SOLVED

31) The auditor is examining the accounting entries made to the accumulated depreciation account during the year and notices a significant amount of debits to the account. Which of the following provides the most logical explanation? A) Large number of asset retirements B) Salvage values were revised downward C) Useful lives were revised downward D) Allocation of fixed overhead were revised 32) In determining the reasonableness of the client’s amount for depreciation expense the auditor is primarily concerned that the client has followed a consistent policy and the calculations are correct. Which of the following audit objectives best addresses the above concerns? A) Existence B) Accuracy C) Valuation D) Allocation 33) Which of the following audit procedures would be least likely to lead the auditor to find an unrecorded fixed asset disposal? A) Examination of insurance policies B) Review of repairs and maintenance expense C) Review of property tax files D) Scanning of invoices for fixed asset additions 34) To achieve effective internal accounting control over fixed asset additions, a company should establish procedures that require: A) authorization and approval of major fixed asset additions. B) capitalization of the cost of fixed asset additions in excess of a specific dollar amount. C) classification, as investments, of those fixed asset additions that are not used in the business. D) performance of recurring fixed asset maintenance work solely by maintenance department employees. 35) The auditor is testing for unrecorded retirements/disposals of equipment. Which of the following audit procedures would the auditor most likely use? A) Select items from the fixed asset master file and then physically locate them. B) Examine the repairs and maintenance amount for large debits. C) Compare current years depreciation expense with the previous year’s depreciation expense. D) Trace acquisition documents to the fixed asset master file. 36) The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet: A) forever. B) for the current period. C) for the depreciable life of the asset. D) until the firm disposes of the asset. 37) One of the primary objectives in examining the repairs and maintenance accounts is to obtain evidence that: 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. 38) If the client fails to record disposals of property, plant, and equipment, both the original cost of the asset account and the net book value will be incorrect. What will the effect be of this misstatement on the original cost and the book value? A) Both will be overstated indefinitely. B) The original cost will be overstated indefinitely, and the net book value will be overstated until the asset is fully depreciated. C) The original cost will be overstated indefinitely, and the net book value will be understated indefinitely. D) The original cost will be overstated indefinitely, and the net book value will be understated until the asset is fully depreciated. 39) Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account? A) Extraordinary repairs have lengthened the life of an asset. B) Prior years’ depreciation charges were erroneously understated. C) A reserve for possible loss on retirement has been recorded. D) An asset has been recorded at its fair value.