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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 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? |
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| 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. |
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| 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. |
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| 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. |
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| 5 | |
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. |
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| 6 | |
An auditor’s primary purpose in examining a letter received from the bank shortly after the balance sheet date that renews and extends an entity’s note payable is most likely to obtain evidence concerning management’s assertions about |
| | A) | Existence. |
| | B) | Presentation and disclosure-classification. |
| | C) | Accuracy. |
| | D) | Valuation and allocation. |
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| 7 | |
An audit program for long-term debt would most likely include steps that require |
| | A) | Comparing the carrying amount of the debt to its year-end market value. |
| | B) | Correlating the interest expense recorded for the period with the debt outstanding for the period. |
| | C) | Verifying the existence of the holders of the debt by direct confirmation. |
| | D) | Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. |
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| 8 | |
An entity has established a bond sinking fund to repurchase a portion of the outstanding bonds each year. The auditor can best verify the entity’s bond sinking fund transactions and year-end bond balance by |
| | A) | Confirmation of retired bonds with individual holders. |
| | B) | Confirmation with the bond trustee. |
| | C) | Recomputation of interest expense, interest payable, and amortization of bond discount or premium. |
| | D) | Examination and count of the bonds retired during the year. |
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| 9 | |
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. |
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| 10 | |
A transfer agent is responsible for |
| | A) | Ensuring that all stock issued complies with the corporate charter. |
| | B) | Preparing and mailing dividend disbursements to the stockholders of record. |
| | C) | Preparing stock certificates and maintaining adequate stockholders’ records. |
| | D) | Transferring funds from one equity account to another. |
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| 11 | |
The primary responsibility of a bank acting as a registrar of capital stock is to |
| | A) | Ascertain that dividends declared do not exceed the statutory amount allowable in the jurisdiction. |
| | B) | Account for stock certificates by comparing the total shares outstanding to the total in the shareholders’ subsidiary ledger. |
| | C) | Act as an independent third party between the board of directors and outside investors concerning mergers, acquisitions, and the sale of treasury stock. |
| | D) | Verify that stock has been issued in accordance with the authorization of the board of directors and the articles of association. |
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| 12 | |
When an entity does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning |
| | A) | Restrictions on the payment of dividends. |
| | B) | The number of shares issued and outstanding. |
| | C) | Guarantees of preferred stock liquidation value. |
| | D) | The number of shares subject to agreements to repurchase. |
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| 13 | |
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. |
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| 14 | |
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. |
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| 15 | |
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. |
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| 16 | |
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. |
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| 17 | |
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. |
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| 18 | |
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. |
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| 19 | |
What assertion is tested by vouching stock repurchases to the cancelled stock certificates? |
| | A) | Occurrence. |
| | B) | Valuation. |
| | C) | Completeness. |
| | D) | Disclosure. |
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| 20 | |
To obtain evidence on the authorization assertion, an auditor should trace corporate stock issuances and treasury stock transactions to the |
| | A) | Numbered stock certificates. |
| | B) | Articles of association. |
| | C) | Transfer agent’s records. |
| | D) | Minutes of the board of directors. |
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| 21 | |
Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent fi les most likely include |
| | A) | Schedules that support the current year’s adjusting entries. |
| | B) | Prior years’ accounts receivable confirmations that were classified as exceptions. |
| | C) | Documentation indicating that the audit work was adequately planned and supervised. |
| | D) | Information regarding the different classes of stock and the number of shares of each class that are authorized to be issued. |
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| 22 | |
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. |
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| 23 | |
An auditor compares the current-year revenues and expenses with those of the prior year and investigates all changes exceeding 5 per cent. By this procedure, the auditor would be most likely to learn that |
| | A) | Fourth-quarter payroll taxes in the current year were not paid. |
| | B) | The entity changed its capitalization policy for small tools in the current year. |
| | C) | A current-year increase in property tax rates has not been recognized in the entity’s accrual. |
| | D) | The current-year provision for uncollectible accounts is inadequate because of worsening economic conditions. |
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| 24 | |
Which of the following comparisons would be most useful to an auditor in evaluating the overall financial results of an entity’s operations? |
| | A) | Prior-year accounts payable to current-year accounts payable. |
| | B) | Prior-year payroll expense to budgeted current-year payroll expense. |
| | C) | Current-year revenue to budgeted current-year revenue. |
| | D) | Current-year warranty expense to current-year contingencies. |
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