Question 1

The repurchase of stock includes the reacquisition of stock (treasury stock), but not the retirement of stock.

Accepted Answer

A) True 
 B)False  False

Question 2

In performing tests concerning the granting of stock options, an auditor should

Accepted Answer

A)   Confirm the transaction with the Secretary of State in the state of incorporation.
B)   Verify the existence of option holders in the entity's payroll records or stock ledgers.
C)   Determine that sufficient treasury stock is available to cover any new stock issued.
D)   Trace the authorization for the transaction to a vote of the board of directors.E) A) and B)
F) C) and D)

Question 3

The auditor typically begins an audit of retained earnings by obtaining a schedule of account activity for the period.

Accepted Answer

A) True 
 B)False

Question 4

Examining cancelled stock certificates addresses the assertion of

Accepted Answer

A)   Occurrence.
B)   Disclosures.
C)   Valuation.
D)   Completeness.E) A) and B)
F) C) and D)

Question 5

Match the balance sheet account with the income statement account that is typically audited at the same time.

Accepted Answer

The answer of Match the balance sheet account with the...

Question 6

Give an example of how the audit of income statement accounts could be affected by results of audit work done in other areas of the audit.

Accepted Answer

The results of testing for controls of t...

Question 7

Before expressing an opinion concerning the results of operations, the auditor would most likely proceed with the examination of the income statement by

Accepted Answer

A)   Applying a rigid measurement standard designed to test for understatement of net income.
B)   Analyzing the beginning and ending balance sheet inventory amounts.
C)   Making net income comparisons to published industry trends and ratios.
D)   Examining income statement accounts concurrently with the related balance sheet accounts.E) B) and C)
F) All of the above

Question 8

Notes receivable is a common type of long-term financing.

Accepted Answer

A) True 
 B)False

Question 9

During the year under audit, a company has completed a private placement of a substantial amount of bonds. Which of the following is the most important step in the auditor's program for the audit of bonds payable?

Accepted Answer

A)   Confirming the interest rate with the bond trustee.
B)   Tracing the cash received from the issue to the accounting records.
C)   Examining the bond agreement for a sinking fund provision.
D)   Recomputing the annual interest cost and the effective yield.E) All of the above
F) B) and C) B

Question 10

Three types of transactions usually occur in stockholders' equity: issuance of stock, repurchase of stock, and payment of dividends.

Accepted Answer

A) True 
 B)False

Question 11

Which audit procedure is most closely related to management's assertion regarding presentation and disclosure of liabilities?

Accepted Answer

A)   Tracing cash received from a bond issue to the accounting records.
B)   Confirmation with the bond trustee of amounts owed on a private placement of bonds.
C)   Reviewing the renewal of a note payable immediately after the balance sheet.
D)   Inspection of public records of lien balances.E) All of the above
F) A) and B)

Question 12

What kind of information would typically be found on an income statement account analysis working paper? What kind of tests can an auditor perform using this information? Why would an auditor conduct additional analysis on an income statement account?

Accepted Answer

The working paper includes dates, amount...

Question 13

In connection with the examination of bonds payable, an auditor would expect to find in a bond agreement

Accepted Answer

A)   The issue date and maturity date of the bond.
B)   The names of the original subscribers to the bond issue.
C)   The yield to maturity of the bonds issued.
D)   The company's debt-to-equity ratio at the time of issuance.E) A) and D)
F) A) and C)

Question 14

The auditor gathers evidence about dividends that are declared and paid primarily because of

Accepted Answer

A)   Concerns with violations of corporate bylaws or debt covenants.
B)   The large dollar value of the transactions.
C)   The ease with which the transactions can be audited.
D)   Fraud concerns.E) B) and C)
F) B) and D)

Question 15

Identify the four major assertions made regarding stockholders' equity and describe one control activity for each.

