Question 1

Which of the following is not an important control over notes payable?

Accepted Answer

A)  There is proper authorization over the issuance of new notes payable. 
B)  Notes payable are issued when the business climate is favorable. 
C)  Adequate controls exist over repayment of interest and principal. 
D)  There exist proper documents and records. 
A)  There is proper authorization over the issuance of new notes payable. 
B)  Notes payable are issued when the business climate is favorable. 
C)  Adequate controls exist over repayment of interest and principal. 
D)  There exist proper documents and records.

Question 2

What is the difference between an independent registrar and a stock transfer agent?

Accepted Answer

Companies whose shares are listed on a s

Question 3

The capital acquisition and repayment cycle does not include:

Accepted Answer

A)  payment of interest. 
B)  payment of dividends. 
C)  payment of vendor invoices. 
D)  acquisition of capital through interest-bearing debt. 
A)  payment of interest. 
B)  payment of dividends. 
C)  payment of vendor invoices. 
D)  acquisition of capital through interest-bearing debt.

Question 4

The primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is:

Accepted Answer

A)  correct calculation of the net income or loss for the year. 
B)  correct calculation of dividend payments for the year. 
C)  whether prior-period adjustments have been made correctly. 
D)  whether there are any restrictions on the payment of dividends. 
A)  correct calculation of the net income or loss for the year. 
B)  correct calculation of dividend payments for the year. 
C)  whether prior-period adjustments have been made correctly. 
D)  whether there are any restrictions on the payment of dividends.

Question 5

Independent registrars commonly disburse cash dividends to shareholders.

Accepted Answer

A) True 
 B)False

Question 6

A prior period adjustment may result in a debit or credit to a company's retained earnings account.

Accepted Answer

A) True 
 B)False

Question 7

The amount of time spent verifying owners' equity is frequently minimal for closely held corporations because:

Accepted Answer

A)  these companies are so small that it is not necessary to audit the capital section. 
B)  the few owners all have access to the books so the auditor spends more time on accounts like liabilities, which affect outsiders. 
C)  there are few if any transactions during the year for the capital stock accounts, except for earnings and dividends. 
D)  there is no public interest in these companies. 
A)  these companies are so small that it is not necessary to audit the capital section. 
B)  the few owners all have access to the books so the auditor spends more time on accounts like liabilities, which affect outsiders. 
C)  there are few if any transactions during the year for the capital stock accounts, except for earnings and dividends. 
D)  there is no public interest in these companies.

Question 8

Auditing capital stock transactions as part of a merger is challenging because judgment is often involved.

Accepted Answer

A) True 
 B)False

Question 9

The audit procedure "Review the notes to determine whether any are related party notes or accounts payable" is performed when verifying the classification objective for notes payable.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following owners' equity transactions usually require specific authorization from a company's board of directors?

Accepted Answer

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

Question 11

Performance materiality is often set at a(n)________ level for notes payable.

Accepted Answer

A)  high 
B)  moderate 
C)  low 
D)  unknown 
A)  high 
B)  moderate 
C)  low 
D)  unknown

Question 12

Which of the following statements is correct regarding the capital acquisition and payment cycle?

Accepted Answer

A)  Bonds are frequently issued by companies in small amounts. 
B)  There are relatively few transactions and each transaction is typically highly material. 
C)  A primary emphasis in auditing debt is on existence. 
D)  Audit procedures for notes payable and interest income are often performed simultaneously. 
A)  Bonds are frequently issued by companies in small amounts. 
B)  There are relatively few transactions and each transaction is typically highly material. 
C)  A primary emphasis in auditing debt is on existence. 
D)  Audit procedures for notes payable and interest income are often performed simultaneously.

Question 13

When auditing interest-bearing debt,the auditor should ________ verify the related interest expense and interest payable.

Accepted Answer

A)  not 
B)  attempt to 
C)  simultaneously 
D)  never 
A)  not 
B)  attempt to 
C)  simultaneously 
D)  never

Question 14

When conducting the audit of stockholders' equity it is normal practice to verify all capital stock transactions:

Accepted Answer

A)  only when the client is small. 
B)  that are in excess of a material amount. 
C)  if there aren't very many during the year. 
D)  regardless of the controls in existence, because of their materiality and permanence in the records. 
A)  only when the client is small. 
B)  that are in excess of a material amount. 
C)  if there aren't very many during the year. 
D)  regardless of the controls in existence, because of their materiality and permanence in the records.

