Question 1

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 2

Any company with stock listed on a securities exchange is required to engage a(n) ________.

Accepted Answer

A)  equity analyst 
B)  stock transfer agent 
C)  independent registrar 
D)  equity placement specialist 
A)  equity analyst 
B)  stock transfer agent 
C)  independent registrar 
D)  equity placement specialist

Question 3

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 4

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.

Question 5

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

Accepted Answer

• Proper authorization of transactions.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The Securities and Exchange Commission requires companies listed on exchanges to employ stock transfer agents.

Accepted Answer

A) True 
 B)False

Question 8

What are the two most important balance-related audit objectives in notes payable?

Accepted Answer

• Existing notes payable are i

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

A shareholders' capital stock master file is a record of the issuance and repurchase of capital stock over the life of the corporation.

Accepted Answer

A) True 
 B)False

Question 11

Identify three analytical procedures commonly performed for notes payable.

Accepted Answer

Some possible analytical procedures for

Question 12

Few large companies employ stock transfer agents, but small companies commonly do so.

Accepted Answer

A) True 
 B)False

Question 13

In the audit of notes payable, it is common to include tests of principal and interest payments as a part of the audit of the acquisitions and payment cycle because the payments are in the cash disbursements journal that is being sampled. It is also normal to test these transactions as part of the capital acquisitions and repayment cycle because:

Accepted Answer

A)  it is not unusual for the auditor to duplicate a process, thereby gathering a larger quantity of evidence. 
B)  replicating the evidence will provide the auditor with a higher level of assurance. 
C)  the tests done in the acquisitions and payments cycle will look only at the cash credit side so the tests done in the capital acquisitions and repayment cycle will look at the debit side of the transaction. 
D)  due to the infrequency of these transactions, in many cases no transactions involving notes payable are included in the sample tests of acquisitions and payments. 
A)  it is not unusual for the auditor to duplicate a process, thereby gathering a larger quantity of evidence. 
B)  replicating the evidence will provide the auditor with a higher level of assurance. 
C)  the tests done in the acquisitions and payments cycle will look only at the cash credit side so the tests done in the capital acquisitions and repayment cycle will look at the debit side of the transaction. 
D)  due to the infrequency of these transactions, in many cases no transactions involving notes payable are included in the sample tests of acquisitions and payments.

Question 14

The audit procedure "Examine paid notes for cancellation to make sure they are not still outstanding" is performed when verifying the completeness objective for notes payable.

Accepted Answer

A) True 
 B)False

Question 15

The record of the outstanding shares at any given time is maintained in the:

Accepted Answer

A)  corporate directory. 
B)  stock certificate books. 
C)  schedule of stock owners. 
D)  shareholders' capital stock master file. 
A)  corporate directory. 
B)  stock certificate books. 
C)  schedule of stock owners. 
D)  shareholders' capital stock master file.

Question 16

Which of the following audit tests would provide evidence regarding the balance-related audit objective of existence for an audit of notes payable?

Accepted Answer

A)  Examine due dates on duplicate copies of notes. 
B)  Examine balance sheet for proper presentation and disclosure of notes payable. 
C)  Examine corporate minutes for loan approval. 
D)  Foot the notes payable list for notes payable and accrued interest. 
A)  Examine due dates on duplicate copies of notes. 
B)  Examine balance sheet for proper presentation and disclosure of notes payable. 
C)  Examine corporate minutes for loan approval. 
D)  Foot the notes payable list for notes payable and accrued interest.

Question 17

Which of the following balance-related audit objectives is not applicable to the audit of notes payable?

Accepted Answer

A)  Realizable value 
B)  Detail tie-in 
C)  Cutoff 
D)  Classification 
A)  Realizable value 
B)  Detail tie-in 
C)  Cutoff 
D)  Classification

Question 18

For most companies, the only transactions involving retained earnings are net earnings for the year and dividends declared.

Accepted Answer

A) True 
 B)False

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

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 statements is correct regarding the capital acquisition and payment cycle?

Any company with stock listed on a securities exchange is required to engage a(n) ________.

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:

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

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

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

The Securities and Exchange Commission requires companies listed on exchanges to employ stock transfer agents.

What are the two most important balance-related audit objectives in notes payable?

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

A shareholders' capital stock master file is a record of the issuance and repurchase of capital stock over the life of the corporation.

Identify three analytical procedures commonly performed for notes payable.

Few large companies employ stock transfer agents, but small companies commonly do so.

The audit procedure "Examine paid notes for cancellation to make sure they are not still outstanding" is performed when verifying the completeness objective for notes payable.

The record of the outstanding shares at any given time is maintained in the:

Which of the following audit tests would provide evidence regarding the balance-related audit objective of existence for an audit of notes payable?

Which of the following balance-related audit objectives is not applicable to the audit of notes payable?

For most companies, the only transactions involving retained earnings are net earnings for the year and dividends declared.

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

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 Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

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 and Balances

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

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

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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