Question 1

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.E) All of the above
F) None of the above

Question 2

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)  Evaluate whether debt provisions have been met.
D)  Confirm the existence of individual long-term debt holders at year-end.E) A) and D)
F) A) and C)

Question 3

Smaller corporations maintain a stock certificate book and a stockholders' ledger to determine the shares outstanding.

Accepted Answer

A) True 
 B)False

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.E) B) and C)
F) A) and D)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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.E) A) and D)
F) C) and D)

Question 10

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.E) None of the above
F) B) and C)

Question 11

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.E) A) and B)
F) B) and C)

Question 12

The auditor would be least likely to be concerned about internal control as it relates to:

Accepted Answer

A)  Land and buildings.
B)  Common stock.
C)  Shareholder meetings.
D)  Minutes of board of directors' meetings.E) A) and C)
F) A) and B)

Question 13

A review of the board of directors' minutes is least likely to result in the discovery of

Accepted Answer

A)  Write-off of an large accounts payable.
B)  Issuance of stock.
C)  Issuance of bonds.
D)  Purchase of significant property.E) A) and B)
F) A) and C)

Question 14

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.E) A) and C)
F) A) and B)

Question 15

For a continuing client,the auditors will often find that a large amount of audit time is required for capital stock due to the dollar amount recorded in the accounts.

Accepted Answer

A) True 
 B)False

Question 16

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.E) None of the above
F) B) and C)

Question 17

Which of the following isnot 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.E) None of the above
F) A) and C)

Question 18

When auditing treasury stock,one will normally expect to see an entry in which journal?

Accepted Answer

A)  Cash disbursements.
B)  Cash receipts.
C)  Purchases.
D)  Sales.E) A) and C)
F) A) and D)

Question 19

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.E) A) and D)
F) C) and D)

Question 20

A large corporation entered into a very significant long-term debt agreement during the current year.Which of the following would the auditors most likely be concerned with:

Accepted Answer

A)  Approval by the corporation's CEO.
B)  Approval by the corporation's CFO.
C)  Approval by the corporation's Board of Directors.
D)  Approval by the corporation's Controller.E) A) and D)
F) A) and C)

Exam 15: Debt and Equity Capital

When auditing treasury stock,one will normally expect to see an entry in which journal?

Correct AnswerverifiedShow Answer

Which of the following isnot a primary objective in the audit of interest-bearing debt?

Correct AnswerverifiedShow Answer

The auditor would be least likely to be concerned about internal control as it relates to:

Correct AnswerverifiedShow Answer

Changes in capital stock accounts should normally be approved by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For a continuing client,the auditors will often find that a large amount of audit time is required for capital stock due to the dollar amount recorded in the accounts.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Smaller corporations maintain a stock certificate book and a stockholders' ledger to determine the shares outstanding.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A large corporation entered into a very significant long-term debt agreement during the current year.Which of the following would the auditors most likely be concerned with:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A review of the board of directors' minutes is least likely to result in the discovery of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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