Question 15

Actual interest expense is significantly higher than the auditor's estimate.This would most likely lead the auditor to conclude that the client has not:

Accepted Answer

A)  recorded all long-term interest bearing debt in the accounting records. 
B)  recorded all interest expense paid or accrued. 
C)  properly accounting for the discount of bonds payable account. 
D)  properly recorded interest income. 
A)  recorded all long-term interest bearing debt in the accounting records. 
B)  recorded all interest expense paid or accrued. 
C)  properly accounting for the discount of bonds payable account. 
D)  properly recorded interest income.

Question 16

The tests of details of balances procedure which requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the audit objective of:

Accepted Answer

A)  accuracy. 
B)  existence. 
C)  detail tie-in. 
D)  completeness. 
A)  accuracy. 
B)  existence. 
C)  detail tie-in. 
D)  completeness.

Question 17

The primary audit objectives to focus on when auditing debt are:

Accepted Answer

A)  accuracy and completeness. 
B)  accuracy and existence. 
C)  completeness and valuation. 
D)  accuracy and valuation. 
A)  accuracy and completeness. 
B)  accuracy and existence. 
C)  completeness and valuation. 
D)  accuracy and valuation.

Question 18

Match six of the terms (a-i)used in the capital acquisitions and repayment cycle with the descriptions provided below (1-6):
a.Capital acquisition and repayment cycle
b.Capital stock certificate book
c.Closely held corporation
d.Independent registrar
e.Note payable
f.Publicly held corporation
g.Stock transfer agent
h.Schedule of notes payable and accrued interest
i.Stock maintenance agent
________ 1.An outside person engaged by a corporation to make sure that its stock is issued in accordance with capital stock provisions in the corporate charter and authorizations by the board of directors.
________ 2.The normal starting point for the audit of notes payable; includes detailed information of all transactions related to notes payable that took place during the year.
________ 3.A record of the issuance and repurchase of capital stock for the life of the corporation.
________ 4.An outside person engaged by a corporation to maintain the stockholder records,and often to disburse cash dividends.
________ 5.An entity that is required to engage an independent registrar.
________ 6.The cycle that concerns the acquisition of capital resources through interest-bearing debt and owners' equity and repayment of the capital.

Accepted Answer

1.d
2.h
3.

Question 19

Discuss the internal controls related to owners' equity that are of concern to the auditor.

Accepted Answer

•Proper authorization of transactions.Ma

Question 20

During the course of an audit,a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the long-term debt account.This observation could lead the auditor to suspect that:

Accepted Answer

A)  long-term debt is understated. 
B)  discount on bonds payable is overstated. 
C)  long-term debt is overstated. 
D)  premium on bonds payable is understated. 
A)  long-term debt is understated. 
B)  discount on bonds payable is overstated. 
C)  long-term debt is overstated. 
D)  premium on bonds payable is understated.

Exam 22: Audit of the Capital Acquisition and Repayment Cycle

Which of the following is not an important control over notes payable?

What is the difference between an independent registrar and a stock transfer agent?

The capital acquisition and repayment cycle does not include:

The primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is:

Independent registrars commonly disburse cash dividends to shareholders.

A prior period adjustment may result in a debit or credit to a company's retained earnings account.

The amount of time spent verifying owners' equity is frequently minimal for closely held corporations because:

Auditing capital stock transactions as part of a merger is challenging because judgment is often involved.

The audit procedure "Review the notes to determine whether any are related party notes or accounts payable" is performed when verifying the classification objective for notes payable.

Which of the following owners' equity transactions usually require specific authorization from a company's board of directors?

Performance materiality is often set at a(n)________ level for notes payable.

Which of the following statements is correct regarding the capital acquisition and payment cycle?

When auditing interest-bearing debt,the auditor should ________ verify the related interest expense and interest payable.

When conducting the audit of stockholders' equity it is normal practice to verify all capital stock transactions:

Actual interest expense is significantly higher than the auditor's estimate.This would most likely lead the auditor to conclude that the client has not:

The tests of details of balances procedure which requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the audit objective of:

The primary audit objectives to focus on when auditing debt are:

Discuss the internal controls related to owners' equity that are of concern to the auditor.

During the course of an audit,a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the long-term debt account.This observation could lead the auditor to suspect that:

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

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

Audit Sampling for Tests of Details of Balances

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

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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