted to

a.            Receive and deposit checks, and also approved write-offs of customer accounts.

b.            Approve vouchers for payment, and also receive and deposit cash.

c.             Reconcile the bank statements, and also receive and deposit cash.

d.            Sign checks, and also cancel supporting documents.

 

4.            Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?

 

a.            Comparing the vendor’s invoice with the receiving report.

b.            Canceling supporting documentation after payment.

c.             Verifying the mathematical accuracy of the vendor’s invoice.

d.            Preparing the check for signature by an authorized person.

 

5.            For effective internal control, the billing function should not be performed by the

a.            Sales department.

b.            Accounting department.

c.             Finance department.

d.            Data processing departments.

 

6.            Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

a.            Footing the sales journal.

b.            Sending accounts receivable confirmations.

c.             Tracing the total sales in the sales journal to the general ledger.

d.            Observation of the physical inventory counts at year-end.

 

7.            An audit basically consists of having the auditor form an opinion regarding management’s financial statement assertions. The auditor therefore develops general and specific program steps to apply to the accounts and transactions. In a particular case, s/he might do this by

a.            Tracing sales invoices to shipping documents to tests the completeness of reported

sales.

b.            Tracing shipping documents to sales invoices to test the occurrence of reported sales

c.             Tracing sales invoices to shipping documents to test the occurrence of reported sales.

d.            Tracing sales invoices to shipping documents to test the completeness of recorded accounts receivable.

 

8.            After the CPAs have selected particular accounts receivable for confirmation

a.            As a control measure, the CPAs should carefully list the audited values of all those accounts before turning the letters over to the client to type and mail.

b.            It is important that every account selected that has a material balance ultimately by

verified by confirmation or the application of alternative procedures; immaterial balances never require any follow-up through alternative procedures.

c.             All requests for confirmation should be mailed in envelopes bearing the CPA firm’s

return address and should include a return envelope addressed to the CPA firm.

d.            All differences between confirmation replies and book values should be reconciled by the CPAs, rather than the client.

 

9.            The confirmation of accounts receivable is most closely associated with

a.            Business risk.

b.            Detection risk.

c.             Inherent risk.

d.            Relative risk.

 

10.          Which of the following manipulations would understate receivable on the financial statements?

a.            Understatement of cash sales.

b.            Closing the sales journal prior to year-end.

c.             Closing the cash receipts journal prior to year-end.

d.            Underestimating the allowance for doubtful accounts.

 

11.          You were surprised to note that approximately 95% of returned positive accounts receivable confirmations indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact at

a.            The cash receipts journal was closed before year-end.

b.            The cash receipts journal was held open after year-end.

c.             There are many unrecorded liabilities.

d.            The sales journal was held open after year-end.

 

12.          Which of the following procedures is least likely to help auditors to assess the adequacy of management’s accounting estimate of the allowance for doubtful accounts?

a.            Investigate confirmation exceptions for indication of amounts in dispute.

b.            Review accounts which have been written off as uncollectible prior to year-end.

c.             Investigate credit ratings for large accounts receivable.

d.            Discuss with the credit manager the current status of doubtful accounts.

 

13.          Which of the following is consistent with effective internal control over sales transactions?

a.            The accounting department prepared a shipping report authorizing the shipment of

goods.

b.            The accounting department accounts for all receiving reports.

c.             The billing department accounts for all shipping documents.

d.            The credit department annually approves the extension of credit to customers.

 

14.          Tracing recoded sales transactions to the bills of lading provides evidence about the

a.            Completeness of sales transactions.

b.            Collectability of sales transactions.

c.             Occurrence of sales transactions.

d.            Billing of all sales transactions.

 

15.          To obtain the best evidence regarding the completeness of recorded accounts receivable, the auditors

a.            Trace a sample of the bills of lading to sales invoices.

b.            Confirm a sample of accounts payable.

c.             Review the aging of accounts receivable.

d.            Trace a sample of recorded sales to shipping documents.

