Question 1

Useful methods to evaluate asset impairment of long-lived assets usually would not include which of the following?

Accepted Answer

A) current market values of similar assets. 
B) estimated future economic benefits to be derived from the asset. 
C) an independent assessment of the value of the asset. 
D) all of the above are useful in valuing impairment.

Question 2

The auditor should perform detailed tests of labor charges when the client company constructs its own assets.

Accepted Answer

A) True 
 B)False

Question 3

When a company decides to dispose of a particular line of operation by selling it to another company,the related assets should

Accepted Answer

A) be written up in anticipation of a gain on disposal. 
B) be considered scrap material. 
C) be held at historical cost. 
D) be written down on the expectation of a loss on disposal.

Question 4

Audit approach for lease
Describe the general audit approach for leases.

Accepted Answer

The answer of Audit approach for lease
Describe the general audit...

Question 5

Strong internal control activities in the fixed assets cycle include the use of identification tags secured to assets for proper tracking.

Accepted Answer

A) True 
 B)False

Question 6

Intangible assets are amortized over the remaining legal life of patents or copyrights associated with the asset or their useful life.

Accepted Answer

A) True 
 B)False

Question 7

The auditor must be aware of management's motivations to present financial information in a certain light when leases are utilized.

Accepted Answer

A) True 
 B)False

Question 8

The auditor should be aware of material asset additions that are in remote locations and physically observe such assets.

Accepted Answer

A) True 
 B)False

Question 9

The auditor would be most likely to request a schedule of repairs and maintenance expense to satisfy the auditor about the presentation and disclosure assertions for fixed assets.

Accepted Answer

A) True 
 B)False

Question 10

Management may determine that an asset is impaired through the use of which of the following?

Accepted Answer

A) discounted cash flows. 
B) internal rate of return. 
C) Black Scholes modeling. 
D) acid test ratios.

Question 11

If the auditor determines that beginning balances of fixed assets have not changed from previously audited amounts,much of the testing for existence can be accomplished by which of the following?

Accepted Answer

A) sampling receiving reports. 
B) inquiring of management. 
C) vouching current period additions. 
D) recomputing depreciation.

Question 12

Auditors test management's estimates of impaired value through reference to which of the following?

Accepted Answer

A) economic plans. 
B) evidence of fair market value. 
C) estimated cash flow. 
D) All of the above.

Question 13

Periodically clients discontinue a particular line of operation by shutting down or selling a line of business or a company,which usually occurs over at least several months.In these situations the client is to write down net assets to a best estimate of net realizable value and do which of the following?

Accepted Answer

A) recognize a loss. 
B) recognize a gain. 
C) recognize a loss or a gain. 
D) not recognize any gain or loss.

Question 14

When testing a client's additions to an asset for research and development,the auditor must remember that such costs should be amortized over the lesser of their legal lives or useful lives.

Accepted Answer

A) True 
 B)False

Question 15

Earnings management
Describe earnings management by an organization and discuss the implications of fixed asset accounting on earnings management.

Accepted Answer

The answer of Earnings management
Describe earnings management by an organization...

Question 16

A corporation should always anticipate and record gains on the disposal of assets.

Accepted Answer

A) True 
 B)False

Question 17

Capitalized natural resources,e.g. ,oil or coal,are usually written off over what period of time?

Accepted Answer

A) over a period not to exceed 40 years. 
B) over an allocated useful life. 
C) as assets are taken from the ground. 
D) any of the above.

Question 18

If the beginning balance of property,plant and equipment is established through previous audit work,the test of property accounts usually can be limited to selected tests of property additions and disposals during the year.

Accepted Answer

A) True 
 B)False

Question 19

When testing fixed assets for the reasonableness of the client's estimated useful lives,the audit team should do which of the following?

Accepted Answer

A) consult the IRS code for regulated lives. 
B) make the decision for the client upon purchase. 
C) understand the economics of the client's business. 
D) compare them with other clients in different industries.

Question 20

In testing property,plant and equipment the scope and extent of testing can vary based on the complexity of assets utilized,the difficulty of estimating useful life,and the risk associated with the client.

Accepted Answer

A) True 
 B)False

Exam 13: Audit of Long-Lived Assets and Related Expense Accounts

Useful methods to evaluate asset impairment of long-lived assets usually would not include which of the following?

The auditor should perform detailed tests of labor charges when the client company constructs its own assets.

When a company decides to dispose of a particular line of operation by selling it to another company,the related assets should

Audit approach for lease Describe the general audit approach for leases.

Strong internal control activities in the fixed assets cycle include the use of identification tags secured to assets for proper tracking.

Intangible assets are amortized over the remaining legal life of patents or copyrights associated with the asset or their useful life.

The auditor must be aware of management's motivations to present financial information in a certain light when leases are utilized.

The auditor should be aware of material asset additions that are in remote locations and physically observe such assets.

The auditor would be most likely to request a schedule of repairs and maintenance expense to satisfy the auditor about the presentation and disclosure assertions for fixed assets.

Management may determine that an asset is impaired through the use of which of the following?

If the auditor determines that beginning balances of fixed assets have not changed from previously audited amounts,much of the testing for existence can be accomplished by which of the following?

Auditors test management's estimates of impaired value through reference to which of the following?

When testing a client's additions to an asset for research and development,the auditor must remember that such costs should be amortized over the lesser of their legal lives or useful lives.

Earnings management Describe earnings management by an organization and discuss the implications of fixed asset accounting on earnings management.

A corporation should always anticipate and record gains on the disposal of assets.

Capitalized natural resources,e.g. ,oil or coal,are usually written off over what period of time?

If the beginning balance of property,plant and equipment is established through previous audit work,the test of property accounts usually can be limited to selected tests of property additions and disposals during the year.

When testing fixed assets for the reasonableness of the client's estimated useful lives,the audit team should do which of the following?

In testing property,plant and equipment the scope and extent of testing can vary based on the complexity of assets utilized,the difficulty of estimating useful life,and the risk associated with the client.