Principles of Auditing & Other Assurance Services Chapter 13 Exam Questions with Complete
Solutions (Graded A+)
Capital expenditure - Answers An expenditure for property, plant, and equipment that is properly
charged to an asset account.
Cruising - Answers The inspection of a tract of forestland for the purpose of estimating the total lumber
yield.
Revenue expenditure - Answers An expenditure for property, plant, and equipment that is properly
charged to an expense account.
Work order - Answers A serially numbered accounting document authorizing the acquisition of plant
assets. A separate series of retirement work orders may be used to authorize the retirement or disposal
of plant assets, and a third variety consists of documents authorizing repair or maintenance of plant
assets.
Misstatement of acquisitions of property, plant, and equipment - Answers Fraud:
Expenditures for repairs and maintenance expenses recorded as property, plant, and equipment
acquisitions to overstate income
IC Weakness or Factor:
Undue pressure to meet earnings targets
Error:
Purchases of equipment erroneously reported in maintenance and repairs expense account
IC Weakness or Factors:
Inadequate accounting manual; incompetent accounting personnel
Failure to record retirements of property, plant, and equipment - Answers Error:
An asset that has been replaced is discarded due to its lack of value, without an accounting entry
IC Weakness or Factors:
Inadequate accounting policies, e.g., failure to use retirement work orders
Solutions (Graded A+)
Capital expenditure - Answers An expenditure for property, plant, and equipment that is properly
charged to an asset account.
Cruising - Answers The inspection of a tract of forestland for the purpose of estimating the total lumber
yield.
Revenue expenditure - Answers An expenditure for property, plant, and equipment that is properly
charged to an expense account.
Work order - Answers A serially numbered accounting document authorizing the acquisition of plant
assets. A separate series of retirement work orders may be used to authorize the retirement or disposal
of plant assets, and a third variety consists of documents authorizing repair or maintenance of plant
assets.
Misstatement of acquisitions of property, plant, and equipment - Answers Fraud:
Expenditures for repairs and maintenance expenses recorded as property, plant, and equipment
acquisitions to overstate income
IC Weakness or Factor:
Undue pressure to meet earnings targets
Error:
Purchases of equipment erroneously reported in maintenance and repairs expense account
IC Weakness or Factors:
Inadequate accounting manual; incompetent accounting personnel
Failure to record retirements of property, plant, and equipment - Answers Error:
An asset that has been replaced is discarded due to its lack of value, without an accounting entry
IC Weakness or Factors:
Inadequate accounting policies, e.g., failure to use retirement work orders