 

16.          Which of the following generally provides the least evidence regarding the valuation of accounts receivable?

a.            Reviewing an aging of accounts receivable.

b.            Examination of cash receipts subsequent to the balance sheet date.

c.             Confirming current (0-30 day) year-end accounts receivable.

d.            Reviewing credit files for selected account.

 

17.          Which of the following would indicate the need to use positive accounts receivable confirmations?

a.            A large population consisting of small balances.

b.            Good internal control over accounts receivable.

c.             Most accounts are with large reputable companies.

d.            A large number of accounts receivable are in dispute.

 

18.          Which of the following is not true about the confirmation of accounts receivable?

a.            Confirmation requests should bear auditor’s return address.

b.            Confirmation request should be signed by the auditors.

c.             Confirmation request should be mailed directly by the auditors.

d.            Confirmation requests should include a return envelope addressed to the office of the auditors.

 

19.          Which of the following is not true about the auditor’s verification of notes receivable?

a.            The interest revenue on notes receivable is usually audited by independent

computation.

b.            Inspecting the notes is sufficient evidence of existence of the notes.

c.             The auditors may evaluate the collectability of notes by inspecting credit files.

d.            Confirmation of notes payable to banks may be accomplished in conjunction with the confirmation of cash balances.

 

20.          To verify that all sales that have been shipped to customer have been recorded, a test of transactions should be completed on a representative sample drawn from

a.            The sales journal.

b.            The billing clerk’s file of sales orders.

c.             Duplicate copies of sales invoices.

d.            The shipping clerk’s file of duplicate copes of bills of lading.

 

21.          Auditor may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use?

a.            The positive form for small balances, and the negative form for large balances.

b.            The positive form used for large balances and the negative form for the small balances.

c.             The positive form used for trace receivables and the negative form for other

receivables.

 

d.            The positive form when controls related to receivables are satisfactory, and the negative form when controls related to receivables are unsatisfactory.

 

22.          The auditors obtain corroborating evidential matter for accounts receivable by using positive or negative confirmation requests. Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

a.            A substantial number of accounts are in disputes.

b.            The combination of inherent risk and control risk is high.

c.             Client records include a large number of relatively small balances.

d.            The auditors believe that recipients of the requests are unlikely to give them consideration.

 

23.          When scheduling the audit work to be performed on an engagement, the auditors should consider confirming accounts receivable balances at an interim date if

a.            Subsequent collections are to be reviewed.

b.            Internal control over receivables is good.

c.             Negative confirmations are to be used.

d.            There is a simultaneous examination of cash and accounts receivable.

 

24.          It is sometimes impossible for the auditors to use normal accounts receivable confirmation procedures. In such situations the best alternative procedure the auditors might resort to would be

a.            Examining subsequent receipts of year-end accounts receivable.

b.            Reviewing accounts receivable aging schedules prepared at the balance sheet date and at subsequent date.

c.             Requesting that management increase the allowance for uncollectible accounts by an

amount equal to some percentage of the balance in those accounts that cannot be confirmed.

d.            Applying analytical procedures to accounts receivable and sales on a year-end-to-year

basis.

 

25.          The audit working papers often include a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. This aging is best used by the auditors to

a.            Consider internal control over credit sales.

b.            Test the accuracy of recorded charge sales.

c.             Estimate credit loss.

d.            Verify the validity of the recorded receivables.

 

26.          Which of the following is not a primary objective of the auditors in the examination of accounts receivable?

a.            Determine the approximate realizable value.

b.            Consider the adequacy of internal controls.

c.             Establish the existence of receivables.

d.            Determine the approximate time of collectability of the receivables.

 

27.          Once a CPA has determined that accounts receivable have increased due to slow collections in a “tight money” environment, the CPA would be likely to

a.            Increase the balance in the allowance for bad debts accounts.

b.            Review the going concern ramifications.

c.             Review the credit and collection policy.

d.            Expand tests of collectability.

 

28.          Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control?

a.            Preparation of monthly statements to customers and maintenance of the accounts

receivable subsidiary ledger.

b.            Posting to the general ledger and approval of additions and terminations relating to the payroll.

c.             Custody of receipts on account and maintaining accounts receivable records.

