Due to a Weakness Observed in Internal Control Over Recording

question 47

Multiple Choice

Due to a weakness observed in internal control over recording retirements of equipment, the auditor may decide to:

• A)inspect certain items of equipment in the plant and trace those items to the accounting records.
• B)review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
• C)trace additions to the "other assets" account to search for equipment that is still on hand but no longer is being used.
• D)select certain items of equipment from the accounting records and locate them in the plant.

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Definitions:

Total Revenue

The entire amount of income received by a firm from selling its goods or services before any expenses are deducted.

Total Cost

The sum of fixed and variable costs incurred by a firm in producing and offering a product or service for sale.

Fixed Cost

Costs that do not change with the level of output or sales, such as rent, salaries, and insurance premiums.

Economic Profit

The difference between the total revenue earned by a business and the total costs (both explicit and implicit) of all resources used.