Which of the Following Explanations Might Satisfy an Auditor Who

question 53

Multiple Choice

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

• A)Several fully depreciated assets were retired during the year.
• B)Prior years' depreciation charges were erroneously understated.
• C)A reserve for possible loss on retirement has been recorded.
• D)An asset has been recorded at its fair value.

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Definitions:

Fixed Asset

Long-term tangible assets, such as machinery, buildings, and land, used in the operation of a business that are not expected to be consumed or converted into cash within a year.

Net Income

The net income of a company, which is the remaining amount of total revenues after deducting all expenses, taxes, and costs.

Net Cash Flows

The difference between a company's cash inflows and cash outflows during a specific period, reflecting its ability to generate cash.

Cash Payback Period

The time it takes for a business to recuperate its investment in a project, measured by the flow of cash into the organization.