Question 1

The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are

Accepted Answer

A)  accounts payable. 
B)  accounts receivable. 
C)  unearned liabilities. 
D)  accrued liabilities.

Question 2

After the accrual and property tax expense for each piece of property has been recalculated, the totals are added and compared with the general ledger.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  common stock 
B)  property, plant and equipment 
C)  accrued property taxes 
D)  income tax expense

Question 4

When auditing depreciation expense, the two major concerns related to the accuracy audit objective are

Accepted Answer

A)  consistent application of depreciation method and useful lives. 
B)  consistent application of depreciation method and classification of assets. 
C)  correctness of calculations and consistent application of depreciation policies. 
D)  cost of the fixed asset and useful lives.

Question 5

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?

Accepted Answer

A)  verification of depreciation expense 
B)  analytical procedures 
C)  verification of current-period disposals 
D)  verification of the beginning balance in the equipment account

Question 6

The auditor's knowledge of the client's business is important when auditing management's judgements in evaluating whether a long-lived asset is impaired or not, including estimating fair value of these assets.

Accepted Answer

A) True 
 B)False

Question 7

Tests of controls provide an indication of the likelihood of misstatements in both the income statement and the balance sheet, simultaneously.

Accepted Answer

A) True 
 B)False

Question 8

Using audit software to foot the equipment master file and agreeing the master file total to the general ledger is generally sufficient when verifying the ending balance of the equipment account.

Accepted Answer

A) True 
 B)False

Question 9

When auditing accrued property taxes,

Accepted Answer

A)  the source for the debits to the liability account is the acquisitions journal. 
B)  realizable value is an important balance-related audit objective. 
C)  the ending balance in the account should be confirmed with the applicable taxing authority. 
D)  the most important consideration for the auditor is that the same portion of each tax payment for the accrual that was used in the preceding year is used in the current year.

Question 10

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

Accepted Answer

A)  depreciation expense 
B)  insurance expense 
C)  estimated liability for warranties 
D)  property tax expense

Question 11

Methods used to determine if there are legal encumbrances related to fixed assets include all but which of the following?

Accepted Answer

A)  Read the terms of loan and credit agreements. 
B)  Send loan confirmation requests to banks and other lending institutions. 
C)  Have discussions with the client or send letters to legal counsel. 
D)  All of the above may be used to identify legal encumbrances.

Question 12

One of the primary objectives in examining the repairs and maintenance accounts is to obtain evidence that

Accepted Answer

A)  expenditures of equipment have not been charged to expense. 
B)  the actual amount recorded is the same as the budgeted amount. 
C)  expenditures for equipment have been recorded in the proper period. 
D)  revenue expenditures made on behalf of equipment have been recorded in the proper period.

Question 13

The auditor's starting point for verifying disposals of property, plant, and equipment is the

Accepted Answer

A)  equipment account in the general ledger. 
B)  file of shipping documents. 
C)  client's schedule of recorded disposals. 
D)  equipment subsidiary ledger.

Question 14

In connection with a review of the prepaid insurance account, which of the following audit procedures would you be least likely to use?

Accepted Answer

A)  Recompute the portion of the premium that expired during the year. 
B)  Prepare excerpts of insurance policies for audit working papers. 
C)  Confirm premium rates with an independent insurance broker. 
D)  Examine support for premium payments.

Question 15

The auditor needs to be aware that most users of financial statements rely most heavily on the ________ for making decisions.

Accepted Answer

A)  balance sheet 
B)  income statement 
C)  statement of cash flows 
D)  statement of stockholders' equity

Question 16

The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods if they are the continuing auditor because

Accepted Answer

A)  they are rarely material to the audit. 
B)  they rarely contain misstatements. 
C)  they are verified in previous audits. 
D)  they don't affect the balance sheet.

Question 17

Changing circumstances may require a change in the useful life of an asset. When this occurs, it involves a change in

Accepted Answer

A)  accounting estimate rather than a change in accounting principle. 
B)  accounting principle rather than a change in accounting estimate. 
C)  both accounting principle and accounting estimate. 
D)  neither accounting principle nor accounting estimate.

Question 18

When auditors verify accrued property taxes, two audit objectives are especially significant. These are

Accepted Answer

A)  completeness and accuracy. 
B)  completeness and net realizable value. 
C)  detail tie-in and completeness. 
D)  accuracy and classification.

Question 19

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

Accepted Answer

A)   
B)   
C)   
D)

Question 20

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

Accepted Answer

A)  all large transactions. 
B)  all unusual transactions. 
C)  a representative sample of typical additions. 
D)  all of the above.

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

The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are

After the accrual and property tax expense for each piece of property has been recalculated, the totals are added and compared with the general ledger.

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

When auditing depreciation expense, the two major concerns related to the accuracy audit objective are

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's knowledge of the client's business is important when auditing management's judgements in evaluating whether a long-lived asset is impaired or not, including estimating fair value of these assets.

Tests of controls provide an indication of the likelihood of misstatements in both the income statement and the balance sheet, simultaneously.

Using audit software to foot the equipment master file and agreeing the master file total to the general ledger is generally sufficient when verifying the ending balance of the equipment account.

When auditing accrued property taxes,

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

Methods used to determine if there are legal encumbrances related to fixed assets include all but which of the following?

One of the primary objectives in examining the repairs and maintenance accounts is to obtain evidence that

The auditor's starting point for verifying disposals of property, plant, and equipment is the

In connection with a review of the prepaid insurance account, which of the following audit procedures would you be least likely to use?

The auditor needs to be aware that most users of financial statements rely most heavily on the ________ for making decisions.

The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods if they are the continuing auditor because

Changing circumstances may require a change in the useful life of an asset. When this occurs, it involves a change in

When auditors verify accrued property taxes, two audit objectives are especially significant. These are

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

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