Chapter 13 - Test Bank

Chapter 13 - Property, Property, Plant, and Equipment: Depreciation and Depletion

Chapter 13 Property, Plant, and Equipment: Depreciation and Depletion True / False Questions

1. The auditors' approach to the audit of property, plant, and equipment larely results from the fact that relati!ely fe" transactions occur. True #alse

$. % ma&or control procedure related to plant and equipment is a udet for depreciation. True #alse

3. E!idence of continued o"nership of property is otained y !ouchin payments to a mortae trustee. True #alse

(. The auditors typically oser!e all ma&or items of property, plant, and equipment e!ery year. True #alse

). *aterial purchases of assets from an affiliated company should e disclosed in the financial statements. True #alse

+. dle equipment "ill enerally need to e reclassified as a current asset. True #alse

. The primary purpose of internal control o!er plant and equipment is to safeuard the assets from theft. True #alse

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Chapter 13 - Property, Property, Plant, and Equipment: Depreciation and Depletion

. % typical procedure in the audit of property is e/amination of pulic records to !erify the o"nership of the property p roperty.. True #alse

0. E!en "hen internal control is "ea, a sinificant portion of the audit "or on property, plant, and equipment may e performed at an interim date. True #alse

12. n the audit of depletion d epletion the auditors must often rely on the "or of specialists. True #alse

Multiple Choice Questions

11. %n auditor has identified numerous deits to accumulated depreciation of equipment. hich of the follo"in is most liely4 %. The estimated remainin useful li!es of equipment "ere increased. 5. Plant assets "ere retired durin the year. C. The prior year's deprecation e/pense e/pe nse "as erroneously understated. D. 6!erhead allocations "ere re!ised at year-end.

1$. n testin for unrecorded retirements of equipment, an auditor miht: %. 7elect items of equipment from the accountin accoun tin records and then attempt to locate them durin the plant tour. 5. Compare depreciation e/pense "ith the prior year's depreciation e/pense. C. Trace equipment items oser!ed durin the plant tour to the equipment susidiary leder. D. 7can the eneral &ournal for unusual equipment retirements.

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Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion

13. % plant manaer "ould e most liely to pro!ide information on "hich of the follo"in4 %. %dequacy of the pro!ision for uncollectile accounts. 5. %ppropriateness of physical in!entory !aluation techniques. C. E/istence of osolete production equipment. D. Deferral of certain purchases of office supplies.

1(. hich of the follo"in "ould e least liely to address control o!er the initiation and e/ecution of equipment transactions4 %. 8equests for ma&or repairs are appro!ed y a hiher le!el than the department initiatin the request. 5. Prenumered purchase orders are used for equipment and periodically accounted for. C. 8equests for purchases of equipment are re!ie"ed for consideration of solicitin competiti!e ids. D. Procedures e/ist to restrict access to equipment.

1). hen there are numerous property and equipment transactions durin the year, an auditor "ho plans to assess control ris at a lo" le!el usually performs: %. Tests of controls and e/tensi!e tests of property and equipment alances at the end of the year. 5. %nalytical procedures for current year property and equipment transactions. C. Tests of controls and limited tests of current year property and equipment transactions. D. %nalytical procedures for property and equipment alances at the end of the year.

1+. hich of the follo"in est descries the auditors' approach to the audit of the endin alance of property, plant and equipment for a continuin nonpulic client4 %. Direct audit of the endin alance. 5. %reement of the einnin alance to prior year's "orin papers and audit of sinificant chanes in the accounts. C. %udit of chanes in the accounts since inception of the company. D. %udit of selected purchases and retirements for the last fe" years.

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1. hich of the follo"in is not a control that should e estalished for purchases of equipment4 %. Estalishin a udet for capital acquisitions. 5. 8equirin that the department in need of the equipment order the equipment. C. 8equirin that the recei!in department recei!e the equipment. D. Estalishin an accountin policy reardin the minimum dollar amount of purchase that "ill e considered for capitali9ation.

1. hich of the follo"in is not one of the auditors' o&ecti!es in auditin depreciation4 %. Estalishin the reasonaleness of the client's replacement policy. 5. Estalishin that the methods used are appropriate. C. Estalishin that the methods are consistently applied. D. Estalishin the reasonaleness of depreciation computations.

