CHAPTER 14
MULTIPLE CHOICE
b1.To strengthen control procedures over the custody of heavy mobile equipment, the client would
most likely institute a policy requiring a periodic
a. Increase in insurance coverage.
b. Inspection of equipment and reconciliation with accounting records.
c.Verification of liens, pledges, and collateralizations.
d. Accounting for work orders.(AICPA ADAPTED)
c2.To improve accountability for fixed asset retirements, management most likely would implement
an internal control structure that includes
a.Continuous analysis of the repairs and maintenance account.
b.Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been
retired.
c.Continuous utilization of serially numbered retirement work orders.
d.Periodic inspection of insurance policies by internal auditors.(AICPA ADAPTED)
b3.From the auditor's point of view, inventory counts are more acceptable prior to the year-end,
when
a.Internal control is deficient.
b.Accurate perpetual inventory records are maintained.
c.Inventory is slow moving.
d.Significant amounts of inventory are held on consignment.(AICPA ADAPTED)
c4.Apex Manufacturing Corporation mass produces eight different products. The controller who is
interested in strengthening control procedures over the accounting for materials used in
production would be most likely to implement
a.An economic order quantity (EOQ) system.
b.A job order cost accounting system.
c.A perpetual inventory system.
d.A separation of duties among production personnel. (AICPA ADAPTED)
a5.For several years, a client's physical inventory count has been lower than what was shown on the
books at the time of the count so that downward adjustments to the inventory account were
required. Contributing to the inventory problem could be deficiencies in internal control that led
to the failure to record some
a.Purchases returned to vendors.
b.Sales returns received.
c.Sales discounts allowed.
d. Cash purchases.(AICPA ADAPTED)
a6.When perpetual inventory records are maintained in quantities and in dollars, and internal control
procedures over inventory are deficient, the auditor would probably
a.Want the client to schedule the physical inventory count at the end of the year.
b.Insist that the client perform physical counts of inventory items several times during the year.
c.Increase the extent of tests for unrecorded liabilities at the end of the year.
d.Have to disclaim an opinion on the income statement that year.(AICPA ADAPTED)
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