ACCY 131 CH 13-14 UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
1. Which of the following situations regarding transfer
checks most strongly indicates that kiting is occurring?
A check is recorded as being disbursed at the beginning
of March, and received in late February.
A check is recorded as being deposited in mid-April, and
being disbursed a few days later.
A check is recorded as being deposited in early March,
and then is never recorded as being disbursed.
A check is recorded as being received in early May, but
was disbursed in late April.
Answer:
A check is recorded as being disbursed at the beginning of March, and received
in late February.
Question:
2. If an auditor determines that cash balances and
transactions are a significant part of a company and that
the company has strong internal controls, then what is
the level of inherent risk for valuation and allocation?
Low
Maximum
High
Moderate
Answer:
Low
Question:
3. You are auditing a wholesaler and notice that their
inventories are often stored at multiple sites and that their
inventories are vulnerable to spoilage. What would you
MOST likely assess this wholesaler's inherent risk to be?
Low
High
Medium
At or near maximum
Answer:
At or near maximum
,Question:
4. You are auditing a company whose total assets
unexpectedly went from $1 million to $2 million. Which of
the following does this increase MOST likely indicate?
The company made an error in calculating depreciation.
The company expensed assets that should have been
capitalized.
The company overcapitalized depreciable assets.
The company failed to record depreciable assets.
Answer:
The company overcapitalized depreciable assets.
Question:
5. An audit is being conducted on a company and the
auditor decides to follow a primarily substantive
approach after understanding its controls. Which of the
following companies is the auditor most likely auditing?
A state university that is largely funded by the state
government.
A public company with over 1,000 employees.
A small, privately owned clothing store with one location.
A privately owned hotel chain planning a large
expansion.
Answer:
A small, privately owned clothing store with one location.
Question:
6. Cheryl is doing an audit on a small chain of fruit smoothie
mall stores. She traces bank transfers for a week before
and after the year-end date to determine that they are
being properly recorded. Cheryl is testing which of the
following key assertions?
Accuracy and Valuation
Existence and Completeness
Occurrence and Accuracy
Rights and Obligations
Answer:
Existence and Completeness
, Question:
7. You are auditing a company that has almost a third of its
total assets in inventory. This company's inventory
turnover takes a little less than a month. It is most likely
what kind of company?
A local supermarket
A laptop manufacturer
An equipment manufacturing company
A high-end hotel
Answer:
A local supermarket
Question:
8. The Linghuang Company has a 10-year $100 million bond
payable with an annual interest rate of 5%. The bonds
were sold at $99.5 million, which result in a discount of
$0.5 million. What should the auditor perform in his tests
of details of balances with regards to the bond?
The auditor should review the client's amortization
schedule and verify the recorded amount of amortization
by recalculation.
Rely on the client's amortization calculation.
Verify the last interest paid by the client and recalculate
the amount book for amortization.
Send a confirmation letter to the bank to verify the
accuracy of the amortization
Answer:
The auditor should review the client's amortization schedule and verify the
recorded amount of amortization by recalculation.
Question:
9. When performing substantive procedures of the payroll
process, tracing data from timecards and contracts to the
payroll register is a test of which of the following key
assertions?
Valuation
Completeness
Occurrence
Existence
Answer:
Completeness
AND CORRECT ANSWERS
Question:
1. Which of the following situations regarding transfer
checks most strongly indicates that kiting is occurring?
A check is recorded as being disbursed at the beginning
of March, and received in late February.
A check is recorded as being deposited in mid-April, and
being disbursed a few days later.
A check is recorded as being deposited in early March,
and then is never recorded as being disbursed.
A check is recorded as being received in early May, but
was disbursed in late April.
Answer:
A check is recorded as being disbursed at the beginning of March, and received
in late February.
Question:
2. If an auditor determines that cash balances and
transactions are a significant part of a company and that
the company has strong internal controls, then what is
the level of inherent risk for valuation and allocation?
Low
Maximum
High
Moderate
Answer:
Low
Question:
3. You are auditing a wholesaler and notice that their
inventories are often stored at multiple sites and that their
inventories are vulnerable to spoilage. What would you
MOST likely assess this wholesaler's inherent risk to be?
Low
High
Medium
At or near maximum
Answer:
At or near maximum
,Question:
4. You are auditing a company whose total assets
unexpectedly went from $1 million to $2 million. Which of
the following does this increase MOST likely indicate?
The company made an error in calculating depreciation.
The company expensed assets that should have been
capitalized.
The company overcapitalized depreciable assets.
The company failed to record depreciable assets.
Answer:
The company overcapitalized depreciable assets.
Question:
5. An audit is being conducted on a company and the
auditor decides to follow a primarily substantive
approach after understanding its controls. Which of the
following companies is the auditor most likely auditing?
A state university that is largely funded by the state
government.
A public company with over 1,000 employees.
A small, privately owned clothing store with one location.
A privately owned hotel chain planning a large
expansion.
Answer:
A small, privately owned clothing store with one location.
Question:
6. Cheryl is doing an audit on a small chain of fruit smoothie
mall stores. She traces bank transfers for a week before
and after the year-end date to determine that they are
being properly recorded. Cheryl is testing which of the
following key assertions?
Accuracy and Valuation
Existence and Completeness
Occurrence and Accuracy
Rights and Obligations
Answer:
Existence and Completeness
, Question:
7. You are auditing a company that has almost a third of its
total assets in inventory. This company's inventory
turnover takes a little less than a month. It is most likely
what kind of company?
A local supermarket
A laptop manufacturer
An equipment manufacturing company
A high-end hotel
Answer:
A local supermarket
Question:
8. The Linghuang Company has a 10-year $100 million bond
payable with an annual interest rate of 5%. The bonds
were sold at $99.5 million, which result in a discount of
$0.5 million. What should the auditor perform in his tests
of details of balances with regards to the bond?
The auditor should review the client's amortization
schedule and verify the recorded amount of amortization
by recalculation.
Rely on the client's amortization calculation.
Verify the last interest paid by the client and recalculate
the amount book for amortization.
Send a confirmation letter to the bank to verify the
accuracy of the amortization
Answer:
The auditor should review the client's amortization schedule and verify the
recorded amount of amortization by recalculation.
Question:
9. When performing substantive procedures of the payroll
process, tracing data from timecards and contracts to the
payroll register is a test of which of the following key
assertions?
Valuation
Completeness
Occurrence
Existence
Answer:
Completeness
