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Chapter Quiz
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1
Which of the following questions would most likely be found on an auditor's internal control questionnaire related to notes payable?
A)Are two or more signatures required on checks written on repayment of the notes?
B)Are the proceeds from borrowing used solely to acquire non-current assets?
C)Are the assets that serve as collateral on the debt reviewed monthly for possible impairment?
D)Are all note payable borrowings authorized by the board of directors?
2
The audit program in the area of bonds payable and other long-term debt would most likely involve a procedure to
A)Confirm the existence of individual bondholders at year-end.
B)Perform substantive analytical procedures on bond premium and discount accounts.
C)Compare recorded interest expense with estimated interest expense based on the recorded bonds payable balance.
D)Examine the documentation of assets acquired with bond proceeds.
3
To test the assertion of existence for long-term debt, the auditor could complete which of the following procedures?
A)Recompute accrued interest payable.
B)Obtain an analysis of notes payable and reconcile to the general ledger.
C)Review interest expense for payments to debt holders not listed on the debt analysis schedule.
D)Examine copies of debt agreements and contracts.
4
Which of the following pairs of income statement and balance sheet accounts typically would not be audited in conjunction with each other?
A)Discount on bonds payable and interest expense.
B)Accounts receivable and bad debt expense.
C)Prepaid insurance and insurance expense.
D)Long-term debt and interest income.
5
Segregation of duties for stockholders' equity transactions include all of the following except:
A)The person who maintains the stockholders' ledger should be separate from the individual ensuring that dividend transactions comply with the corporate charter.
B)Those responsible for issuing stock certificates should be separate from accounting.
C)The person responsible for keeping detailed stockholder records should be separate from the general ledger function.
D)The person responsible for keeping detailed stockholder records should be separate from processing cash disbursements.
6
Footing the shares outstanding in the stock register and comparing the total to shares outstanding in the general ledger stock account addresses the audit objective of
A)Completeness
B)Occurrence.
C)Rights and obligations.
D)Valuation.
7
Which of the following audit procedures would not likely be performed when auditing stockholders' equity?
A)Read over board of directors' minutes for authorization of equity transactions.
B)Confirm outstanding common and preferred stock with the stock registrar.
C)Compare valuation of stock accounts to published market prices.
D)Obtain management representation about the number of shares issued and outstanding.
8
When an entity does not maintain its own shareholder records, the auditor should obtain written confirmation from the transfer agent and registrar concerning
A)Guarantees of preferred stock liquidation value.
B)The number of shares subject to repurchase agreements (treasury).
C)Any restrictions on dividend payments.
D)The type and number of shares issued and outstanding.
9
An audit program for the examination of stockholders' equity would not likely include a step that requires the auditor to verify that stock and dividend transactions
A)Comply with the corporate charter.
B)Have been properly posted and summarized in the accounting records.
C)Have been processed by the same employee that processes cash receipts.
D)Have been properly valued.
10
Financial statement audits tend to emphasize the examination of balance sheet accounts rather than income statement information. Which of the following types of procedures is least likely to be used to gather evidence in support of income statement accounts?
A)Substantive analytical procedures.
B)Testing of controls.
C)Direct tests of transactions and detailed account balances.
D)Confirmations.
11
Which of the following is not a major transaction that occurs in stockholders' equity?
A)Issuance of stock.
B)Repurchase of stock.
C)Payment of dividends.
D)Adjustment of stock value to market.
12
Which of the following should not be considered when evaluating the proper valuation of bonds?
A)Debt issue costs.
B)Unamortized discounts on bonds issued.
C)Unamortized premiums on bonds issued.
D)The call price of the bonds.
13
A transfer agent is responsible for
A)Ensuring that all stock issued complies with the corporate charter.
B)Preparing and mailing dividend checks to the stockholders of record.
C)Preparing stock certificates and maintaining adequate stockholders' records.
D)Transferring funds from one equity account to another.
14
An example of a disclosure item for stockholders' equity may include
A)Number of shares authorized, issued, and outstanding for each class of stock.
B)Details of stock option or stock repurchase plans.
C)Any restrictions on retained earnings and dividends.
D)All of the above items represent examples of disclosure items for stockholders' equity.
15
What assertion is tested by vouching stock repurchases to the canceled stock certificates?
A)Occurrence.
B)Valuation.
C)Completeness.
D)Disclosure.





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