SOLVED

Learning Objective 21-6 1) If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate? A) compilation tests B) price tests C) confirmation of inventory held by outside parties D) physical examination of the inventory 2) The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client. The 2nd step is: A) determining that all inventory that is purchased is expensed through cost of goods sold. B) determining which costs should be included in the valuation of an item of inventory. C) determining that all inventory on hand reconciles to the perpetual inventory records. D) determining that cut-off procedures have been adhered to prior to counting inventory. 3) You are gathering evidence for the audit objective that existing inventory items are included in the inventory listing schedule. The audit procedure that would provide you with the best evidence to confirm this objective is: A) trace from inventory tags to the inventory listing schedule and make sure the inventory tag is included. B) trace the inventory totals to the general ledger. C) perform tests of lower-of-cost-or-market. D) account for unused tags shown in the auditor’s documentation to make sure no tags have been added. 4) The test of details of balance procedure which requires the auditor to perform tests of lower-of-cost-or-market, selling price, and obsolescence is an attempt to satisfy the objective of: A) existence. B) completeness. C) accuracy. D) realizable value. 5) After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: A) included in the listing have been counted. B) represented by inventory tags actually exist. C) represented by inventory tags are included in the listing. D) included in the listing are represented by inventory tags. 6) Pricing manufactured inventory is difficult. Auditors must evaluate the method of allocating manufacturing overhead for all but which of the following? A) reasonableness B) computational correctness C) compliance with accounting standards D) consistency 7) Controls which provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totaled, and included in the general ledger at the proper amount are known as: A) standard cost controls. B) pricing internal controls. C) compilation internal controls. D) count quantity internal controls. 8) Assume that the client’s valuation of an inventory item is $10 per unit for 1,000 units, using first-in, first-out (FIFO). If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit, the inventory item is in error and it is: A) understated $400. B) understated $300. C) overstated $400. D) overstated $700. 9) The auditing procedures generally used for the physical observation of inventory and the pricing and compilation of inventory are: A) analytical procedures and tests of transactions. B) analytical procedures and tests of details of balances. C) analytical procedures and control tests. D) tests of transactions and tests of details of balances. 10) In pricing inventory, it is necessary to consider whether replacement cost is lower than historical cost. When applying lower of cost or market tests, what basis should auditors use for each of the following categories of inventory: •Raw materials •Work-in-process •Purchased finished goods