Question 1

Which of the following types of owners' equity transactions would require authorization by the board of directors?

Accepted Answer

A) issuance of capital stock 
B) repurchase of capital stock 
C) declaration of dividends 
D) all of the above

Question 2

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.

Question 3

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

Question 4

Which of the following is not an objective of the auditor's examination of notes payable?

Accepted Answer

A) to determine whether internal controls are adequate 
B) to determine whether client's financing arrangements are effective and efficient 
C) to determine whether transactions regarding the principal and interest of notes are properly authorized 
D) to determine whether the liability for notes and related interest expense and accrued liabilities are properly stated

Question 5

What are two important internal control procedures that companies should implement to prevent misstatements in owners' equity when a company maintains its own records of stock transactions and outstanding stock?

Accepted Answer

The answer of What are two important internal control procedures...

Question 6

Assessed control risk and results of substantive tests of transactions are normally unimportant for designing tests of details of balances for which of the following accounts?

Accepted Answer

A) accounts receivable 
B) inventory 
C) accounts payable 
D) notes payable

Question 7

If a company employs a capital stock registrar and/or transfer agent,the registrar or agent,or both,should be requested to confirm directly to the auditor the number of shares of each class of stock

Accepted Answer

A) surrendered and canceled during the year. 
B) authorized at the balance sheet date. 
C) issued and outstanding at the balance sheet date. 
D) sold at a price above par during the year.

Question 8

Which of the following statements is correct regarding the audit of dividends?

Accepted Answer

A) The emphasis is on the ending balance in the dividends account. 
B) When auditors verify that the dividends are paid to stockholders that exist,they are concerned with the completeness objective. 
C) If the client uses a transfer agent to disburse dividends,the total can be traced to a cash disbursement entry to the agent and also confirmed. 
D) All of the above are correct statements.

Question 9

Notes payable are generally for a period of sixty days or less.

Accepted Answer

A) True 
 B)False

Question 10

The shareholders' capital stock master file is used as the basis for the payment of dividends and also acts as a check on the accuracy of the common stock balance in the general ledger.

Accepted Answer