Chapter20final.docx
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Chapter20final.docx
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Chapter20final
CHAPTER20
Multiple-ChoiceQuestions
1.
easy
Whichofthefollowingaccountsisassociatedwithatransactioncycleotherthanacquisitionandpayment?
a
a.Commonstock.
b.Property,plantandequipment.
c.Accruedpropertytaxes.
d.Incometaxexpense.
2.
Property,plant,andequipmentareassetsthat:
easy
a.haveexpectedlivesofmorethanoneyear.
d
b.areusedinthebusiness.
c.arenotacquiredforresale.
d.meetalloftherequirementsstatedabove.
3.
easy
Whichofthefollowingexpensesisnottypicallyevaluatedaspartoftheauditoftheacquisitionandpaymentcycle?
c
a.Depreciationexpense.
b.Insuranceexpense.
c.Baddebtsexpense.
d.Propertytaxexpense.
4.
Debitstomanufacturingequipmentarisefromwhichcycle?
easy
a.Salesandcollection
c
b.Payroll
c.Acquisitionanddisbursement
d.Inventoryandwarehousing
5.
easy
Itshouldordinarilybeunnecessarytoexaminesupportingdocumentationforeachadditiontoproperty,plant,andequipment,butitiscustomarytoverify:
d
a.alllargetransactions.
b.allunusualtransactions.
c.arepresentativesampleoftypicaladditions.
d.allthreeoftheabove.
6.
Theauditormustknowtheclient’scapitalizationpoliciestodeterminewhetheracquisitionsare:
easy
a.recordedinaccordancewithGAAP.
c
b.treatedconsistentlywiththoseoftheprecedingyear.
c.bothoftheabove.
d.noneoftheabove.
7.
Tobecapitalizedaspartofproperty,plantandequipment,assetsmust:
easy
a.haveexpectedusefullivesofmorethanoneyear.
d
b.notbeacquiredforresale.
c.beusefulinmultipleproductivecapacitieswithintheorganization.
d.aandb,butnotc.
8.
Theprimaryaccountingrecordformanufacturingequipmentandotherfixedassetsisthe:
easy
a.fixedassetlist.
b
b.fixedassetmasterfile.
c.assetinventory.
d.equipmentroster.
9.
Whichofthefollowingstatementsabouttheauditoffixedassetsisnotcorrect?
easy
b
a.Theprimaryaccountingrecordformanufacturingequipmentandotherproperty,plantandequipmentisgenerallyafixedassetmasterfile.
b.Manufacturingequipmentandcurrentassetsarenormallyauditedinthesamefashionregardlessoftheactivitywithinaparticularaccount.
c.Theemphasisonauditingfixedassetsisonverificationofcurrent-periodacquisitions.
d.Failuretorecordtheacquisitionofafixedassetaffectstheincomestatementuntiltheassetsisfullydepreciated.
10.
easy
Duringtheauditofprepaidinsurance,theauditorshouldkeepinmindthattheamountininsuranceexpenseisbasedon:
d
a.thebeginningbalanceinprepaidinsurance.
b.thepaymentofpremiumsduringtheyear.
c.theendingbalanceinprepaidinsurance.
d.allthreeoftheabove.
11.
easy
Whichofthefollowingisnotacategoryoftestscommonlyassociatedwiththeauditofmanufacturingequipment?
d
a.Verificationofdepreciationexpense.
b.Analyticalprocedures.
c.Verificationofcurrent-perioddisposals.
d.Verificationofthebeginningbalanceinaccumulateddepreciation.
12.
easy
Theauditprocedurethatrequiresanauditorto“foottheacquisitionschedule”relatestowhichbalance-relatedauditobjective?
b
a.Classification.
b.Detailtie-in.
c.Existence.
d.Accuracy.
13.
easy
Whichofthefollowingauditobjectivesisnottypicallyamajorobjectiveintheauditofcurrentyearfixedassetadditions?
c
a.Classification.
b.Completeness.
c.Existence.
d.Accuracy.
14.
easy
Theextenttowhichauditorsverifycurrentperiodacquisitionsofproperty,plantandequipmentnormallydependsupon:
c
a.assessedcontrolriskforacquisitions.
b.tolerablemisstatement.
c.Bothaandb.
d.Neitheranorb.
15.
easy
Inadequatecontrolsandmisstatementsdiscoveredthroughtestsofcontrolsandsubstantivetestsoftransactionsareanindicationofthelikelihoodofmisstatementsin:
d
a.thebalancesheet.
b.theincomestatement.
c.thecashflowstatement.
d.boththeincomestatementandthebalancesheet.
16.
medium
Failuretocapitalizeafixedassetatthecorrectamountaffects__________untilthecompanydisposesoftheasset.
a
a.thebalancesheet
b.theincomestatement
c.thecashflowstatement
d.boththeincomestatementandthebalancesheet
17.
medium
Whichofthefollowingtestsaretypicallynotnecessarywhenauditingaclient’sscheduleofrecordeddisposals?
d
a.Footingtheschedule.
b.Tracingscheduletotalstothegeneralledger.
c.Tracingcostandaccumulateddepreciationofthedisposalstothepropertymasterfile.
d.Alloftheabovearenecessary.
