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Post your answers to the Multiple Choice Questions in the Assignments folder.
Please post your answers to the Multiple Choice
questions to the Assignments
section.
1. Which of the following accounts does not appear in
the acquisition and expenditure cycle?
a. Cash.
b. Purchases Returns.
c. Sales Returns.
d. Prepaid Insurance.
2. For which of the following accounts would the
matching concept be the most
appropriate?
a. Cost of Goods Sold.
b. Research and Development.
c. Depreciation Expense.
d. Sales.
3. Which of the following would not overstate current
period net income?
a. Capitalizing an expenditure that should be
expensed.
b. Failing to record a liability for an
expenditure.
c. Failing to record a check paying an item in
Vouchers Payable.
d. All of the above would overstate net income.
4. A client’s purchasing system ends with the
recording of a liability and its eventual payment. Which of the following best
describes the auditor’s primary concern with respect to liabilities resulting
from the purchasing system?
a. Accounts payable are not materially understated.
b. Authority to incur liabilities is restricted to
one designated person.
c. Acquisition of materials is not made from one
vendor or one group of vendors.
d. Commitments for all purchases are made only
after established competitive bidding
procedures are followed.
5. Which of the following is an internal control
activity that could prevent a paid disbursement voucher from being presented
for payment a second time?
a. Vouchers should be prepared by individuals who
are responsible for signing disbursement
checks.
b. Disbursement vouchers should be approved by at
least two responsible management
officials.
c. The date on a disbursement voucher should be
within a few days of the date the voucher
is presented for payment.
d. The official who signs the check should compare
the check with the voucher and should
stamp “PAID” on the voucher documents.
6. Budd, the purchasing agent of Lake Hardware
Wholesalers, has a relative who owns a retail hardware store. Budd arranged for
hardware to be delivered by manufacturers to the retail store on a COD basis,
thereby enabling his relative to buy at Lake’s wholesale prices. Budd was
probably able to accomplish this because of Lake’s poor internal control over:
a. Purchase requisitions.
b. Cash receipts.
c. Perpetual inventory records.
d. Purchase orders.
7. Which of the following is the best audit procedure
for determining the existence of unrecorded liabilities?
a. Examine confirmation requests returned by
creditors whose accounts appear on a
subsidiary trial balance of accounts payable.
b. Examine a sample of cash disbursements in the
period subsequent to year-end.
c. Examine a sample of invoices a few days prior to
and subsequent to the year-end to
ascertain whether they have been properly recorded.
d. Examine unusual relationships between monthly
accounts payable and recorded
purchases.
8. Which of the following procedures is least likely
to be performed before the balance sheet date?
a. Observation of inventory.
b. Review of internal control over cash disbursements.
c. Search for unrecorded liabilities.
d. Confirmation of receivables.
9. To determine whether accounts payable are complete,
an auditor performs a test to verify that all merchandise received has been
recorded. The population for this test consists of all
a. Vendors’ invoices.
b. Purchase orders.
c. Receiving reports.
d. Canceled checks.
(AICPA adapted)
10. When verifying debits to the perpetual inventory
records of a nonmanufacturing company, an auditor would be most interested in
examining a sample of purchase
a. Approvals.
b. Requisitions.
c. Invoices.
d. Orders.
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