 

29.          Tracing copies of sales invoices to shipping documents will provide evidence that all

a.            Shipments to customers were recorded as receivables.

b.            Billed sales were shipped.

c.             Debits to the subsidiary accounts receivable ledger are for sales shipped.

d.            Shipments to customers were billed.

 

30.          Which of the following is the best argument against the use of negative accounts receivable confirmations?

a.            The cost-per-response is excessively high.

b.            There is no way of knowing if the intend recipients received them.

c.             Recipients are likely to feel that in reality the confirmation is a subtle request for payment.

d.            The inference drawn from receiving no reply may not be correct.

 

31.          When there are a large number of relatively small account balances, negative confirmation of accounts receivable is feasible if the combination of inherent risk and control risk is

a.            Low, and the individuals receiving the confirmation requests are unlikely to give

them adequate consideration.

b.            High, and the individuals receiving the confirmation requests are likely to give them adequate consideration.

c.             High, and the individuals receiving the confirmation requests are unlikely to give

them adequate consideration.

d.            Low, and the individuals receiving the confirmation requests are likely to give them adequate consideration.

 

32.          An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

a.            No reply to a positive confirmation request is received.

 

b.            No reply to a negative confirmation request is received.

c.             Collectability of the receivables is in doubt.

d.            Pledging of the receivables is probable.

 

33.          Johnson is engaged in the audit of a utility which supplies power to a residential community. All accounts receivable balances are small and internal control is effective. Customers are billed bi-monthly. In order to determine the validity of the accounts receivable balances at the balance sheet date, Johnson would most likely

a.            Examine evidence of subsequent cash receipts instead of sending confirmation

requests.

b.            Send positive confirmation requests.

c.             Send negative confirmation requests.

d.            Use statistical sampling instead of sending confirmation requests.

 

34.          A CPA examines a sample of copies of December and January sales invoices for the initial of the person who verified the quantitative data. This is an example of a

a.            Test of a control.

b.            Substantive test.

c.             Cutoff test.

d.            Statistical test.

 

35.          Which of the following is not a reason for the special significance attached by the auditors to the verification of investors?

a.            The determination of inventory valuation directly affects net income.

b.            The existence of inventories is inherently difficult to substantiate.

c.             Special valuation problem often exist for inventories.

d.            Inventories are often the largest current asset of an enterprise.

 

36.          Which of the following is true about the auditors’ observation of the client’s physical inventory?

a.            The count must be made at year-end.

b.            The auditors should supervise the client’s personnel.

c.             The auditor’s observation addresses the existence assertion.

d.            The auditors should justify any omission of the observation in the audit report.

 

37.          In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the

a.            Purchase journal.

b.            Purchase requisitions.

c.             Purchase orders.

d.            Vendors’ invoices.

 

38.          The client’s physical count of inventories is lower than the inventory quantities in the perpetual records. This could be the result of a failure to record

a.            Purchases.

b.            Purchase discounts.

 

c.             Sales.

d.            Sales discounts.

 

39.          An auditor has accounted for a sequence of inventory tags is now going to trace information on a representative number of tags to the inventory summary sheet. Which assertion does this procedure relate to most directly?

a.            Legality.

b.            Completeness.

c.             Valuation.

d.            Presentation.

 

40.          The use of a “blind” purchase order is designed to prevent errors by the

a.            Purchase department.

b.            Receiving department.

c.             Stores department.

d.            Accounting department.

 

41.          If the auditors believe that supplementary information in the client’s financial statements is not presented in accordance with FASB requirements, the auditors should

a.            Qualify their opinion on the financial statements.

b.            Expand their report to describe the problem and qualify their opinion on the financial statements.

c.             Expand their report to describe the problem, but not qualify their opinion on the

financial statements.

d.            Prepare a note to the financial statements describing the problem.

 

42.          To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor’s invoice to

a.            The purchase requisition.

b.            The receiving order.

c.             The voucher.

