In Testing for Unrecorded Retirements of Equipment, an Auditor Most

question 25

Multiple Choice

In testing for unrecorded retirements of equipment, an auditor most likely would

• A) Select items of equipment from the accounting records and then locate them during the plant tour.
• B) Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment.
• C) Inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger.
• D) Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

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Definitions:

Explicit Costs

Direct, out-of-pocket payments for goods or services used in the production of a product or service.

Production Costs

The total expenses incurred in the process of producing or manufacturing goods and services, including materials, labor, and overhead.

Opportunity Costs

Opportunity costs represent the benefits a person or business misses out on when choosing one alternative over another.

Implicit Costs

The opportunity costs of using resources that a firm already owns, representing the income the firm foregoes by using those resources internally rather than renting or selling them.