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A CPA is engaged in the annual audit of a client for the year ended December 31, 19X4.

6. A CPA is engaged in the annual audit of a client for the year ended December 31, 19X4. The client took a complete physical inventory under the CPA's observation on December 15 and adjusted its inventory control account and detailed perpetual inventory records to agree with the physical inventory. The client considers a sale to be made in the period that goods are shipped. Listed below are four items taken from the CPA's sales-cutoff-test worksheet. Which item does not require an adjusting entry on the client's books?
Shipped Recorded as Sale Credited to Inventory Control
A 12-14 12-16 12-16
B 12-31 1-2 12-31
C 12-10 12-19 12-12
D 1-2 12-31 12-31
7. For several years a client's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal control that led to the failure to record some
A. Sales returns received.
B. Purchases returned to vendors.
C. Sales discounts allowed.
D. Cash purchases.
8. The controller of Excello Manufacturing, Inc., wants to use ratio analysis to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off.  Which of the following ratios would best accomplish this objective?
A. Depreciation expense/book value of manufacturing equipment.
B. Gross manufacturing equipment cost/units produced.
C. Accumulated depreciation/book value of manufacturing equipment.
D. Repairs and maintenance cost/direct labor costs.
9. Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control procedure that provides for
A. Investigation of variances within a formal budgeting system.
B. Segregation of duties of employees in the accounts payable department.
C. Independent verification of invoices for disbursements recorded as equipment acquisitions.
D. Authorization by the board of directors of significant equipment acquisitions.
10. In connection with the audit of a current issue of long-term bonds payable, the auditor should
A. Determine whether bondholders are persons other than owners, directors, or officers of the company issuing the bond.
B. Calculate the effective interest rate to see if it is substantially the same as the rates for similar issues.
C. Ascertain that the client has obtained the opinion of counsel on the legality of the issue.
D. Decide whether the bond issue was made without violating state or local law.

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