Exam 10: Finance and Investment Cycle 443

The typical business activity in the financing and investment cycle that requires an accounting entry is:

ABC Company has issued a bond that pays 5% interest semiannually to bond holders on record June 30 and December 30. Payments are made on July 15 and January 15. ABC Company has a December 31 fiscal year-end. The auditor vouches the January 15, 2021 payment to the liabilities recorded on the December 31, 2020 balance sheet. Which of the following ASB balance assertions is the auditor testing?

Which of the following would be considered a Level 3 fair value estimate?

XYZ Company has investment securities held by a broker. An auditor is reviewing the last broker's statement for the year. For each of the tests 1-5, select the ASB balance assertion listed in A-D that the auditor is testing.A. Rights and obligations B. Completeness C. Valuation or Accuracy D. Existence $\underline{\quad\quad}$ 1. Verified the name on the account was the company's name. $\underline{\quad\quad}$ 2. Vouched items listed on the statement to the investment account. $\underline{\quad\quad}$ 3. Vouched purchases listed on the statement by authorization by senior management or the board of directors. $\underline{\quad\quad}$ 4. The auditor has received a letter of confirmation directly from the broker for investments listed on the statement. $\underline{\quad\quad}$ 5. The auditor compared the price of the securities listed on the broker's statement with the price listed on that day in The Wall Street Journal to the price used to record the investment on the balance sheet.

The ASB balance assertion of _______ is paramount in the verification of long-term liabilities and determination that all liabilities are recorded.

To determine whether facts support management's intent to hold securities to maturity, an auditor might:

The primary audit concern with the verification of long-term liabilities is that all _______ are recorded and that the _______ is properly paid or _______ .

A client has a large and active investment portfolio that is kept in a bank safe deposit box. If the auditors are unable to count securities at the balance-sheet date, they most likely will:

Records of interest rates and bonds payable are maintained by the _______ and the _______ .

An audit team would most likely verify the interest earned on bond investments by:

A related party is a person or entity that:

For each of the internal control questions for notes payable, indicate by letter the related ASB transaction assertion. Answers may be used more than once.A. Valuation or allocation B. Occurrence C. Completeness D. Rights $\underline{\quad\quad}$ 1. Are paid notes canceled, stamped PAID, and filed? $\underline{\quad\quad}$ 2. Are bank due notices compared with records of unpaid liabilities? $\underline{\quad\quad}$ 3. Are notes payable kept by someone who cannot sign notes or checks? $\underline{\quad\quad}$ 4. Is all borrowing authorization by the directors checked to determine whether a notes pavable are recorded?

Jones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income?

When a client company does not maintain its own capital stock records, the auditors should obtain written confirmation from the transfer agent and registrar concerning:

An audit plan to examine long-term debt most likely would include steps that require:

Mike is the controller at Huskie Supply Company. Huskie Supply has an investment account with DT National Brokerage. Mike is authorized to call the broker and initiate trades on behalf of the company. Mike's son goes to MEU (Most Expensive University) and Mike has a CD with the money for this year's tuition. MEU changed the tuition due date such that the tuition came due 30 days before Mike's CD matured. Mike would lose a large amount of interest if he cashed in the CD early, and a loan from the bank was not possible (Mike is already over extended), and interest on a credit card advance would be 28%.Mike authorized DT National Brokerage to sell one of the company's investments and send the check to his attention at the company. Mike paid the tuition and 30 days later, when the CD came due Mike repurchased the investment with the broker. In fact, the stock had dropped $3 and mike made a profit of $900.A) Define the internal control weakness that allowed the situation to exist - if any;B) One (and only one) specific internal controls that should be in place to prevent or detect the problem; and.C) One (and only one) test of control audit procedure.D) One (and only one) substantive audit procedure that may detect the situation described.Consider each item separately - no credit will be given for generic controls (e.g. policies and procedures; separation of duties (without specifics); discuss with management.)

A _______ is a financial institution appointed to record the issuance and ownership of company securities.

The responsibility for financing and investment transactions is basically in the hands of _______ .

During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify the ASB presentation and disclosure assertion of:

Taking a "big bath" in the financial statements refers to: