Question 1

In which of the following accounts would one expect a related party transaction to be easiest to detect?

Accepted Answer

A) Accounts receivable. 
B) Accounts payable. 
C) Notes payable. 
D) Cash. 
A) Accounts receivable. 
B) Accounts payable. 
C) Notes payable. 
D) Cash.

Question 2

The auditors generally refer to provisions in the partnership agreement when auditing the allocation of partnership income.

Accepted Answer

A) True 
 B)False

Question 3

For a continuing client,the auditors will often find that audit time required for capital stock is small in relation to the dollars recorded in the accounts.

Accepted Answer

A) True 
 B)False

Question 4

The auditor's program to examine interest-bearing debt most likely will include steps that require:

Accepted Answer

A) Comparing the book value of the debt to its year-end market value. 
B) Vouching borrowing and repayment transactions. 
C) Verifying the proper presentation of the debt through confirmation. 
D) Inspecting the accounts payable subsidiary ledger for unrecorded interest-bearing debt. 
A) Comparing the book value of the debt to its year-end market value. 
B) Vouching borrowing and repayment transactions. 
C) Verifying the proper presentation of the debt through confirmation. 
D) Inspecting the accounts payable subsidiary ledger for unrecorded interest-bearing debt.

Question 5

When an independent registrar and stock transfer agent is used,it is likely that the auditor will confirm the number of shares outstanding with those parties rather than the shareholders.

Accepted Answer

A) True 
 B)False

Question 6

A primary responsibility of a registrar of capital stock is to:

Accepted Answer

A) Determine that dividends paid do not exceed the amount allowable by law. 
B) Act as an independent third party between the board of directors and outside investors concerning merger, acquisition, and other major decisions. 
C) Avoid any over issuance of stock. 
D) Maintain detailed stockholder records and carrying out transfers of stock ownership. 
A) Determine that dividends paid do not exceed the amount allowable by law. 
B) Act as an independent third party between the board of directors and outside investors concerning merger, acquisition, and other major decisions. 
C) Avoid any over issuance of stock. 
D) Maintain detailed stockholder records and carrying out transfers of stock ownership.

Question 7

The auditor can best verify a client's bond sinking fund transactions and year-end balance by

Accepted Answer

A) Confirmation with individual holders of retired bonds. 
B) Confirmation with the bond trustee. 
C) Recomputation of interest expense, interest payable, and amortization of bond discount or premium. 
D) Examination and count of the bonds retired during the year. 
A) Confirmation with individual holders of retired bonds. 
B) Confirmation with the bond trustee. 
C) Recomputation of interest expense, interest payable, and amortization of bond discount or premium. 
D) Examination and count of the bonds retired during the year.

Question 8

Long-term liabilities that are maturing must always be classified as a current liability.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) Confirm the existence of the bondholders. 
B) Review the minutes for authorization. 
C) Trace the net cash received from the issuance to the bond revenue account. 
D) Inspect the records maintained by the bond trustee. 
A) Confirm the existence of the bondholders. 
B) Review the minutes for authorization. 
C) Trace the net cash received from the issuance to the bond revenue account. 
D) Inspect the records maintained by the bond trustee.

Question 10

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial statements is to:

Accepted Answer

A) Evaluate internal control over securities. 
B) Determine the validity of prepaid interest expense. 
C) Ascertain the reasonableness of imputed interest. 
D) Detect unrecorded liabilities. 
A) Evaluate internal control over securities. 
B) Determine the validity of prepaid interest expense. 
C) Ascertain the reasonableness of imputed interest. 
D) Detect unrecorded liabilities.

Question 11

The auditors are required to confirm bond holdings directly with the bondholders.

Accepted Answer

A) True 
 B)False

Question 12

An auditor who is auditing for acquired treasury stock will normally expect to see an entry in which journal?

Accepted Answer

A) Cash disbursements. 
B) Cash receipts 
C) Purchases. 
D) Sales. 
A) Cash disbursements. 
B) Cash receipts 
C) Purchases. 
D) Sales.

