Question 1

Which of the following statements is correct relating to common stock certificates of a publicly traded company that uses the services of a transfer agent?

Accepted Answer

A) Stock certificates should exist for all outstanding stock and be held by the owner of the stock. 
B) Stock certificates should exist for all outstanding stock and be held either by the owner of the stock or a representative of the owner (e.g., brokerage firm). 
C) A lack of stock certificates is ordinarily considered a material weakness in internal control. 
D) Stock certificates often are not issued in today's electronic environment. 
A) Stock certificates should exist for all outstanding stock and be held by the owner of the stock. 
B) Stock certificates should exist for all outstanding stock and be held either by the owner of the stock or a representative of the owner (e.g., brokerage firm). 
C) A lack of stock certificates is ordinarily considered a material weakness in internal control. 
D) Stock certificates often are not issued in today's electronic environment. D

Question 2

For audit purposes,a corporation's articles of incorporation are normally:

Accepted Answer

A) Copied and placed on the owners' equity lead schedule. 
B) Copied and placed in the permanent file. 
C) Confirmed with the transfer agent. 
D) Ignored since they are not normally considered to be related to the internal control structure. 
A) Copied and placed on the owners' equity lead schedule. 
B) Copied and placed in the permanent file. 
C) Confirmed with the transfer agent. 
D) Ignored since they are not normally considered to be related to the internal control structure. B

Question 3

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

Accepted Answer

A) Market value used to charge retained earnings to account for a two-for-one stock split. 
B) Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable. 
C) Authorization for both cash and stock dividends. 
D) Gain or loss resulting from disposition of treasury shares. 
A) Market value used to charge retained earnings to account for a two-for-one stock split. 
B) Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable. 
C) Authorization for both cash and stock dividends. 
D) Gain or loss resulting from disposition of treasury shares. C

Question 4

Changes in capital stock accounts should normally be approved by:

Accepted Answer

A) The board of directors. 
B) The audit committee. 
C) The stockholders. 
D) The president. 
A) The board of directors. 
B) The audit committee. 
C) The stockholders. 
D) The president.

Question 5

An auditor obtains evidence of stockholders' equity transactions for a publicly traded company by reviewing the entity's:

Accepted Answer

A) Minutes of board of directors meetings. 
B) Registrar's record of interbank transfers. 
C) Canceled stock certificates. 
D) Treasury stock certificate book. 
A) Minutes of board of directors meetings. 
B) Registrar's record of interbank transfers. 
C) Canceled stock certificates. 
D) Treasury stock certificate book.

Question 6

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

Accepted Answer

A) Verification of the existence of the bondholders. 
B) Examination of any bond trust indenture. 
C) Inspection of the accounts payable subsidiary ledger. 
D) Investigation of credits to the bond interest income accounts. 
A) Verification of the existence of the bondholders. 
B) Examination of any bond trust indenture. 
C) Inspection of the accounts payable subsidiary ledger. 
D) Investigation of credits to the bond interest income accounts.

Question 7

Internal control over bonds payable is best when:

Accepted Answer

A) The company utilizes the services of a bond trustee. 
B) The company segregates approval from issuance of the bonds. 
C) Bonds are countersigned by two officers. 
D) Bonds are serially numbered. 
A) The company utilizes the services of a bond trustee. 
B) The company segregates approval from issuance of the bonds. 
C) Bonds are countersigned by two officers. 
D) Bonds are serially numbered.

Question 8

Which of the following most likely would approve the issuance of notes payable?

Accepted Answer

A) Controller. 
B) Payroll. 
C) Personnel. 
D) Treasurer. 
A) Controller. 
B) Payroll. 
C) Personnel. 
D) Treasurer.

Question 9

For a corporation that does not utilize the services of an independent registrar and stock transfer agent,which of the following represents a weakness in internal control over stock issuance?

Accepted Answer

A) Stock certificates are prenumbered. 
B) Stock certificates are signed immediately upon receipt from the printer. 
C) Stock certificates are in the exclusive custody of a responsible officer. 
D) Stock certificates require the signature of two officers. 
A) Stock certificates are prenumbered. 
B) Stock certificates are signed immediately upon receipt from the printer. 
C) Stock certificates are in the exclusive custody of a responsible officer. 
D) Stock certificates require the signature of two officers.

Question 10

When the auditors obtain an understanding of internal control for the financing cycle documentation will frequently include a written description as well as a(n):

Accepted Answer

A) List of audit objectives. 
B) Decision table. 
C) Summary of tests of controls. 
D) Internal control questionnaire. 
A) List of audit objectives. 
B) Decision table. 
C) Summary of tests of controls. 
D) Internal control questionnaire.

Question 11

In auditing long-term debt,an auditor would be most likely to:

Accepted Answer

A) Perform analytical procedures on the bond prenumbered discount accounts. 
B) Examine documentation of assets purchased with bond proceeds for liens. 
C) Compare interest expense with the long-term debt amount for reasonableness. 
D) Confirm the existence of individual long-term debt holders at year-end. 
A) Perform analytical procedures on the bond prenumbered discount accounts. 
B) Examine documentation of assets purchased with bond proceeds for liens. 
C) Compare interest expense with the long-term debt amount for reasonableness. 
D) Confirm the existence of individual long-term debt holders at year-end.

