DIY 2
Question 1
The most effective means for the auditor to determine whether a recorded intangible
asset possesses the characteristics of an asset is to
a.
Inquire as to the status of patent applications.
b.
Analyze research and development expenditures to determine that only those
expenditures possessing future economic benefit have been capitalized.
c.
Vouch the purchase by reference to underlying documentation.
d.
Evaluate the future revenue-producing capacity of the intangible asset.
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Question 2
Petronix developed a new secret formula which is of great value because it resulted in a
virtual monopoly. Petronix has capitalized all research and development costs
associated with this formula. Shellix, CPA, who is examining this account, will probably
a.
Confer with management regarding a change in the title of the account to "goodwill".
b.
Confer with management regarding ownership of the secret formula.
c.
Confirm that the secret formula is registered and on file with the county clerk's office.
d.
Confer with management regarding transfer of the amount from the statement of
financial position to the income statement.
Question 3
In connection with the audit of prepayments and deferred charges, which of the
following assertion is the least concern by the auditor?
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a.
Existence
b.
Valuation
c.
Allocation
d.
Completeness
Feedback
Your answer is incorrect.
The correct answer is:
Completeness
Question 4
The most likely technique for the current year audit of goodwill which was acquired
three years ago by a continuing audit client.
a.
Inquiry
b.
Observation
c.
Recomputation
d.
Confirmation
Feedback
Your answer is incorrect.
The correct answer is:
Recomputation
Question 5
Which of the following procedure is least likely to be used by the auditor when auditing
prepaid expenses and deferred charges?
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a.
Confirmation
b.
Recalculation
c.
Observation
d.
Inspection
Question 6
In auditing intangible assets, an auditor most likely review or recomputed amortization
and determine whether the amortization period is reasonable in support of
management’s financial statement assertion of
a.
Existence or occurrence
b.
Completeness
c.
Valuation
d.
Rights and obligations
Question 7
The most effective means for the' auditor to determine whether a recorded intangible
asset possesses the characteristics of an asset is to
a.
Inquire as to the status of patent applications.
b.
Vouch the purchase by reference to underlying documentation.
c.
Evaluate the future revenue-producing capacity of the intangible asset.
d.
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Analyze research and development expenditures to determine that only those
expenditures possessing future economic benefit have been capitalized.
Question 8
There is goodwill involved in the acquisition of a business if the purchase price paid is in
excess of the proprietorship of the business acquired.
Goodwill might be viewed as the enjoyment of a profit by a company in excess of the
normal or usual return for the industry as a whole but such goodwill is not recorded if it
has not been purchased or paid for.
a.
False; False.
b.
False; True.
c.
True; True.
d.
True; False.
Feedback
Your answer is incorrect.
The correct answer is:
True; True.
Question 9
In verifying the amount of goodwill recorded by a client, the most convincing evidence
which an auditor can obtain is by comparing the recorded value of assets acquired with
the
a.
Appraised value as evidence by independent appraisals.
b.
Assessed value as evidence by tax bills.
c.
Seller's book value as evidence by financial statements.
d.
Insured value as evidences by insurance policies.
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Question 10
Which of the following comparisons would be the most appropriate audit test for the
amount of recorded goodwill?
a.
Earnings in excess of 5% of net assets for the past five years.
b.
The figure for goodwill specified in the contract for purchase.
c.
The purchase price and the book value of assets purchased.
d.
The purchase price and the fair value of assets purchased.
Question 11
In verifying the amount of goodwill recorded by a client, the most convincing evidence
which an auditor can obtain is by comparing the recorded value of assets acquired with
the
a.
Assessed value as evidence by tax bills.
b.
Seller's book value as evidenced by financial statements.
c.
Appraised value as evidenced by independent appraisals.
d.
Insured value as evidence by insurance companies.
Question 12
The auditee has just acquired another company by purchasing all its assets. As a result
of the purchase, "goodwill" has been recorded on the auditee's books. Which of the
following comparisons would be the most appropriate audit test for the amount of
recorded goodwill?
a.
The purchase price and the book value of assets purchased.
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b.
Earnings in excess of 15% of net assets for the past five years.
c.
The purchase price and the fair market value of assets purchased.
d.
The figure for goodwill specified in the contract for purchase.
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PA 2
Question 1
In connection with the audit of prepayments and deferred charges, which of the
following assertion is the least concern by the auditor?
a.
Allocation
b.