 

43.          Which of the following is true about the auditors’ observation of the client’s physical inventory?

a.            The auditors should plan the physical inventory.

b.            The auditors should segregate damaged and obsolete goods.

c.             The auditors should evaluate the adequacy of the client’s counting procedures.

d.            The auditors should supervise the client’s personnel.

 

44.          Which of the following is not a procedure that typically is used by the auditors in their examination of a client’s goods held in the custody of a public warehouse?

a.            Confirmation.

b.            Obtaining reports on internal control at the warehouse.

c.             Observation.

d.            Corresponding with the state agency regarding the authenticity of the public warehouse.

 

 

45.          Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

a.            The document every test count.

b.            For subsequent comparison with the completed inventory listing.

c.             To document compliance with generally accepted auditing standards.

d.            For use in subsequent audits.

 

46.          Which of the following best describes the auditors’ response to a client’s use of statistical sampling techniques to estimate the inventory?

a.            The auditors should satisfy themselves as to the statistical validity of the technique,

and the reasonableness of the allowance for sampling risk and sampling error used.

b.            The auditors should qualify their opinion, because the client must perform a complete count of the inventory.

c.             The auditors should increase the extent of their test counts to compensate for the use

of a statistical technique.

d.            The auditors would withdraw from the engagement.

 

47.          Which of the following best describes the reason for the auditors’ review of the client’s cost accounting system?

a.            To obtain evidence regarding the quantities of good described as work-in-process.

b.            To obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold.

c.             To obtain evidence about the profit margin on specific jobs.

d.            To obtain evidence about compliance with Cost Accounting Standards.

 

48.          Effective internal control for purchases generally can be achieved in a well- planned organizational structure with a separate purchasing department that has

a.            The ability to prepare payment vouchers based on the information on a vendor’s

invoice.

b.            The responsibility of reviewing purchase orders issued by user departments.

c.             The authority to make purchases of requisitioned materials and services.

d.            A direct reporting responsibility to controller of the organization.

 

49.          Purchas cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company

a.            Has paid for the merchandise.

b.            Has physical possession of the merchandise.

c.             Holds legal title to the merchandise.

d.            Holds the sipping documents for the merchandise issued in the company’s name.

 

50.          Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

a.            Supplies of relatively little are expensed when purchased.

b.            The cycle basis is used for physical counts.

c.             The storekeeper is responsible for maintenance of perpetual inventory records.

 

d.            Perpetual inventory records are maintained only for items of significant value.

 

51.          The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are

a.            Owned by the client.

b.            Not obsolete.

c.             Physically present at the time of the preparation of the final inventory schedule.

d.            Included in the final inventory schedule.

 

52.          An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provide the greatest assurance that this control is opening effectively?

a.            Select and examine receiving reports and ascertain that the related canceled checks

are dated no earlier than receiving reports.

b.            Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports.

c.             Select and examine canceled checks and ascertain that the related receiving reports

are dated no earlier than the checks.

d.            Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

 

53.          A client’s physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record

a.            Sales.

b.            Sales discounts.

c.             Purchases.

d.            Purchase returns.

 

54.          Which of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client’s physical inventories?

a.            Confirmation of goods in the hands of public warehouses.

b.            Supervising the taking of the annual physical inventory.

c.             Carrying out physical inventory procedures at an interim date.

d.            Obtaining written representation from the client as to the existence, quality, and peso amount of inventory.

 

55.          To best ascertain that a company has properly included merchandise that it owns in its inventory, the auditors should review and test the

a.            Terms of the open purchase orders.

b.            Purchase cutoff procedures.

c.             Contractual commitments made by the purchasing department.

d.            Purchase invoices received on or around year end.

 

 

56.          Which of the following is not one of the independent auditor’s objectives regarding the examination of inventories?

a.            Verifying that inventory counted is owned by the client.

b.            Verifying that the client has used proper inventory pricing.

c.             Ascertaining the physical quantities of inventory on hand.

d.            Verifying that all inventory owned by the client is on hand at the time of the count.