18.
Whichofthefollowingisnotlikelytobeatestrelatedtotheauditofmanufacturingequipment?
medium
a.Verifycurrentyearadditions.
b
b.Observecurrentyeardisposals.
c.Verifydepreciationexpense.
d.Performanalyticalprocedures.
19.
medium
Asetofrecordsforeachpieceofequipmentthatincludesdescriptiveinformation,dateofacquisition,originalcost,currentyeardepreciation,andaccumulateddepreciationisthe:
c
a.acquisitionsjournal.
b.depreciationschedule.
c.fixedassetmasterfile.
d.fileofpurchaserequisitions.
20.
medium
Intheauditofproperty,plant,andequipment,itishelpfultoseparatethetestsintoallbutwhichoneofthefollowingcategories?
a
a.Verificationofthebeginningbalance.
b.Verificationofcurrentyearacquisitions.
c.Verificationofcurrentyeardisposals.
d.Verificationoftheendingbalance.
21.
medium
Methodsusedtodetermineiftherearelegalencumbrancesrelatedtofixedassetsincludeallbutwhichofthefollowing?
d
a.Readingtermsofloanandcreditagreements.
b.Reviewingloanconfirmationsreceivedfrombanks.
c.Inquiringoftheclientregardingpossiblelegalencumbrances.
d.Alloftheabovemaybeusedtoidentifylegalencumbrances.
22.
medium
Thetestofdetailsofbalancesprocedurewhichrequiresa“recalculationofinvestmentcredit”satisfiestheauditobjectiveof:
d
a.classification.
b.detailtie-in.
c.existence.
d.accuracy.
23.
medium
a
Thetestofdetailsofbalancesprocedureto“examinevendors’invoicesofcloselyrelatedaccountssuchasrepairstouncoveritemsthatshouldbeproperty,plant,andequipment”satisfiestheauditobjectiveof:
a.classification.
b.detailtie-in.
c.cutoff.
d.existence.
24.
Theauditor’sstartingpointforverifyingdisposalsofproperty,plant,andequipmentisthe:
medium
a.equipmentaccountinthegeneralledger.
c
b.fileofshippingdocuments.
c.client’sscheduleofrecordeddisposals.
d.equipmentsubsidiaryledger.
25.
medium
Failuretocapitalizeafixedassetatthecorrectamountwillaffect___________untiltheassetisfullydepreciated.
d
a.thebalancesheet
b.theincomestatement
c.thecashflowstatement
d.boththeincomestatementandthebalancesheet
26.
medium
c
Becausethefailuretorecorddisposalsofproperty,plant,andequipmentcansignificantlyaffectthefinancialstatements,thesearchforunrecordeddisposalsisessential.Whichofthefollowingisnotaprocedureusedtoverifydisposals?
a.Makeinquiriesofmanagementandproductionpersonnelaboutthepossibilityofthedisposalofassets.
b.Reviewwhethernewlyacquiredassetsreplaceexistingassets.
c.Testthevaluationoffixedassetsrecordedinpriorperiods.
d.Reviewplantmodificationsandchangesinproductline,taxes,orinsurancecoverage.
27.
medium
Inrarecases,theauditormaybelieveitisnecessarythatacompletephysicalinventoryoffixedassetsbetakentomakesuretheyactuallyexist.Ifaninventoryistaken,theauditornormally:
c
a.takestheinventory.
b.requiresclienttotaketheinventoryandprovidedocumentationtotheauditor.
c.observesthecount.
d.requiresthatitbedonebyanoutside,independentthirdparty.
28.
medium
b
Amajorconsiderationinverifyingtheendingbalanceinfixedassetsisthepossibilityofexistinglegalencumbrances.Teststoidentifypossiblelegalencumbranceswouldsatisfytheauditobjectivefor:
a.existence.
b.presentationanddisclosure.
c.detailtie-in.
d.classification.
29.
medium
Whenauditingdepreciationexpense,thetwomajorconcernsrelatedtotheaccuracyauditobjectiveare:
c
a.consistentapplicationofdepreciationmethodandusefullives.
b.consistentapplicationofdepreciationmethodandclassificationofassets.
c.correctnessofcalculationsandconsistentapplicationofdepreciationmethod.
d.Noneoftheabove.
30.
medium
Whichtypeofauditprocedureisoftensufficientforpurposesofauditingprepaidexpensesanddeferredcharges?
d
a.Testsofcontrols.
b.Testsoftransactions.
c.Testsofdetailsofbalances.
d.Analyticalprocedures.
31.
Depreciationexpenseisoneofthefewexpenseaccountsthatisnotverifiedasapartof:
medium
a.testsofcontrols.
d
b.testsoftransactions.
c.testofdetailsofbalances.
d.aandb,butnotc.
32.
medium
Changingcircumstancesmayrequireachangeintheusefullifeofanasset.Whenthisoccurs,itinvolvesachangein:
a
a.accountingestimateratherthanachangeinaccountingprinciple.
b.accountingprincipleratherthanachangeinaccountingestimate.
c.bothaccountingprincipleandaccountingestimate.
d.neitheraccountingprinciplenoraccountingestimate.
33.
medium
Theauditor___________tote
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