The following questions concern the audit of asset accounts in the acquisition and payment cycle. Choose the best response.
a. In testing for unrecorded disposals of equipment, an auditor most likely will
(1) select items of equipment from the accounting records and then locate them dur-
ing the plant tour.
(2) compare depreciation journal entries with similar prior-year entries in search of
fully depreciated equipment.
(3) inspect items of equipment observed during the plant tour and then trace them
to the equipment master file.
(4) scan the general journal for unusual equipment additions and excessive debits to
repairs and maintenance expense.
Chapter 19 / COMPLETING THE TESTS IN THE ACQUISITION AND PAYMENT CYCLE 669
b. Which of the following analytical procedure results might suggest that certain repairs and maintenance expenses have been inappropriately capitalized?
(1) The ratio of additions to equipment divided by the beginning balance in the equip-
ment account is significantly lower than the same ratio from the prior three years.
(2) The balance in the repairs and maintenance expense account is noticeably lower
than amounts recorded in the past several years.
(3) The balance in the gross equipment account has decreased this year compared to
the prior year.
(4) The ratio of depreciation expense divided by gross equipment is higher in the cur-
rent year compared to prior years.
c. In connection with the audit of the prepaid insurance account, which of the following procedures is usually not performed by the auditor?
(1) Recompute the portion of the premium that expired during the year.
(2) Prepare excerpts of the insurance policies for audit documentation.
(3) Confirm premium rates with an independent insurance broker.
(4) Examine support for premium payments.