 

57.          Purchase cutoff procedure should be designed to test whether all inventory

a.            Purchased and received before the year end was recorded.

b.            On the year end balance sheet was carried at lower of cost or market.

c.             On the year end balance sheet was paid for by the company.

d.            Owned by the company is in the possession of the company.

 

58.          Which of the following is an effective internal control measure that encourages receiving department personnel to count and inspect all merchandise received?

a.            Quantities ordered are excluded from the receiving department copy of the purchase

order.

b.            Vouchers are prepared by the accounts payable department personnel only after they match item counts on the receiving report with the purchase order.

c.             Receiving department personnel are expected to match and reconcile the receiving

report with the purchase order.

d.            Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports.

 

59.          The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with

a.            Purchase requisitions.

b.            Receiving reports.

c.             Purchase orders.

d.            Vendor payments.

 

60.          An inventory turnover analysis is useful to the auditor because it may detect

a.            Inadequacies in inventory pricing.

b.            Methods of avoiding cyclical holding cost.

c.             The optimum automatic reorder points.

d.            The existence of obsolete merchandise.

 

61.          After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items

a.            Are included in the listing have been counted.

b.            Represented by inventory tags are included in the listing.

c.             Included in the listing are represented by inventory tags.

d.            Represented by inventory tags are bona fide.

 

62.          An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all

a.            Merchandise received.

b.            Vendor’s invoices.

c.             Canceled checks.

d.            Receiving reports.

 

63.          Which of the following best describes the auditor’s approach to the audit of the ending balance of property, plant and equipment for a continuing client?

a.            Direct audit of the ending balance.

b.            Agreement of the beginning balance to prior year’s working papers and audit of significant changes in the accounts.

c.             Audit of changes in the accounts since inception of the company.

d.            Audit of selected purchases and retirements for the last few years.

 

64.          Which of the following is not an internal control policy that should be established for purchases of equipment?

a.            Establishing a budget for capital acquisitions.

b.            Requiring that the department in need of the equipment order the equipment.

c.             Requiring that the receiving department receive the equipment.

d.            Establishing an accounting policy regarding the minimum peso amount of purchase that will be considered for capitalization.

 

65.          Which of the following best describes the reason Accelerated Cost Recovery System amounts generally should not be used for financial statement purposes?

a.            The method is not systematic and rational.

b.            The percentages used in the tables are too large in relation to the straight-line rate.

c.             The recovery periods are too short.

d.            The methods are tax methods, which should never be used for financial statements.

 

66.          Which of the following is not one of the auditors’ objectives in auditing depreciation?

a.            Establishing the reasonableness of the client’s replacement policy.

b.            Establishing that the methods used are appropriate.

c.             Establishing that the methods are consistently applied.

d.            Establishing the reasonableness of depreciation computations.

 

67.          Which of the following is the best evidence of continuous ownership of property?

a.            Examination of the deed.

b.            Examination of rent receipts from lessees of the property.

c.             Examination of the title policy.

d.            Examination of canceled check in payment for the property.

 

68.          Which of the following best describes the auditor’s typical observation of plant and equipment?

a.            The auditors observe a physical inventory of plant and equipment, annually.

 

b.            The auditors observe all additions to plant and equipment made during the year.

c.             The auditors observe all major plant and equipment items in the client’s accounts each year.

d.            The auditors observe major additions to plant and equipment made during the year.

 

69.          Which of the following is used to obtain evidence that the client’s equipment accounts are not understated?

a.            Analyzing repairs and maintenance expense accounts.

b.            Vouching purchases of plant and equipment.

c.             Recomputing depreciation expense.

d.            Analyzing the miscellaneous revenue account.

 

70.          Which of the following is not a test primarily used to test property, plant and equipment accounts for overstatement?

a.            Investigation of reductions in insurance coverage.

b.            Review of property tax bills.

c.             Examination of retirement work orders prepared during the year.

d.            Vouching retirements of plant and equipment.

 

71.          A continuing audit client’s property, plant and equipment and accounts receivable accounts have approximately the same year-end balance. In this circumstance, when compared to property, plant and equipment one would normally expect the audit of accounts receivable to require

a.            More audit time.

b.            Less audit time.

c.             Approximately the same amount of audit time.

d.            Similar confirmation procedures.

