A13 NN

Failure to record inventory in the proper period can affect all of the following accounts except:

• sales

• receivables

• cost of Goods Sold

• prepaid Expenses

Which of the following would likely provide assurance about a manufacturing entity's inventory valuation?

• Vouching the raw materials' costs to vendors' invoices.

• Obtaining confirmation of inventories pledged under loan agreements.

• Reviewing shipping and receiving cutoff activities for inventories.

• Tracing test counts to the entity's inventory listing.

What is the purpose of the audit procedure involving the observation of the physical inventory count?

• To confirm that the inventory is valued at market price.

• To provide evidence that items physically present were observed by the auditor at the time of the count.

• To ensure that the inventory is sold within the fiscal year.

• To verify that the inventory has been properly depreciated.

Which of the following should be observed by the auditor to be included in the final inventory schedule?

• Items that are physically present at the time of the preparation of the final inventory schedule.

• Items that are in transit during the inventory count.

• Items that have been sold but not yet delivered.

• Items that are obsolete and not for sale.

What is an important characteristic of items that are included in the final inventory schedule?

• They must be leased by the entity.

• They must be owned by the entity.

• They must be manufactured by the entity.

• They must be on consignment.

What is NOT a characteristic of items that should be included in the final inventory schedule?

• Items that are not obsolete.

• Items that are obsolete.

• Items that are physically present at the time of the count.

• Items that are owned by the entity.

What is the purpose of tracing information on a representative number of tags to the physical inventory sheets?

• To ensure that the inventory sheets include untagged inventory items.

• To obtain assurance that all inventory represented by an inventory tag is bona fide.

• To verify that the final inventory is valued above cost.

• To confirm that all inventory represented by an inventory tag is listed on the inventory sheets.

What should the inventory sheets NOT include?

• Tagged inventory items

• Bona fide inventory items

• Items valued at cost

• Untagged inventory items

An auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the entity's perpetual records. This situation could be the result of the entity's failure to record:

• purchase discounts

• purchase returns

• sales

• sales returns

Which of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

• Testing the computation of standard overhead rates.

• Examining paid vendors' invoices.

• Reviewing direct labor rates.

• Obtaining confirmation of inventories pledged under loan agreements.