Accepted Answer

1. Occurrence-An officer of the entity e...

Question 16

Many of Granada Corporation's convertible bond holders have converted their bonds into stock during the year under examination. The independent auditor should review Granada Corporation's statement of cash flows to ascertain that it shows

Accepted Answer

A)   Only cash used to reduce convertible debt.
B)   Only cash provided by issuance of stock.
C)   Cash provided by the issuance of stock and used to reduce convertible debt.
D)   Nothing relating to the conversion because it does not affect cash.E) A) and D)
F) All of the above

Question 17

The auditor's program for the examination of long-term debt should include steps that require the

Accepted Answer

A)   Verification of the existence of the bond holders.
B)   Examination of any bond agreement.
C)   Inspection of the accounts payable subsidiary ledger.
D)   Investigation of credits to the bond interest income account.E) B) and C)
F) C) and D)

Question 18

Valuation and allocation is most likely an issue for long-term debt if

Accepted Answer

A)   Bonds are sold on the open market.
B)   Bonds are issued at a discount or premium.
C)   The loans are from banks.
D)   The company has many short-term leases.E) All of the above
F) A) and B)

Question 19

During its fiscal year, a company issued, at a discount, a substantial amount of bonds. When performing audit work in connection with the bond issue, the independent auditor should

Accepted Answer

A)   Confirm the existence of the bond holders.
B)   Review the board of directors' minutes for authorization.
C)   Trace the net cash received from the issuance to the bond payable account.
D)   Inspect the records maintained by the bond trustee.E) A) and D)
F) All of the above

Question 20

An audit program for the examination of the retained earnings account should include a step that requires verification of the

Accepted Answer

A)   Gain or loss resulting from disposition of treasury shares.
B)   Market value used to charge retained earnings to account for a two-for-one stock split.
C)   Authorization for both cash and stock dividends.
D)   Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable.E) B) and C)
F) None of the above

Exam 15: Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

The repurchase of stock includes the reacquisition of stock (treasury stock), but not the retirement of stock.

Correct AnswerverifiedFalse

In performing tests concerning the granting of stock options, an auditor should

Correct AnswerverifiedShow Answer

The auditor typically begins an audit of retained earnings by obtaining a schedule of account activity for the period.

Correct AnswerverifiedShow Answer

Examining cancelled stock certificates addresses the assertion of

Correct AnswerverifiedShow Answer

Match the balance sheet account with the income statement account that is typically audited at the same time.

Correct Answerverified11ea6eaa_9032_90f3_8f54_05c9503e029a_TB2322_00

Give an example of how the audit of income statement accounts could be affected by results of audit work done in other areas of the audit.

Correct AnswerverifiedThe results of testing for controls of t...View AnswerShow Answer

Before expressing an opinion concerning the results of operations, the auditor would most likely proceed with the examination of the income statement by

Correct AnswerverifiedShow Answer

Notes receivable is a common type of long-term financing.

Correct AnswerverifiedShow Answer

During the year under audit, a company has completed a private placement of a substantial amount of bonds. Which of the following is the most important step in the auditor's program for the audit of bonds payable?

Correct AnswerverifiedB

Three types of transactions usually occur in stockholders' equity: issuance of stock, repurchase of stock, and payment of dividends.

Correct AnswerverifiedShow Answer

Which audit procedure is most closely related to management's assertion regarding presentation and disclosure of liabilities?

Correct AnswerverifiedShow Answer

What kind of information would typically be found on an income statement account analysis working paper? What kind of tests can an auditor perform using this information? Why would an auditor conduct additional analysis on an income statement account?

Correct AnswerverifiedThe working paper includes dates, amount...View AnswerShow Answer

In connection with the examination of bonds payable, an auditor would expect to find in a bond agreement

Correct AnswerverifiedShow Answer

The auditor gathers evidence about dividends that are declared and paid primarily because of

Correct AnswerverifiedShow Answer

Identify the four major assertions made regarding stockholders' equity and describe one control activity for each.

Correct Answerverified1. Occurrence-An officer of the entity e...View AnswerShow Answer

Many of Granada Corporation's convertible bond holders have converted their bonds into stock during the year under examination. The independent auditor should review Granada Corporation's statement of cash flows to ascertain that it shows

Correct AnswerverifiedShow Answer

The auditor's program for the examination of long-term debt should include steps that require the

Correct AnswerverifiedShow Answer

Valuation and allocation is most likely an issue for long-term debt if

Correct AnswerverifiedShow Answer

During its fiscal year, a company issued, at a discount, a substantial amount of bonds. When performing audit work in connection with the bond issue, the independent auditor should

Correct AnswerverifiedShow Answer

An audit program for the examination of the retained earnings account should include a step that requires verification of the

Correct AnswerverifiedShow Answer

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The results of testing for controls of t...
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The working paper includes dates, amount...
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