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Auditing Inventories and Inventory Pricing

11. When auditing inventories, an auditor would least likely verify that

a. All inventory owned by the client is on hand at the time of the count.
b. The client has used proper inventory pricing.
c. The financial statement presentation of inventories is appropriate.
d. Damaged goods and obsolete items have been properly accounted for.

12. A client maintains perpetual inventory records in quantities and in dollars. If the assessed
level of control risk is high, an auditor would probably

a. Apply gross profit tests to ascertain the reasonableness of the physical counts.
b. Increase the extent of tests of controls relevant to the inventory cycle.
c. Request the client to schedule the physical inventory count at the end of the year.
d. Insist that the client perform physical counts of inventory items several times during
the year.

13. When a client company does not maintain its own capital stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning

a. Restrictions on the payment of dividends.
b. The number of shares issued and outstanding.
c. Guarantees of preferred stock liquidation value.
d. The number of shares subject to agreements to repurchase.

14. All corporate capital stock transactions should ultimately be traced to the

a. Minutes of meetings of the board of directors.
b. Cash receipts journal.
c. Cash disbursements journal.
d. Numbered stock certificates.

15. An audit program for the examination of the retained earnings account should include a step that requires verification of the (choose two steps)

a. Market value used to charge retained earnings to account for a two-for-one stock split.
b. Approval of the adjustment to the beginning balance as a result of a write-down of accounts receivable.
c. Authorization for both cash and stock dividends.
d. Gain or loss resulting from disposition of treasury shares.

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11. When auditing inventories, an auditor would least likely verify that
b. The client has used proper inventory pricing.

12. A client maintains perpetual inventory records in quantities and in dollars. If the assessed level of control risk ...

Solution Summary

Sentence explains choice.

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