10. hich of the follo"in is the est e!idence of continuous o"nership of property4 %. E/amination of the deed. 5. E/amination of rent receipts from lessees of the property. C. E/amination of the title policy. D. E/amination of canceled chec in payment for the property.

$2. hich of the follo"in est descries the auditors' typical oser!ation of plant and equipment4 %. The auditors oser!e a physical in!entory of plant and equipment, annually. 5. The auditors oser!e all additions to plant and equipment made durin the year. C. The auditors oser!e all ma&or plant and equipment items in the clients' accounts each year. D. The auditors oser!e ma&or additions to plant and equipment made durin the year.

$1. hich of the follo"in is used to otain e!idence that the client's equipment accounts are not understated4 %. %naly9in repairs and maintenance e/pense accounts. 5. ouchin purchases of plant and equipment. C. 8ecomputin depreciation e/pense. D. %naly9in the miscellaneous re!enue account.

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$$. hich of the follo"in is not a test primarily used to test property, plant and equipment accounts for o!erstatement4 %. n!estiation of reductions in insurance co!erae. 5. 8e!ie" of property ta/ ills. C. E/amination of retirement "or orders prepared durin the year. D. ouchin retirements of plant and equipment.

$3. % continuin audit client's property, plant, and equipment and accounts recei!ale accounts ha!e appro/imately the same year-end alance. n this circumstance, "hen compared to property, plant, and equipment, one "ould normally e/pect the audit of accounts recei!ale to require: %. *ore audit time. 5. ;ess audit time. C. %ppro/imately the same amount of audit time. D. 7imilar confirmation procedures.

$(. hen comparin an initial audit "ith a susequent year audit for a p articular client, the scope of audit procedures for "hich of the follo"in accounts "ould e e/pected to decrease the most4 %. %ccounts recei!ale. 5. Cash. C. *aretale securities. D. Property, plant, and equipment.

$). hen performin an audit of the property, plant, and equipment accounts, an auditor should e/pect "hich of the follo"in to e most liely to indicate a departure from enerally accepted accountin principles4 %. 8epairs ha!e een capitali9ed to repair equipment that had roen do"n. 5. nterest has een capitali9ed for self-constructed assets. C. %ssets ha!e een acquired from affiliated corporations "ith the related transactions recorded and descried in the financial statements. D. The cost of freiht-in on an acquisition has een capitali9ed.

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$+. The most liely technique for the current year audit of ood"ill "hich "as acquired three years ao y a continuin audit client: %. Confirmation. 5. 6ser!ation. C. 8ecomputation. D. nquiry.

$. #or "hich of the follo"in accounts is it most liely that most of the audit "or ca n e performed in ad!ance of the alance sheet date4 %. %ccounts recei!ale. 5. Cash. C. Current maretale securities. D. Property, plant, and equipment.

$. The auditors may e/pect a proper deit to ood"ill due to: %. Purchase of a trademar. 5. Estalishment of an e/traordinarily profitale product. C. % usiness comination. D. Capitali9ation of human resources.

$0. hich of the follo"in is a customary audit procedure for the !erification of the leal o"nership of real property4 %. E/amination of correspondence "ith the corporate counsel concernin acquisition matters. 5. E/amination of o"nership documents reistered and on file at a pulic hall of records. C. E/amination of corporate minutes and resolutions concernin the appro!al to acquire property, plant, and equipment. D. E/amination of deeds and title uaranty policies on hand.

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32. n !iolation of company policy, ;o"ell Company erroneously capitali9ed the cost of paintin its "arehouse. The auditors e/aminin ;o"ell's financial statements "ould most liely detect this "hen: %. Discussin capitali9ation policies "ith ;o"e ll's controller. 5. E/aminin maintenance e/pense accounts. C. 6ser!in, durin the physical in!entory oser!ation, that the "arehouse had een painted. D. E/aminin the construction "or orders supportin items capitali9ed du rin the year.

31. hich of the follo"in est descries the independent auditors' approach to otainin satisfaction concernin depreciation e/pense in the income statement4 %. erify the mathematical accuracy of the amounts chared to income as a result of depreciation e/pense. 5. Determine the method for computin depreciation e/pense and ascertain that is in accordance "ith enerally accepted accountin principles. C. 8econcile the amount of depreciation e/pense to those amounts credited to accumulated depreciation accounts. D. Estalish the asis for depreciale assets and !erify the depreciation e/pense.