 

72.          When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most?

a.            Accounts receivable.

b.            Cash.

c.             Marketable securities.

d.            Property, plant and equipment.

 

73.          When performing an audit of the property, plant and equipment accounts, and auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?

a.            A gain was recognized when a new asset was acquired in exchange for a similar plant

asset which had a fair market value in excess of its book value.

b.            Interest has been capitalized for self-constructed equipment.

c.             Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements.

d.            The cost of freight-in on an acquisition has been capitalized.

 

74.          The most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client.

a.            Confirmation.

b.            Observation.

c.             Recomputation.

d.            Inquiry.

 

75.          For which of the following accounts is it most likely that most of the audit work can be performed in advance of the balance sheet date?

a.            Accounts receivable.

b.            Cash.

c.             Current marketable securities.

d.            Property, plant and equipment.

 

76.          The auditors may expect a proper debit to goodwill due to

a.            Purchase of a trademark.

b.            Establishment of an extraordinarily profitable product.

c.             A business combination.

d.            Capitalization of human resources.

 

77.          Which of the following is a customary audit procedure for the verification of the legal ownership of real property?

a.            Examination of correspondence with the corporate counsel concerning acquisition

matters.

b.            Examination of ownership documents registered and on file at a public hall of records.

c.             Examination of corporate minutes and resolutions concerning the approval to acquire

property, plant and equipment.

d.            Examination of deeds and title guaranty policies on hand.

 

78.          In violation of company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditors examining Lowell’s financial statements would most likely detect this when

a.            Discussing capitalization policies with Lowell’s controller.

b.            Examining maintenance expense accounts.

c.             Observing, during the physical inventory observation, that the warehouse had been painted.

d.            Examining the construction work orders supporting items capitalized during the year.

 

79.          Which of the following best describes the independent auditors’ approach to obtaining satisfaction concerning depreciation expense in the income statements?

a.            Verify the mathematical accuracy of the amounts charged to income as a result of

depreciation expense.

b.            Determine the method for computing depreciation expense and ascertain that is in accordance with generally accepted accounting principles.

 

c.             Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation accounts.

d.            Establish the basis for depreciable assets and verify the depreciation expense.

 

80.          The auditors are least likely to learn of retirements of equipment through which of the following?

a.            Review of the purchase returns and allowances account.

b.            Review of depreciation.

c.             Analysis of the debits to the accumulated depreciation account.

d.            Review of insurance policy riders.

 

81.          For which of the following ledger accounts would the auditor be most likely to analyze the details?

a.            Service Revenue.

b.            Sales.

c.             Repairs and maintenance expense.

d.            Sales salaries expense.

 

82.          Which of the following is the most important internal control procedure over acquisitions of property, plant and equipment?

a.            Establishing a written company policy distinguishing between capital and revenue

expenditures.

b.            Using a budget to forecast and control acquisitions and retirements.

c.             Analyzing monthly variances between authorized expenditures and actual costs.

d.            Requiring acquisitions to be made by user departments.

 

83.          In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the

a.            Extent of the control risk.

b.            Extent or property abandoned during the year.

c.             Adequacy of replacement funds.

d.            Reasonableness of the depreciation.

 

84.          Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for

a.            Investigation of variances within a formal budgeting system.

b.            Review and approval of the monthly depreciation entry by the plant supervisor.

c.             Segregation of duties of employees in the accounts payable department.

d.            Examination by the internal auditors of vendor invoices and canceled checks for property acquisitions.

 

85.          Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable.

a.            Footing the list of accounts payable.

b.            Examining underlying documentation for cash disbursements in the period of after year-end.

 

c.             Tracing shipping reports issued on or before year-end to related customer purchase orders and invoices.

d.            Tracing shipping reports after year-end to related customer purchase orders and

invoices.

 

86.          Which of the following best describes the auditors’ approach to the audit of accrued liabilities?

a.            Test computations.

b.            Confirmation.

c.             Observation.

d.            A low planned assessed level of control risk.

