The following questions concern the audit of income and expense accounts. Choose the best response.
a. The auditor may note that annual depreciation expense is too low for a class of assets by noting
(1) insured values greatly in excess of carrying amounts.
(2) large numbers of fully depreciated assets are still in use.
(3) continuous trade-ins of relatively new assets.
(4) excessive recurring losses on assets retired.
b. Which of the following comparisons will be most useful to an auditor in auditing an
entity’s income and expense accounts?
(1) Prior year accounts payable to current year accounts payable
(2) Prior year payroll expense to budgeted current year payroll expense
(3) Current year revenue to budgeted current year revenue
(4) Current year warranty expense to current year contingent liabilities
c. An auditor’s principal objective in analyzing repairs and maintenance expense ac-
counts is to
(1) determine that all obsolete property, plant, and equipment assets were written off
before the year end.
(2) verify that all recorded property, plant, and equipment assets actually exist.
(3) discover expenditures that were expensed but should have been capitalized.
(4) identify property, plant, and equipment assets that cannot be repaired and should
be written off.