3$. The auditors are least liely to learn of retirements of equipment throuh "hich of the follo"in4 %. 8e!ie" of the purchase returns and allo"ances account. 5. 8e!ie" of depreciation. C. %nalysis of the deits to the accumulated depreciation account. D. 8e!ie" of insurance policy riders.

33. #or "hich of the follo"in leder accounts "ould the auditor e most liely to analy9e the details to identify understatements of equipment acquisitions4 %. 7er!ice 8e!enue. 5. 7ales. C. 8epairs and maintenance e/pense. D. 7ales salaries e/pense.

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3(. hich of the follo"in is the most important con trol procedure o!er acquisitions of property, plant, and equipment4 %. Estalishin a "ritten company policy distinuishin et"een capital and re!enue e/penditures. 5.
3). n the e/amination of property, plant, and equipment, the auditor tries to determine all of the follo"in except the: %. E/tent of the control ris. 5. E/tent of property aandoned durin the year. C. %dequacy of replacement funds. D. 8easonaleness of the depreciation.

3+. Property acquisitions that are misclassified as maintenance e/pense "ou ld most liely e detected y an internal control system that pro!ides for: %. n!estiation of !ariances "ithin a formal udetin system. 5. 8e!ie" and appro!al of the monthly depreciation entry y the plant super!isor. C. 7ereation of duties of employees in the accounts payale department. D. E/amination y the internal auditors of !endor in!oices and canceled checs for property acquisitions.

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Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion Essay Questions

3. Durin the audit of =in Company, 5ill >ones, a staff memer on the audit, identified a numer of items that ha!e een included as additions to property, plant, and equipment. ?e has indicated to you that he elie!es the follo"in items should not e capitali9ed. ndicate "ith an @A@ "hether you elie!e the item should e capitali9ed or e/pensed.

3. Plant and equipment are not as inherently risy as are other assets, such as in!entories and accounts recei!ale. ?o"e!er, a company should still endea!or to maintain effecti!e internal control o!er plant and equipment. a. Descrie the principal purpose of internal controls relatin to plant and equipment. . ;ist and descrie four ma&or controls applicale to plant and equipment.

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30. %uditors should otain e!idence that there are no sinificant amounts of unrecorded retirements of property, plant and equipment. a. Descrie t"o "ays that the auditors otain e!idence that there are no sinificant amounts of unrecorded retirements of property Bland. . Descrie three "ays that the auditors otain e!idence that there are no sinificant amounts of unrecorded retirements of equipment.

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Chapter 13 Property, Plant, and Equipment: Depreciation and Depletion %ns"er ey

True / False Questions

1. The auditors' approach to the audit of property, plant, and equipment larely results from the fact that relati!ely fe" transactions occur. T!E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Remember Difficulty: Easy earnin! "b#ecti$e: %&() Identify t*e auditors' ob#ecti$es in t*e audit of +ro+erty, +lant, and e-ui+ment. /o+ic: Pro+erty0 Plant0 and E-ui+ment

$. % ma&or control procedure related to plant and equipment is a udet for depreciation. F"#$E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&(& E2+lain t*e fundamental controls o$er +ro+erty, +lant, and e-ui+ment. /o+ic: Pro+erty0 Plant0 and E-ui+ment

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3. E!idence of continued o"nership of property is otained y !ouchin payments to a mortae trustee. T!E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

(. The auditors typically oser!e all ma&or items of property, plant, and equipment e!ery year. F"#$E


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). *aterial purchases of assets from an affiliated company should e disclosed in the financial statements. T!E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: Remember Difficulty: Easy earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

+. dle equipment "ill enerally need to e reclassified as a current asset. F"#$E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: Remember Difficulty: Easy earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

. The primary purpose of internal control o!er plant and equipment is to safeuard the assets from theft. F"#$E


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. % typical procedure in the audit of property is e/amination of pulic records to !erify the o"nership of the property. F"#$E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: A++ly Difficulty: 5ard earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

0. E!en "hen internal control is "ea, a sinificant portion of the audit "or on property, plant, and equipment may e performed at an interim date. T!E


12. n the audit of depletion the auditors must often rely on the "or of specialists. T!E