 

87.          Which of the following statements is correct regarding accounts payable and the auditor’s procedures?

a.            Because it is generally more difficult to discover a transaction that has not been

recorded than to discover one that has been recorded incorrectly, the audit objective of completeness drives many of the substantive procedures applied to these balances.

b.            A judgment an unrecorded payable should be recorded before the financial statements

are prepared depends entirely upon the source of the payable.

c.             The confirmation of accounts payable selected from the year-end trial balance of such accounts is most effective in discovering unrecorded liabilities.

d.            Unrecorded payables are often discovered through examining vouchers payable

entered into the voucher register prior to the balance sheet date.

 

88.          Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?

a.            Existence.

b.            Completeness.

c.             Valuation.

d.            Authorization.

 

89.          Which of the following best describes the specific accounts payable that are selected for confirmation?

a.            Accounts with large balances.

b.            Accounts with zero balances.

c.             Accounts with a large amount of activity regardless of their balances.

d.            Accounts for which vendor statements are available.

 

90.          Most of the audit work on accounts payable is typically performed

a.            Before the balance sheet date.

b.            At the balance sheet date in conjunction with inventory cutoff tests.

c.             After the balance sheet date.

d.            Simultaneously with the audit of accrued liabilities.

 

91.          When the auditors discover an understatements of liabilities, they would most likely also expect to find an

 

a.            Understatement of assets.

b.            Understatement of owners; equity.

c.             Overstatement of expenses.

d.            Understatement of revenues.

 

92.          Which of the following procedures for detecting unrecorded transactions at the client’s December 31 year-end is least likely to result in discover of an unrecorded year- end account payable?

a.            Examination of invoices received after year-end.

b.            Examination of vouchers payable entered in the January voucher register.

c.             Examination of January receiving reports prepared for goods shipped FOB destination in December to the client.

d.            Confirmation of year-end accounts payable.

 

93.          For good internal control, a copy of a receiving report should be sent to all of the following departments except

a.            Accounts payable.

b.            Purchasing.

c.             Stores.

d.            Shipping.

 

94.          Auditors should be aware that a voucher system may result in which of the following at year-end

a.            Understatement of liabilities.

b.            Overstatement of assets.

c.             Understatement of owners’ equity.

d.            Overstatement of expenses.

 

95.          Accrued liabilities generally differ from accounts payable in that accrued liabilities

a.            Accumulate over time.

b.            Are usually confirmed at year-end.

c.             Depend upon the existence of a transaction for original recording of the count.

d.            Are never included in cost of goods sold.

 

96.          The form typically used to confirm accounts payable.

a.            Does not require a response from the vendor.

b.            Confirms the balance recorded by the client at year-end.

c.             Requires the vendor to indicate the amount of the payable.

d.            Is the same as the form used to confirm accounts receivable.

 

97.          Which of the following is an internal control procedure that is usually applied to accounts payable?

a.            Periodic confirmation of accounts payable.

b.            Mailing statements to vendors detailing their accounts.

c.             Periodic aging of accounts payable.

 

d.            Reconciliation of vendor statements with accounts payable.

 

98.          Which of the following is the best internal control procedure to prevent the payment of an invoice twice?

a.            Review of supporting documentation by the person signing the check.

b.            Requiring dual signatures on checks.

c.             Use of a check protector.

d.            Reconciliation of vendor statements to accounts payable.

 

99.          The auditors’ search for unrecorded liabilities is completed

a.            During an interim period.

b.            At the balance sheet date.

c.             Subsequent to the balance sheet date.

d.            At any time during the examination.

 

100.        When the auditors select a sample of items from the vouchers payable register for the last month of the period under audit and trace items to underlying documents, the auditors are gathering evidence primarily in support of the assertion that

a.            Recorded obligations were paid.

b.            Incurred obligations were recorded in the correct period.

c.             Recorded obligations occurred prior to year-end.

d.            Cash disbursements were recorded as incurred obligation.

 

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