$13-33.$ 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.

e$.$ The auditors are most likely to seek information from the plant manager with respect to the:

$(1)$ Adequacy of the provision for uncollectible accounts.

$(2)$ Appropriateness of physical inventory observation procedures.

$(3)$ Existence of obsolete machinery.

$(4)$ Deferral of procurement of certain necessary insurance coverage.