Existence
c.
Valuation
d.
Completeness
Feedback
Question 2
In auditing intangible assets, an auditor most likely review or recomputed amortization
and determine whether the amortization period is reasonable in support of
management’s financial statement assertion of
a.
Completeness
b.
Valuation
c.
Existence or occurrence
d.
Rights and obligations
Question 3
In connection with the audit of the prepaid insurance account, which of the following
procedures is usually not performed by the auditor?
a.
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Confirm premium rates with an independent insurance broker
b.
Recomputed the portion of the premium that expired during the year
c.
Prepare excerpts of the insurance policies for audit documentation
d.
Examine support for premium payments
Feedback
Your answer is correct.
The correct answer is:
Confirm premium rates with an independent insurance broker
Question 4
Petronix developed a new secret formula which is of great value because it resulted in a
virtual monopoly. Petronix has capitalized all research and development costs
associated with this formula. Shellix, CPA, who is examining this account, will probably
a.
Confirm that the secret formula is registered and on file with the county clerk's office.
b.
Confer with management regarding ownership of the secret formula.
c.
Confer with management regarding a change in the title of the account to "goodwill".
d.
Confer with management regarding transfer of the amount from the statement of
financial position to the income statement.
Question 5
The auditee has just acquired another company by purchasing all its assets. As a result
of the purchase, "goodwill" has been recorded on the auditee's books. Which of the
following comparisons would be the most appropriate audit test for the amount of
recorded goodwill?
a.
The purchase price and the book value of assets purchased.
b.
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The purchase price and the fair market value of assets purchased.
c.
Earnings in excess of 15% of net assets for the past five years.
d.
The figure for goodwill specified in the contract for purchase.
Question 6
Which statement is correct regarding initial recognition of research and development
costs?
a.
All research costs should be charged to expense.
b.
If an entity cannot distinguish the research phase of an internal project to create an
intangible asset from the development phase, the enterprise treats the expenditure for
that project as if it were incurred in the development phase only.
c.
A research and development project acquired in a business combination is not
recognized as an asset.
d.
All development costs should be capitalized.
Question 7
The most effective means for the' auditor to determine whether a recorded intangible
asset possesses the characteristics of an asset is to
a.
Evaluate the future revenue-producing capacity of the intangible asset.
b.
Inquire as to the status of patent applications.
c.
Vouch the purchase by reference to underlying documentation.
d.
Analyze research and development expenditures to determine that only those
expenditures possessing future economic benefit have been capitalized.
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Question 8
In auditing intangible assets, an auditor most likely would review or recompute
amortization and determine whether the amortization period is reasonable in support of
management's financial statement assertion of
a.
Existence or occurrence.
b.
Rights and obligations.
c.
Valuation.
d.
Completeness.
Question 9
There is goodwill involved in the acquisition of a business if the purchase price paid is in
excess of the proprietorship of the business acquired.
Goodwill might be viewed as the enjoyment of a profit by a company in excess of the
normal or usual return for the industry as a whole but such goodwill is not recorded if it
has not been purchased or paid for.
a.
True; True
b.
False; True
c.
False; False
d.
True; False
Question 10
In evaluating control risk and effectiveness for intangible assets, controls should be
designed for numerous purposes. Which of the following is not a usual control for
intangible assets?
a.
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Identify and account for intangible asset impairment.
b.
Ensure that decision are appropriately made as to when to capitalize or expense
research and development expenditures.
c.
Develop amortization schedules that reflect the remaining useful life of patents or
copyrights associated with the assets.
d.
All of the above are usual controls for intangible assets.
Question 11
When an internally generated asset meets the recognition criteria the appropriate
treatment for costs previously expensed is:
a.
No adjustment as these amounts may not be reinstated.
b.
Reinstatement
c.
Include in the cost of the development of the asset.
d.
Capitalize into the cost of the asset and adjust the opening balance of retained
earnings.
Feedback
Your answer is incorrect.
The correct answer is:
No adjustment as these amounts may not be reinstated.
Question 12
Assuming TLL Co. has capitalized all research and development costs associated with
patent. You, CPA, who is examining this account, will probably
a.
Confirm that the patent is registered and on file with the intellectual property office.
b.
Confer with the management regarding a change in the title of the account to “goodwill”
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c.
Confer with management regarding ownership of the patent.
d.
Confer with management regarding transfer of the amount from the balance sheet to the
income statement.
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