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&(6 Describe *o7 t*e auditors desi!n audit +rocedures to audit intan!ible assets. /o+ic: De+reciation

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Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion Multiple Choice Questions

11. %n auditor has identified numerous deits to accumulated depreciation of equipment. hich of the follo"in is most liely4 %. The estimated remainin useful li!es of equipment "ere increased. %& Plant assets "ere retired durin the year. C. The prior year's deprecation e/pense "as erroneously understated. D. 6!erhead allocations "ere re!ised at year-end.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: A++ly Difficulty: 5ard earnin! "b#ecti$e: %&(8 E2+lain t*e auditors' a++roac* to t*e audit of de+reciation. /o+ic: De+reciation

1$. n testin for unrecorded retirements of equipment, an auditor miht: "& 7elect items of equipment from the accountin records and then attempt to locate them durin the plant tour. 5. Compare depreciation e/pense "ith the prior year's depreciation e/pense. C. Trace equipment items oser!ed durin the plant tour to the equipment susidiary leder. D. 7can the eneral &ournal for unusual equipment retirements.


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13. % plant manaer "ould e most liely to pro!ide information on "hich of the follo"in4 %. %dequacy of the pro!ision for uncollectile accounts. 5. %ppropriateness of physical in!entory !aluation techniques. C& E/istence of osolete production equipment. D. Deferral of certain purchases of office supplies.


1(. hich of the follo"in "ould e least liely to address control o!er the initiation and e/ecution of equipment transactions4 %. 8equests for ma&or repairs are appro!ed y a hiher le!el than the department initiatin the request. 5. Prenumered purchase orders are used for equipment and periodically accounted for. C. 8equests for purchases of equipment are re!ie"ed for consideration of solicitin competiti!e ids. D& Procedures e/ist to restrict access to equipment.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: A++ly Difficulty: 5ard earnin! "b#ecti$e: %&(& E2+lain t*e fundamental controls o$er +ro+erty, +lant, and e-ui+ment. /o+ic: Pro+erty0 Plant0 and E-ui+ment

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1). hen there are numerous property and equipment transactions durin the year, an auditor "ho plans to assess control ris at a lo" le!el usually performs: %. Tests of controls and e/tensi!e tests of property and equipment alances at the end of the year. 5. %nalytical procedures for current year property and equipment transactions. C& Tests of controls and limited tests of current year property and equipment transactions. D. %nalytical procedures for property and equipment alances at the end of the year.


1+. hich of the follo"in est descries the auditors' approach to the audit of the endin alance of property, plant and equipment for a continuin nonpulic client4 %. Direct audit of the endin alance. %& %reement of the einnin alance to prior year's "orin papers and audit of sinificant chanes in the accounts. C. %udit of chanes in the accounts since inception of the company. D. %udit of selected purchases and retirements for the last fe" years.


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1. hich of the follo"in is not a control that should e estalished for purchases of equipment4 %. Estalishin a udet for capital acquisitions. %& 8equirin that the department in need of the equipment order the equipment. C. 8equirin that the recei!in department recei!e the equipment. D. Estalishin an accountin policy reardin the minimum dollar amount of purchase that "ill e considered for capitali9ation.


1. hich of the follo"in is not one of the auditors' o&ecti!es in auditin depreciation4 "& Estalishin the reasonaleness of the client's replacement policy. 5. Estalishin that the methods used are appropriate. C. Estalishin that the methods are consistently applied. D. Estalishin the reasonaleness of depreciation computations.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Remember Difficulty: Easy earnin! "b#ecti$e: %&(8 E2+lain t*e auditors' a++roac* to t*e audit of de+reciation. /o+ic: De+reciation

10. hich of the follo"in is the est e!idence of continuous o"nership of property4 %. E/amination of the deed. %& E/amination of rent receipts from lessees of the property. C. E/amination of the title policy. D. E/amination of canceled chec in payment for the property.


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$2. hich of the follo"in est descries the auditors' typical oser!ation of plant and equipment4 %. The auditors oser!e a physical in!entory of plant and equipment, annually. 5. The auditors oser!e all additions to plant and equipment made durin the year. C. The auditors oser!e all ma&or plant and equipment items in the clients' accounts each year. D& The auditors oser!e ma&or additions to plant and equipment made durin the year.