Question 13

During an audit of a publicly-held company,the auditors should obtain written confirmation regarding debenture transactions from the:

Accepted Answer

A) Debenture holders. 
B) Client's attorney. 
C) Internal auditors. 
D) Trustee. 
A) Debenture holders. 
B) Client's attorney. 
C) Internal auditors. 
D) Trustee.

Question 14

Corporations maintain either a stock certificate book or a stockholders' ledger.

Accepted Answer

A) True 
 B)False

Question 15

Registered bondholders receive periodic interest payments without any action on their part.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an auditor most likely to confirm from the transfer agent and registrar?

Accepted Answer

A) Total shares of stock issued. 
B) Restrictions on the payment of dividends. 
C) Total market value of outstanding shares of stock. 
D) Gains from sale of treasury stock. 
A) Total shares of stock issued. 
B) Restrictions on the payment of dividends. 
C) Total market value of outstanding shares of stock. 
D) Gains from sale of treasury stock.

Question 17

Which of the following is not a primary objective in the audit of interest-bearing debt?

Accepted Answer

A) Establish the completeness of recorded interest-bearing debt. 
B) Establish the legality of outstanding debt. 
C) Determine that debt is properly valued. 
D) Determine that the presentation and disclosure of interest-bearing debt is appropriate. 
A) Establish the completeness of recorded interest-bearing debt. 
B) Establish the legality of outstanding debt. 
C) Determine that debt is properly valued. 
D) Determine that the presentation and disclosure of interest-bearing debt is appropriate.

Question 18

For a large publicly traded client the auditors' examination of capital stock accounts will not normally include:

Accepted Answer

A) Analysis of capital stock accounts. 
B) Confirmation of shares issued with the independent registrar. 
C) Accounting for the proceeds of major stock issues. 
D) Reconciliation of a stock certificate book with the general ledger. 
A) Analysis of capital stock accounts. 
B) Confirmation of shares issued with the independent registrar. 
C) Accounting for the proceeds of major stock issues. 
D) Reconciliation of a stock certificate book with the general ledger.

Question 19

In the audit of interest-bearing debt auditors identify audit objectives and then determine appropriate audit procedures.
a.List the audit objectives for substantive tests of interest-bearing debt.
b.List seven substantive tests for interest-bearing debt to help the auditors meet the audit objectives.

Accepted Answer

a.The audit objectives for substantive t

Question 20

Dividends should be authorized by the stockholders of the corporation.

Accepted Answer

A) True 
 B)False

Exam 15: Debt and Equity Capital

In which of the following accounts would one expect a related party transaction to be easiest to detect?

The auditors generally refer to provisions in the partnership agreement when auditing the allocation of partnership income.

For a continuing client,the auditors will often find that audit time required for capital stock is small in relation to the dollars recorded in the accounts.

The auditor's program to examine interest-bearing debt most likely will include steps that require:

When an independent registrar and stock transfer agent is used,it is likely that the auditor will confirm the number of shares outstanding with those parties rather than the shareholders.

A primary responsibility of a registrar of capital stock is to:

The auditor can best verify a client's bond sinking fund transactions and year-end balance by

Long-term liabilities that are maturing must always be classified as a current liability.

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

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial statements is to:

The auditors are required to confirm bond holdings directly with the bondholders.

An auditor who is auditing for acquired treasury stock will normally expect to see an entry in which journal?

During an audit of a publicly-held company,the auditors should obtain written confirmation regarding debenture transactions from the:

Corporations maintain either a stock certificate book or a stockholders' ledger.

Registered bondholders receive periodic interest payments without any action on their part.

Which of the following is an auditor most likely to confirm from the transfer agent and registrar?

Which of the following is not a primary objective in the audit of interest-bearing debt?

For a large publicly traded client the auditors' examination of capital stock accounts will not normally include:

Dividends should be authorized by the stockholders of the corporation.

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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