Question 1

When a company maintains its own records of stock transactions and outstanding stock,internal controls must be adequate to ensure that:

Accepted Answer

A)  actual owners are recorded in the bylaws. 
B)  the correct amount of dividends is paid to stockholders owning the stock on the dividend record date. 
C)  the correct amount of dividends is paid to stockholders owning the stock on the declaration date. 
D)  actual owners are recorded in the minutes. 
A)  actual owners are recorded in the bylaws. 
B)  the correct amount of dividends is paid to stockholders owning the stock on the dividend record date. 
C)  the correct amount of dividends is paid to stockholders owning the stock on the declaration date. 
D)  actual owners are recorded in the minutes. B

Question 2

An auditor is determining whether an issuance of notes payable for cash was correctly recorded.Her best course of action would be to:

Accepted Answer

A)  confirm with the bond trustee as to the amount of bonds issued. 
B)  confirm with the underwriter as to the appropriate market yield on the bonds. 
C)  trace the cash received from the proceeds to the accounting records. 
D)  verify that the amount was included in a footnote disclosure. 
A)  confirm with the bond trustee as to the amount of bonds issued. 
B)  confirm with the underwriter as to the appropriate market yield on the bonds. 
C)  trace the cash received from the proceeds to the accounting records. 
D)  verify that the amount was included in a footnote disclosure. C

Question 3

Which of the following would generally not need to be approved by the board of directors?

Accepted Answer

A)  Issuing capital stock 
B)  Repurchasing capital stock 
C)  Declaration of a dividend 
D)  Payment of a dividend 
A)  Issuing capital stock 
B)  Repurchasing capital stock 
C)  Declaration of a dividend 
D)  Payment of a dividend D

Question 4

Notes payable are generally for a period of sixty days or less.

Accepted Answer

A) True 
 B)False

Question 5

Public companies whose stock is listed on a stock exchange must employ an independent registrar.

Accepted Answer

A) True 
 B)False

Question 6

The tests of details of balances procedure which requires the auditor to examine notes paid after year-end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of:

Accepted Answer

A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  classification. 
A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  classification.

Question 7

One unique characteristic of the capital acquisition and repayment cycle is that relatively few transactions affect the account balances,but each transaction is often highly material in amount.

Accepted Answer

A) True 
 B)False

Question 8

Examining the minutes of the board of directors' meetings for proper authorization ordinarily tests the occurrence objective for capital stock transactions.

Accepted Answer

A) True 
 B)False

Question 9

In auditing debits and credits to retained earnings,OTHER than net income and dividends,the auditors first concern is:

Accepted Answer

A)  whether the transactions should have been included in retained earnings. 
B)  whether the transactions have been accurately recorded. 
C)  whether the transactions are classified correctly in the footnotes. 
D)  whether the transactions existed as of the balance sheet date. 
A)  whether the transactions should have been included in retained earnings. 
B)  whether the transactions have been accurately recorded. 
C)  whether the transactions are classified correctly in the footnotes. 
D)  whether the transactions existed as of the balance sheet date.

Question 10

Any restrictions on the payment of dividends must be disclosed in the footnotes to the financial statements.

Accepted Answer

A) True 
 B)False

Question 11

The audit objective that requires the auditor to determine that notes payable on the notes payable schedule are properly classified can be tested by performing the procedure to:

Accepted Answer

A)  confirm notes payable. 
B)  examine corporate minutes for loan approval. 
C)  examine notes, minutes, and bank confirmations for restrictions. 
D)  review the notes to determine whether any are with related parties. 
A)  confirm notes payable. 
B)  examine corporate minutes for loan approval. 
C)  examine notes, minutes, and bank confirmations for restrictions. 
D)  review the notes to determine whether any are with related parties.

Question 12

The authorization of an issuance of capital stock normally includes all but which of the following?

Accepted Answer

A)  Type of stock to be issued 
B)  Number of shares to be issued 
C)  Date shares are to be issued 
D)  Amount of dividend to be paid on shares issued 
A)  Type of stock to be issued 
B)  Number of shares to be issued 
C)  Date shares are to be issued 
D)  Amount of dividend to be paid on shares issued

Question 13

Identify three analytical procedures commonly performed for notes payable.

Accepted Answer

Some possible analytical procedures for

Question 14

The balance-related audit objective realizable value is not applicable when auditing notes payable.

Accepted Answer

A) True 
 B)False

Question 15

The audit objective that requires that existing notes payable be included in the notes payable schedule is satisfied by performing which of the following audit procedures?

