Multiple Choice Questions

Select the best answer for each of the questions below and explain fully the reason for your selection.

a.To assure accountability for fixed-asset retirements, management should implement an internal control that includes:

(1)Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets.

(2)Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired.

(3)Utilization of serially numbered retirement work orders.

(4)Periodic observation of plant assets by the internal auditors.

b.The auditors may conclude that depreciation charges are insufficient by noting:

(1)Insured values greatly in excess of book values.

(2)Large amounts of fully depreciated assets.

(3)Continuous trade-ins of relatively new assets.

(4)Excessive recurring losses on assets retired.

c.Which of the following is an internal control weakness related to factory equipment?

(1)Checks issued in payment of purchases of equipment are not signed by the controller.

(2)All purchases of factory equipment are required to be made by the department in need of the equipment.

(3)Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired.

(4)Proceeds from sales of fully depreciated equipment are credited to other income.

d.Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated?

(1)Depreciation.

(2)Accounts Payable.

(3)Cash.

(4)Repairs.