Question 12

To establish effective internal control over a corporation's stock transactions,the corporation should utilize the services of an independent registrar and transfer agent.
a.Describe the functions performed by the stock registrar.
b.Describe the functions performed by the transfer agent.
c.Describe the information that is typically requested by the auditors in a confirmation sent to the registrar.

Accepted Answer

a.The stock registrar controls the corpo

Question 13

Auditors often request that the audit client send a letter of inquiry to those attorneys who have been consulted with respect to litigation,claims,or assessments.The primary reason for this request is to provide the auditor with:

Accepted Answer

A) An estimate of the dollar amount of the probable loss. 
B) An expert opinion as to whether a loss is possible, probable or remote. 
C) Information concerning the progress of cases to date. 
D) Corroborative audit evidence. 
A) An estimate of the dollar amount of the probable loss. 
B) An expert opinion as to whether a loss is possible, probable or remote. 
C) Information concerning the progress of cases to date. 
D) Corroborative audit evidence.

Question 14

The auditors should determine that the issuance of bonds was approved by the company's stockholders.

Accepted Answer

A) True 
 B)False

Question 15

A registrar/transfer agent system relating to capital stock is most likely used by:

Accepted Answer

A) A small, nonpublic company. 
B) A large, publicly traded company. 
C) All companies must use this type of system. 
D) No companies use this system anymore. 
A) A small, nonpublic company. 
B) A large, publicly traded company. 
C) All companies must use this type of system. 
D) No companies use this system anymore.

Question 16

When no independent stock transfer agent is employed and the corporation issues its own stocks and maintains stock records,canceled stock certificates should:

Accepted Answer

A) Be defaced to prevent reissuance and attached to their corresponding stubs. 
B) Not be defaced but segregated from other stock. 
C) Be destroyed to prevent fraudulent reissuance. 
D) Be defaced and sent to the Secretary of State. 
A) Be defaced to prevent reissuance and attached to their corresponding stubs. 
B) Not be defaced but segregated from other stock. 
C) Be destroyed to prevent fraudulent reissuance. 
D) Be defaced and sent to the Secretary of State.

Question 17

Which of the following procedures is least likely in the audit of capital stock?

Accepted Answer

A) Examine all outstanding stock certificates for completeness. 
B) Account for the proceeds from stock issues. 
C) Reconcile shares outstanding with the general ledger. 
D) Evaluate compliance with stock option plans. 
A) Examine all outstanding stock certificates for completeness. 
B) Account for the proceeds from stock issues. 
C) Reconcile shares outstanding with the general ledger. 
D) Evaluate compliance with stock option plans.

Question 18

Bond transactions are normally confirmed with:

Accepted Answer

A) Individual holders of retired bonds. 
B) Recomputation procedures performed using interest expense. 
C) The bond trustee. 
D) Comparisons of retired bonds with those outstanding. 
A) Individual holders of retired bonds. 
B) Recomputation procedures performed using interest expense. 
C) The bond trustee. 
D) Comparisons of retired bonds with those outstanding.

Question 19

The formal documentation creating bond indebtedness is called the indenture.

Accepted Answer

A) True 
 B)False

Question 20

Company A does not employ an independent stock transfer agent,but rather issues its own stock and maintains its stock records.When outstanding shares are transferred from one holder to another the certificate of the selling shareholder should be:

Accepted Answer

A) Canceled (generally by perforation) and attached to the certificate book. 
B) Destroyed to prevent fraudulent reissuance. 
C) Retained by the selling shareholder. 
D) Sent to the state's registrar of investment securities. 
A) Canceled (generally by perforation) and attached to the certificate book. 
B) Destroyed to prevent fraudulent reissuance. 
C) Retained by the selling shareholder. 
D) Sent to the state's registrar of investment securities.

Exam 15: Debt and Equity Capital

Which of the following statements is correct relating to common stock certificates of a publicly traded company that uses the services of a transfer agent?

For audit purposes,a corporation's articles of incorporation are normally:

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

Changes in capital stock accounts should normally be approved by:

An auditor obtains evidence of stockholders' equity transactions for a publicly traded company by reviewing the entity's:

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

Internal control over bonds payable is best when:

Which of the following most likely would approve the issuance of notes payable?

For a corporation that does not utilize the services of an independent registrar and stock transfer agent,which of the following represents a weakness in internal control over stock issuance?

When the auditors obtain an understanding of internal control for the financing cycle documentation will frequently include a written description as well as a(n):

In auditing long-term debt,an auditor would be most likely to:

Auditors often request that the audit client send a letter of inquiry to those attorneys who have been consulted with respect to litigation,claims,or assessments.The primary reason for this request is to provide the auditor with:

The auditors should determine that the issuance of bonds was approved by the company's stockholders.

A registrar/transfer agent system relating to capital stock is most likely used by:

When no independent stock transfer agent is employed and the corporation issues its own stocks and maintains stock records,canceled stock certificates should:

Which of the following procedures is least likely in the audit of capital stock?

Bond transactions are normally confirmed with:

The formal documentation creating bond indebtedness is called the indenture.

Company A does not employ an independent stock transfer agent,but rather issues its own stock and maintains its stock records.When outstanding shares are transferred from one holder to another the certificate of the selling shareholder should be:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of CPAS

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property Plant and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Probability-Proportion-To-Size Sampling

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