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Failure to capitalize a fixed asset at the correct amount affects __________ until the company disposes of the asset. a. the balance sheet only b. the income statement only c. the cash flow statement only d. both the income statement and the balance sheet 2. In rare cases, the auditor may believe it is necessary that a complete physical inventory of fixed assets be taken to make sure they actually exist. If an inventory is taken, the auditor normally: a. takes the inventory. b. requires client to take the inventory and provide documentation to the auditor. c. observes the count. d. requires that it be done by an outside, independent third party. 3. A major consideration in verifying the ending balance in fixed assets is the possibility of existing legal encumbrances. Tests to identify possible legal encumbrances would satisfy the audit objective of: a. existence. b. presentation and disclosure. c. detail tie-in. d. classification. 4. When auditing depreciation expense, the two major concerns related to the accuracy audit objective are: 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 method. d. cost of the fixed asset and useful lives. 5. The auditor ___________ to test the accuracy or classification of fixed assets recorded in prior periods. a. normally needs b. never needs c. normally does not need d. is required 6. The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods because: 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. 7. To auditors may conclude that depreciation charges are insufficient by noting: a. Insured values greatly in excess of book values b. Large amounts of fully depreciated assets c. Continuous trade-ins of relatively new assets d. Excessive recurring losses on assets retired 8. The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet a. For the current period b. For the depreciable life of the asset c. Until the firm disposes of the asset d. Forever 9. The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the income statement a. For the current period b. For the depreciable life of the asset c. Until the firm disposes of the asset d. Forever 10. The erroneous inclusion of transactions that should properly be recorded as assets into accounts such as repairs expense, lease expense, or supplies is a common client error. The auditor should evaluate the likelihood of these types of misclassifications in conjunction with a. Obtaining an understanding of the internal control structure b. The test of controls
The difference in the types of underlying documentation which is examined b. Asset recognition b. The use or nonuse of cutoff tests d. Statement 1: Legal costs for obtaining and defending a patent are capital expenditures if the defense is successful. Discontinued operations d. as investments. Property. Meet all of the requirements stated above Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment? a. The assets c. The documents verifying their acquisition b. Analytical procedures c. The test of transactions d. The test of details of balances If the auditor believes there is a high likelihood of significant missing permanent assets that are still recorded on the accounting records. Verification of depreciation expense b. Examination of deeds and title guarantee policies on hand An auditor would be least likely to use confirmations in connection with the examination of: a. The major difference is: a. Long-term debt c. Authorization and approval of major fixed asset additions b. Are used in the business c. c. Examination of correspondence with the corporate counsel concerning acquisition matters b. Have expected lives of more than one year b. 12. Capitalization of the cost of fixed asset additions in excess of a specific dollar amount c. Asset impairment c. All the related journal entries d. 13. 16. Are not acquired for resale d. plant and equipment d. a company should establish procedures that require: a. 18. 17. Verification of the beginning balance in accumulated depreciation A term used to describe management’s recognition that a significa nt portion of fixed assets is no longer as productive as had originally been expected a. Inventories b. . Examination of ownership documents registered and on file at the public hall of records c. Verification of current-period disposals d. plant and equipment d. 15. The degree of concentration on an individual account c. Performance of recurring fixed asset maintenance work solely by maintenance department employees Which of the following is a customary audit procedure for the verification of the legal ownership of real property? a. Examination of corporate minutes and resolutions concerning the approval to acquire property. Stockholder’s equity -------SPECIAL TOPICS Intangible assets 1. plant and equipment are assets that: a. 14. The accumulated depreciation calculations Property. Classification. That one emphasizes transactions and the other emphasizes amounts To achieve effective internal accounting control over fixed asset additions.11. of those fixed asset additions that are not used in the business d. an appropriate procedure is to select a sample from the assets master file and examine a. Wasted productivity Expense accounts analysis is closely related to tests of controls and substantive tests of transactions.
None of the statements are false d. Reclamation costs may be difficult to estimate c. Only statement 2 is false c. a. The cost of patents should amortized over their legal life or their estimated useful life. The expense associated with the extraction of natural resources is called a. Answer: FALSE. Extrapolation 6. and regulations c. Completeness d. Statement 1: All reclamation expenses associated with restoring the property to its original state should be estimated and accrued. Depletion d. Restoration expenses b. an intangible asset. Only Statement 1 is true c. Straight line method b. In which of the following situations will an auditor least likely rely on a specialist? a. Both are true TRUE OR FALSE. Rights Natural Resources 4. Environmental costs c. The valuation of land and buildings. The interpretation of contracts. laws. Depreciation b. shorter In auditing patents. Only statement 1 is false b. Reclamation c. an auditor most likely would review or recomputed amortization and determine whether the amortization period is reasonable. Reclamation expenses d. the patent still has a value and should be capitalized. plant and machinery. whichever is longer. Sum-of-the-years’-digits method d. Which of the following is a reason for companies to engage in leasing transactions? . Costs associated with restoring land used in mining to an agreed-upon natural state that reflects safeguards to protect the environment a. None of the above 5. It is often difficult to estimate the amount of commercially available resources to be used in determining a depletion rate d.2. The estimation of oil and gas reserves b. The calculation of interest expense d. The following are unique problems presented by natural resources. Statement 2: Reclamation expenses should be amortized against the use of the natural resources as part of the depletion expense. Declining balance method 7. Only Statement 1 is false Leases Motivation to Lease 10. It is often difficult to identify the costs associated with discovery of the natural resource b. 3. Existence c. Both are false d. Statement 2: If the defense of the patent is not successful. except: a. a. and intangible assets 8. Units of production method c. Both statements are false b. This procedure would support which of the management’s assertions? a. Mining costs 9. Depletion expense should be based on the items extracted during the year using the a. Valuation b.
The leased asset does not appear on the balance sheet c. b.To finance the use of the asset instead of making an outright purchase To maintain a flexible operating profile To acquire the use of an asset for an extended period of time. Establishing audit objectives b. Only rent expense is reflected in the income statement b. but keep the asset and related liability off the balance sheet d. Which of the following is not one of the four conditions? a. . a. The audit approach for leases starts with ______________ to assure proper recording of leases. Which of the following is true of capitalized leases as compared to operating leases? a. An analysis of controls the company uses c. c. Testing the client’s schedule 12. Reviewing client’s disclosures d. All of the above 11. Leases must be capitalized if at least one of the four conditions is satisfied. Liabilities include lease obligation d. the lease transfers ownership to the lessee by the end of the lease term 13. Future minimum lease obligations are not required to be disclosed a. the lessee can acquire title to the asset at the end of the lease for a bargain purchase price c. the lease term covers at least 90% of the useful life of the asset d. the present value of the minimum lease payments is at least equal to 90% of the asset’s fair market value b.
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