Final Exam 2

Question 1

Which document represents a decrease in A/P?
- Vendor’s invoice
- Purchase requisition
- Debit memo
- Receiving report

Answer 1

Debit memo

Question 2

Of the five most time-consuming accounts to verify by test of balances, which is not related to the acquisitions and payments cycle?
- Accounts receivable
- Inventory
- Fixed assets
- Expense accounts

Answer 2

Accounts receivable

Question 3

With regards to the proper recording of the liability, which is not a primary document that will be evaluated:
- Purchase order
- Vendor’s invoice
- Receiving report
- Purchase requisition

Answer 3

Purchase requisition

Question 4

Recording maintenance as a fixed asset acquisition or capitalization is a violation of which audit objective?
- Occurrence
- Completeness
- Accuracy
- Classification

Answer 4

Classification

Question 5

When verifying liabilities, the main focus is on understated or omitted liabilities:
- True
- False

Answer 5

True

Question 6

Which of the 9 balance audit objectives is not acceptable to liabilities?
- Detail tie-in
- Presentation
- Classification
- Realizable value

Answer 6

Realizable value

Question 7

Which is the more reliable type of evidence for tests of balances?
- Vendor’s statements
- Confirmations
- Vendor’s invoices
- Voucher file

Answer 7

Confirmations

Question 8

Gains or losses on disposal of equipment does not directly interact with which other acquisition and payment cycle account?
- Equipment
- Depreciation
- Cost of goods sold
- Accumulated depreciation

Answer 8

Cost of goods sold

Question 9

Auditing of equipment emphasizes the verification of current period acquisitions rather than the balance in the equipment account:
- True
- False

Answer 9

True

Question 10

Which accounting failure with regards to PPE will likely have the most significant affect to the financial statements?
- Inaccurate depreciation calculations
- Properly capitalized repairs
- Tie-in between depreciation and accumulated depreciation
- Unrecorded disposals

Answer 10

Unrecorded disposals

Question 11

Impairment exists when the fair value amount of long-lived assets exceeds its carrying value and that amount is not recoverable:
- True
- False

Answer 11

False

Question 12

Which is not one of the three categories of IC for prepaid insurance / expense?
- Control of insurance charge-offs
- Control of insurance register
- Control of insurance valuation
- Control of insurance acquisition and recording

Answer 12

Control of insurance valuation

Question 13

The source of the debits for the accrued property tax account can be found (and is likely already audited) in which journal?
- Purchases
- Cash disbursements
- Credit sales
- Cash receipts

Answer 13

Cash disbursements

Question 14

Which expense accounts are rarely audited because of the low likelihood of misstatement?
- Travel and advertising
- Repairs and maintenance
- Rents and leases
- Legal and contingent liabilities

Answer 14

Travel and advertising

Question 15

For the various accrued payroll liabilities (wages, commissions, withholdings, payroll taxes) which is a debit side entry?
- Earned wages
- FICA deductions
- Cash payments
- Payroll tax expenses

Answer 15

Cash payments

Question 16

Confirmations are the top 1 or 2 types of audit evidence for the payroll cycle:
- True
- False

Answer 16

False

Question 17

Which is not a favorable attribute of payroll for IC?
- Large number of small, uniform payments
- Timing and amounts are consistent
- Employee complaints assist with identifying discrepencies
- Large end of year balances facilitate sampling

Answer 17

Large end of year balances facilitates sampling

Question 18

When a company uses a 3rd party payroll provider, the auditors can also rely on a service organization internal control report as part of their IC assessment:
- True
- False

Answer 18

True

Question 19

Accuracy, occurrence, and which transaction audit objective are important for test of transactions in the payroll cycle?
- Classification
- Cutoff
- Posting and summarization
- Presentation

Answer 19

Classification

Question 20

Accuracy, occurrence/existence, and which balance audit objective are important for test of balances in the payroll cycle?
- Presentation
- Posting and summarization
- Cutoff
- Classification

Answer 20

Cutoff

Question 21

Which is not included in the “other policies and contracts” portion of the test of balances for the payroll cycle?
- Payroll tax expense
- Board authorization of officer compensation
- Contract labor rates
- Commission and bonus schedules

Answer 21

Payroll tax expense

Question 22

Which is not a factor that contributes to the difficulty of auditing inventory?
- Different locations of inventory
- Internal controls that preclude taking physical inventory
- Often is the largest BS account
- Estimation of obsolescence

Answer 22

Internal controls that preclude taking physical inventory

Question 23

A perpetual inventory system allows for better understanding of shrinkage:
- True
- False

Answer 23

True

Question 24

Which is a credit to Work In Progress inventory?
- Cost of goods sold
- Applied manufacturing overhead
- Cost of goods manufactured
- Raw materials requisition

Answer 24

Cost of goods manufactured

Question 25

Auditing standards require auditors to perform an audited physical count of inventory:
- True
- False

Answer 25

False

Question 26

Gross margin percentage, as an analytical procedure, can identify possible misstatement in:
- Unit costs vs standard costs
- Delivery cutoff for AR
- Applied manufacturing overhead
- Cost of goods sold

Answer 26

Cost of goods sold

Question 27

Which prior cycle would test of finished goods have been tested?
- Acquisition and payments cycle
- Payroll and personnel cycle
- Sales and collection cycle
- Capex and repayment cycle

Answer 27

Sales and collection cycle

Question 28

Which is not an audit concern when performing inventory valuation tests?
- Proper cost vs market adjustments
- Valuation method must be GAAP compliant
- Correct choice between LIFO and FIFO methods
- Consistent method use year to year

Answer 28

Correct choice between LIFO and FIFO methods

Question 29

Which would not be audited in the capital acquisition and repayment cycle?
- Sale of treasury stock
- Changes to paid-in-capital in excess of par
- Fair value adjustments to available for sale bonds
- Interest expense on mortgage notes payable

Answer 29

Fair value adjustments to available for sale bonds

Question 30

If actual interest expense is materially larger than the auditor’s estimate, one possible cause is recorded interest payments on unrecorded notes payable:
- True
- False

Answer 30

True

Question 31

Which is not one of the three most important balance related N/P objectives?
- Classification - which parts of NP are current liability
- Completeness - existing notes are included
- Accuracy - NP are accurately recorded
- Presentation - NP are properly aggregated and disclosed

Answer 31

Classification - which parts of N/P are current liability

Question 32

Audits of RE of closely-held corporations are more complex than for publicly-held corporations:
- True
- False

Answer 32

False

Question 33

Which control is best for making sure stock issuance is in accordance with the corporate charter and authorized by the board of directors?
- Shareholders’ capital stock database
- Capital stock certificate
- Internal auditor reporting board
- Independent registrar

Answer 33

Independent registrar

Question 34

Auditors must verify whether dividend payments were made to stockholders who owned the stock as of the dividend record date:
- True
- False

Answer 34

True

Question 35

A stock dividend will result in:
- Decrease in capital stock, increase in RE
- Decrease in cash, increase in capital stock
- Decrease in RE, increase in capital stock
- Decrease in owners’ equity, increase in RE

Answer 35

Decrease in RE, increase in capital stock