$1. hich of the follo"in is used to otain e!idence that the client's equipment accounts are not understated4 "& %naly9in repairs and maintenance e/pense accounts. 5. ouchin purchases of plant and equipment. C. 8ecomputin depreciation e/pense. D. %naly9in the miscellaneous re!enue account.


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$$. hich of the follo"in is not a test primarily used to test property, plant and equipment accounts for o!erstatement4 %. n!estiation of reductions in insurance co!erae. 5. 8e!ie" of property ta/ ills. C. E/amination of retirement "or orders prepared durin the year. D& ouchin retirements of plant and equipment.


$3. % continuin audit client's property, plant, and equipment and accounts recei!ale accounts ha!e appro/imately the same year-end alance. n this circumstance, "hen compared to property, plant, and equipment, one "ould normally e/pect the audit of accounts recei!ale to require: "& *ore audit time. 5. ;ess audit time. C. %ppro/imately the same amount of audit time. D. 7imilar confirmation procedures.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&() Identify t*e auditors' ob#ecti$es in t*e audit of +ro+erty, +lant, and e-ui+ment. /o+ic: Pro+erty0 Plant0 and E-ui+ment

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$(. hen comparin an initial audit "ith a susequent year audit for a p articular client, the scope of audit procedures for "hich of the follo"in accounts "ould e e/pected to decrease the most4 %. %ccounts recei!ale. 5. Cash. C. *aretale securities. D& Property, plant, and equipment.


$). hen performin an audit of the property, plant, and equipment accounts, an auditor should e/pect "hich of the follo"in to e most liely to indicate a departure from enerally accepted accountin principles4 "& 8epairs ha!e een capitali9ed to repair equipment that had roen do"n. 5. nterest has een capitali9ed for self-constructed assets. C. %ssets ha!e een acquired from affiliated corporations "ith the related transactions recorded and descried in the financial statements. D. The cost of freiht-in on an acquisition has een capitali9ed.


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$+. The most liely technique for the current year audit of ood"ill "hich "as acquired three years ao y a continuin audit client: %. Confirmation. 5. 6ser!ation. C& 8ecomputation. D. nquiry.


$. #or "hich of the follo"in accounts is it most liely that most of the audit "or ca n e performed in ad!ance of the alance sheet date4 %. %ccounts recei!ale. 5. Cash. C. Current maretale securities. D& Property, plant, and equipment.


$. The auditors may e/pect a proper deit to ood"ill due to: %. Purchase of a trademar. 5. Estalishment of an e/traordinarily profitale product. C& % usiness comination. D. Capitali9ation of human resources.


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$0. hich of the follo"in is a customary audit procedure for the !erification of the leal o"nership of real property4 %. E/amination of correspondence "ith the corporate counsel concernin acquisition matters. 5. E/amination of o"nership documents reistered and on file at a pulic hall of records. C. E/amination of corporate minutes and resolutions concernin the appro!al to acquire property, plant, and equipment. D& E/amination of deeds and title uaranty policies on hand.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. Source: AICPA /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

32. n !iolation of company policy, ;o"ell Company erroneously capitali9ed the cost of paintin its "arehouse. The auditors e/aminin ;o"ell's financial statements "ould most liely detect this "hen: %. Discussin capitali9ation policies "ith ;o"e ll's controller. 5. E/aminin maintenance e/pense accounts. C. 6ser!in, durin the physical in!entory oser!ation, that the "arehouse had een painted. D& E/aminin the construction "or orders supportin items capitali9ed du rin the year.


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31. hich of the follo"in est descries the independent auditors' approach to otainin satisfaction concernin depreciation e/pense in the income statement4 %. erify the mathematical accuracy of the amounts chared to income as a result of depreciation e/pense. 5. Determine the method for computin depreciation e/pense and ascertain that is in accordance "ith enerally accepted accountin principles. C. 8econcile the amount of depreciation e/pense to those amounts credited to accumulated depreciation accounts. D& Estalish the asis for depreciale assets and !erify the depreciation e/pense.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&(8 E2+lain t*e auditors' a++roac* to t*e audit of de+reciation. Source: AICPA /o+ic: De+reciation

3$. The auditors are least liely to learn of retirements of equipment throuh "hich of the follo"in4 "& 8e!ie" of the purchase returns and allo"ances account. 5. 8e!ie" of depreciation. C. %nalysis of the deits to the accumulated depreciation account. D. 8e!ie" of insurance policy riders.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: A++ly Difficulty: 5ard earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. Source: AICPA /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

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33. #or "hich of the follo"in leder accounts "ould the auditor e most liely to analy9e the details to identify understatements of equipment acquisitions4 %. 7er!ice 8e!enue. 5. 7ales. C& 8epairs and maintenance e/pense. D. 7ales salaries e/pense.


3(. hich of the follo"in is the most important con trol procedure o!er acquisitions of property, plant, and equipment4 %. Estalishin a "ritten company policy distinuishin et"een capital and re!enue e/penditures. %&
AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: 1nderstand Difficulty: Medium earnin! "b#ecti$e: %&(& E2+lain t*e fundamental controls o$er +ro+erty, +lant, and e-ui+ment. Source: AICPA /o+ic: Pro+erty0 Plant0 and E-ui+ment

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3). n the e/amination of property, plant, and equipment, the auditor tries to determine all of the follo"in except the: %. E/tent of the control ris. 5. E/tent of property aandoned durin the year. C& %dequacy of replacement funds. D. 8easonaleness of the depreciation.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Ris3 Analysis Bloom's: Remember Difficulty: Easy earnin! "b#ecti$e: %&(4 Assess t*e ris3s of material misstatement of +ro+erty, +lant, and e-ui+ment and desi!n furt*er audit +rocedures, includin! tests of controls and substanti$e +rocedures, to address t*e ris3s. Source: AICPA /o+ic: Audit of Pro+erty0 Plant0 and E-ui+ment

3+. Property acquisitions that are misclassified as maintenance e/pense "ou ld most liely e detected y an internal control system that pro!ides for: "& n!estiation of !ariances "ithin a formal udetin system. 5. 8e!ie" and appro!al of the monthly depreciation entry y the plant super!isor. C. 7ereation of duties of employees in the accounts payale department. D. E/amination y the internal auditors of !endor in!oices and canceled checs for property acquisitions.


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Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion Essay Questions

3. Durin the audit of =in Company, 5ill >ones, a staff memer on the audit, identified a numer of items that ha!e een included as additions to property, plant, and equipment. ?e has indicated to you that he elie!es the follo"in items should not e capitali9ed. ndicate "ith an @A@ "hether you elie!e the item should e capitali9ed or e/pensed.


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3. Plant and equipment are not as inherently risy as are other assets, such as in!entories and accounts recei!ale. ?o"e!er, a company should still endea!or to maintain effecti!e internal control o!er plant and equipment. a. Descrie the principal purpose of internal controls relatin to plant and equipment. . ;ist and descrie four ma&or controls applicale to plant and equipment. a. The principal purpose of internal controls relatin to plant and equipment is to otain ma/imum efficiency from the dollars in!ested in plant assets. . The follo"in are ma&or internal controls for plant and equipment Bonly four required:
AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: A++ly Difficulty: 5ard earnin! "b#ecti$e: %&(& E2+lain t*e fundamental controls o$er +ro+erty, +lant, and e-ui+ment. /o+ic: Pro+erty0 Plant0 and E-ui+ment

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30. %uditors should otain e!idence that there are no sinificant amounts of unrecorded retirements of property, plant and equipment. a. Descrie t"o "ays that the auditors otain e!idence that there are no sinificant amounts of unrecorded retirements of property Bland. . Descrie three "ays that the auditors otain e!idence that there are no sinificant amounts of unrecorded retirements of equipment. a. The auditors otain e!idence that there are no sinificant amounts of unrecorded retirements of property y Bonly t"o required: E/amination of property ta/ ills. • ouchin rent receipts from lessees. • E/amination of payments to mortaee or trustee. •

. The auditors otain e!idence that there are no sinificant amounts of unrecorded retirements of equipment y Bonly three required: #or ma&or purchases, in!estiate related retirements. • %naly9e the *iscellaneous 8e!enue account to locate cash proceeds from sale of equipment. • #or discontinued operations, in!estiate related retirements. • nquire of e/ecuti!es and super!isors. • n!estiate reductions in insurance co!erae. •


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Chapter 13 - Test Bank

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