Question 1

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. A

Question 2

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. B

Question 3

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. B

Question 4

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 5

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 6

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.

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The auditor's plan 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 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

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 16

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 17

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 18

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 19

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 20

Match between columns
                        Premises: An account for stock issuance proceeds in excess of book value.
A book with serially numbered stock certificates with attached stubs.
Charged with maintaining detailed records of shareholders and handling purchases and sales of stock.
An unsecured bond, dependent upon the general credit of the issuer.
Contains a separate record for each stockholder.

Accepted Answer

The Answer of Debenture bond and Paid-in Capital in excess is...

Internal control over bonds payable is best when:

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:

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?

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

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

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:

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

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

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?

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

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

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

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

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:

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

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

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

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Planning the Audit; Linking Audit Procedures to Risk

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

Filters

Exam 15: Debt and Equity Capital

Internal control over bonds payable is best when:

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:

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?

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

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

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:

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

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

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?

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

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

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

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

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:

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

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

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

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Planning the Audit; Linking Audit Procedures to Risk

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

Filters