Chapter $15$ Inventory and Fixed Assets

Inventory

$1.$ Which of the following control procedures is most likely to prevent or detect errors or frauds resulting from the production of unauthorized products or unauthorized quantities of authorized products?

a$.$ State criteria for determining production.

b$.$ Establish procedures for processing arid recording production.

c$.$ Conduct periodic inventory counts.

d$.$ Limit access to inventory and to unused forms.

$2.$ Although significant in the aggregate, a manufacturing company's parts inventory includes thousands of small dollar$-$value items. The company could establish control over the parts by requiring:

a$.$ Separation of the store$-$keeping function from the production and inventory record$-$keeping functions.

b$.$ Approval of parts requisitions by a company officer.

c$.$ Maintenance of inventory records for all parts included in the inventory.

d$.$ Physical counts of the parts by surprise.

$3.$ Which of the following financial statement assertions are addressed by the physical observation of inventory counts?

a$.$ Existence and valuation

b$.$ Rights and completeness

c$.$ Presentation and disclosure

d$.$ Completeness and existence

$4.$ A purpose of perpetual inventory records is to:

a$.$ Benchmark quantities of inventory counted.

b$.$ Benchmark the general ledger balance for inventory.

c$.$ Account for inventory carrying values on hand.

d$.$ Account for inventory quantities on hand.

$5.$ To determine whether merchandise is included in ending inventory, an auditor could test:

a$.$ Open purchase orders.

b$.$ Purchase cutoff.

c$.$ Commitments made by Purchasing.

d$.$ Invoices received on or around year end.

$6.$ Off$-$premises inventory held for a company in a public warehouse should be:

a$.$ Audited by independent auditors.

b$.$ Audited by internal auditors.

c$.$ Controlled by warehouse employees.

d$.$ Controlled by company employees.

$7.$ From which of the following procedures would an auditor obtain evidence about the existence of inventory?

a$.$ Physical inventory observation

a$.$ b$.$ Written representations from management

b$.$ Confirmation of inventories in a public warehouse

c$.$ Recomputation of the final priced inventory

$8.$ A company's physical count of inventory revealed quantities higher than reflected in

the perpetual inventory records. This could be the result of failing to record:

a$.$ Sales.

b$.$ Sales discounts.

c$.$ Purchases.

d$.$ Purchase returns.