Accepted Answer

A)  Confirm notes payable. 
B)  Trace the total of the notes payable schedule to the general ledger. 
C)  Review the notes payable schedule to determine whether any are related parties. 
D)  Review the bank reconciliation for new notes credited directly to the bank account by the bank. 
A)  Confirm notes payable. 
B)  Trace the total of the notes payable schedule to the general ledger. 
C)  Review the notes payable schedule to determine whether any are related parties. 
D)  Review the bank reconciliation for new notes credited directly to the bank account by the bank.

Question 16

The audit of owners' equity of public and private companies is very different.Which of the following is not one of these differences?

Accepted Answer

A)  The number of transactions (private companies have fewer transactions) 
B)  Payment of dividends (public companies rarely pay dividends) 
C)  Complexity of transactions (public companies generally have more complex transactions) 
D)  Type of noncurrent debt (public companies issue more bonds) 
A)  The number of transactions (private companies have fewer transactions) 
B)  Payment of dividends (public companies rarely pay dividends) 
C)  Complexity of transactions (public companies generally have more complex transactions) 
D)  Type of noncurrent debt (public companies issue more bonds)

Question 17

The audit procedure "Foot the notes payable list and trace the totals to the general ledger" is performed when verifying the accuracy objective for notes payable.

Accepted Answer

A) True 
 B)False

Question 18

What type of audit test will auditors use when testing to see if the amounts of capital stock transactions are accurately recorded?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 19

When a company has treasury stock certificates on hand,a year-end count of the certificates by the auditor is:

Accepted Answer

A)  always required. 
B)  not required if treasury stock is a deduction from stockholders' equity. 
C)  required when the company classifies treasury stock with other assets. 
D)  required when the company had treasury stock transactions during the year. 
A)  always required. 
B)  not required if treasury stock is a deduction from stockholders' equity. 
C)  required when the company classifies treasury stock with other assets. 
D)  required when the company had treasury stock transactions during the year.

Question 20

Which of the following is not an objective of the auditor's examination of notes payable?

Accepted Answer

A)  To determine whether internal controls are adequate 
B)  To determine whether client's financing arrangements are effective and efficient 
C)  To determine whether transactions regarding the principal and interest of notes are properly authorized 
D)  To determine whether the liability for notes and related interest expense and accrued liabilities are properly stated 
A)  To determine whether internal controls are adequate 
B)  To determine whether client's financing arrangements are effective and efficient 
C)  To determine whether transactions regarding the principal and interest of notes are properly authorized 
D)  To determine whether the liability for notes and related interest expense and accrued liabilities are properly stated

Exam 22: Audit of the Capital Acquisition and Repayment Cycle

When a company maintains its own records of stock transactions and outstanding stock,internal controls must be adequate to ensure that:

An auditor is determining whether an issuance of notes payable for cash was correctly recorded.Her best course of action would be to:

Which of the following would generally not need to be approved by the board of directors?

Notes payable are generally for a period of sixty days or less.

Public companies whose stock is listed on a stock exchange must employ an independent registrar.

The tests of details of balances procedure which requires the auditor to examine notes paid after year-end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of:

One unique characteristic of the capital acquisition and repayment cycle is that relatively few transactions affect the account balances,but each transaction is often highly material in amount.

Examining the minutes of the board of directors' meetings for proper authorization ordinarily tests the occurrence objective for capital stock transactions.

In auditing debits and credits to retained earnings,OTHER than net income and dividends,the auditors first concern is:

Any restrictions on the payment of dividends must be disclosed in the footnotes to the financial statements.

The audit objective that requires the auditor to determine that notes payable on the notes payable schedule are properly classified can be tested by performing the procedure to:

The authorization of an issuance of capital stock normally includes all but which of the following?

Identify three analytical procedures commonly performed for notes payable.

The balance-related audit objective realizable value is not applicable when auditing notes payable.

The audit objective that requires that existing notes payable be included in the notes payable schedule is satisfied by performing which of the following audit procedures?

The audit of owners' equity of public and private companies is very different.Which of the following is not one of these differences?

The audit procedure "Foot the notes payable list and trace the totals to the general ledger" is performed when verifying the accuracy objective for notes payable.

What type of audit test will auditors use when testing to see if the amounts of capital stock transactions are accurately recorded?

When a company has treasury stock certificates on hand,a year-end count of the certificates by the auditor is:

Which of the following is not an objective of the auditor's examination of notes payable?

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Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

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Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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Audit of Cash and Financial Instruments

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Internal and Governmental Financial Auditing and Operational Auditing

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