Multiple Choice Questions
The following questions concern the audit of asset accounts in the acquisition and payment cycle. Choose the best response.
a. In testing for unrecorded disposals of equipment, an auditor most likely will
(1) Select items of equipment from the accounting records and then locate them during the plant tour.
(2) Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment.
(3) Inspect items of equipment observed during the plant tour and then trace them to the equipment master file.
(4) Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.
b. Analysis of which account is least likely to reveal evidence related to unrecorded retirement of equipment?
(1) Accumulated depreciation.
(2) Insurance expense.
(3) Property, plant, and equipment.
(4) Purchase returns and allowances.
c. In connection with the audit of the prepaid insurance account, which of the following procedures is usually not performed by the auditor?
(1) Recompute the portion of the premium that expired during the year.
(2) Prepare excerpts of the insurance policies for audit documentation.
(3) Confirm premium rates with an independent insurance broker.
(4) Examine support for premium payments.