Question 1

The starting point for the audit of notes payable is a schedule of notes payable and accrued interest.Discuss the information typically included in the schedule.

Accepted Answer

The usual schedule includes detailed inf...

Question 2

Actual interest expense is significantly higher than the auditor's estimate.This would most likely lead the auditor to conclude that the client has not

Accepted Answer

A)  recorded all long-term interest bearing debt in the accounting records.
B)  recorded all interest expense paid or accrued.
C)  properly accounted for the discount of bonds payable account.
D)  properly recorded interest income.E) A) and C)
F) B) and C)

Question 3

The accuracy of a dividend declaration can be audited by recalculating the amount on the basis of the dividend per share times the number of shares outstanding.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements regarding the capital acquisition and repayment cycle is most correct?

Accepted Answer

A)  A relatively few transactions affect the cycle,and most are smaller amounts.
B)  A large numbers of transactions affect the cycle,and most are smaller amounts.
C)  A relatively few transactions affect the cycle,and most are highly material.
D)  A large number of transaction affect the cycle,and most are highly material.E) A) and B)
F) A) and C)

Question 5

Responsibility for the issuance of new notes payable would normally be vested in the

Accepted Answer

A)  board of directors.
B)  purchasing department.
C)  accounting department.
D)  accounts payable department.E) A) and C)
F) B) and C)

Question 6

When a company maintains its own records of stock transactions and capital stock outstanding,its internal controls must be adequate to accomplish three objectives.List them below.

Accepted Answer

1. Actual owners of the stock are recogn...

Question 7

Which of the following is an important source of information for determining whether the presentation and disclosure-related objectives for capital stock activities are satisfied?

Accepted Answer

A)  the corporate charter
B)  the minutes of board of directors meetings
C)  the auditor's analysis of capital stock transactions
D)  all of the aboveE) A) and B)
F) A) and C)

Question 8

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

Question 9

Why are substantive analytical procedures essential for notes payable?

Accepted Answer

They are essential because tes...

Question 10

Public companies whose stock is listed on a stock exchange must employ an independent registrar.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an accurate statement regarding the audit of the capital acquisition and repayment schedule?

Accepted Answer

A)  When internal controls over notes payable are deficient,auditors are required to confirm the notes payable.
B)  As auditors perform tests of details of balances for balance-related audit objectives,the evidence obtained helps satisfy the notes payable presentation and disclosure requirements.
C)  The normal starting point for the audit of notes payable is a list of fixed asset acquisitions.
D)  The schedule of notes payable and accrued interest must be prepared regardless of the number of transactions involved.E) C) and D)
F) B) and D)

Question 12

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.E) All of the above
F) A) and B)

Question 13

When auditing the capital acquisition and repayment cycle,it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 14

The board of directors must authorize the amount of the dividend per share and the dates of record and payment of the dividend.

Accepted Answer

A) True 
 B)False

Question 15

Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client's business and industry.

Accepted Answer

A) True 
 B)False

Question 16

The authorization of an issuance of capital stock normally includes all but which of the following?

Accepted Answer

A)  type of stock to be issued
B)  number of shares to be issued
C)  date shares are to be issued
D)  amount of dividend to be paid on shares issuedE) B) and C)
F) A) and D)

Question 17

Most closely held corporations have numerous transactions during the year for capital stock accounts.

Accepted Answer

A) True 
 B)False

Question 18

The amount of time spent verifying owners' equity is frequently minimal for closely held corporations because

Accepted Answer

A)  these companies are so small that it is not necessary to audit the capital section.
B)  the few owners all have access to the books so the auditor spends more time on accounts like liabilities,which affect outsiders.
C)  there are few if any transactions during the year for the capital stock accounts,except for earnings and dividends.
D)  there is no public interest in these companies.E) A) and B)
F) A) and C)

Question 19

Which of the following is not an important control over notes payable?

Accepted Answer

A)  There is proper authorization over the issuance of new notes payable.
B)  Notes payable are issued when the business climate is favorable.
C)  Adequate controls exist over repayment of interest and principal.
D)  There exist proper documents and records.E) A) and B)
F) B) and C)

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.E) All of the above
F) B) and C)

Exam 22: Audit of the Capital Acquisition and Repayment Cycle

Responsibility for the issuance of new notes payable would normally be vested in the

Correct AnswerverifiedShow Answer

Public companies whose stock is listed on a stock exchange must employ an independent registrar.

Correct AnswerverifiedShow Answer

Actual interest expense is significantly higher than the auditor's estimate.This would most likely lead the auditor to conclude that the client has not

Correct AnswerverifiedShow Answer

The accuracy of a dividend declaration can be audited by recalculating the amount on the basis of the dividend per share times the number of shares outstanding.

Correct AnswerverifiedShow Answer

The board of directors must authorize the amount of the dividend per share and the dates of record and payment of the dividend.

Correct AnswerverifiedShow Answer

The authorization of an issuance of capital stock normally includes all but which of the following?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Most closely held corporations have numerous transactions during the year for capital stock accounts.

Correct AnswerverifiedShow Answer

Why are substantive analytical procedures essential for notes payable?

Correct AnswerverifiedThey are essential because tes...View AnswerShow Answer

The starting point for the audit of notes payable is a schedule of notes payable and accrued interest.Discuss the information typically included in the schedule.

Correct AnswerverifiedThe usual schedule includes detailed inf...View AnswerShow Answer

Which of the following is an important source of information for determining whether the presentation and disclosure-related objectives for capital stock activities are satisfied?

Correct AnswerverifiedShow Answer

When a company maintains its own records of stock transactions and capital stock outstanding,its internal controls must be adequate to accomplish three objectives.List them below.

Correct Answerverified1. Actual owners of the stock are recogn...View AnswerShow Answer

Which of the following is an accurate statement regarding the audit of the capital acquisition and repayment schedule?

Correct AnswerverifiedShow Answer

Which of the following statements is correct regarding the capital acquisition and payment cycle?

Correct AnswerverifiedShow Answer

When auditing the capital acquisition and repayment cycle,it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.

Correct AnswerverifiedShow Answer

The amount of time spent verifying owners' equity is frequently minimal for closely held corporations because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements regarding the capital acquisition and repayment cycle is most correct?

Correct AnswerverifiedShow Answer

Which of the following is not an important control over notes payable?

Correct AnswerverifiedShow Answer

Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client's business and industry.

Correct AnswerverifiedShow Answer

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They are essential because tes...
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The usual schedule includes detailed inf...
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1. Actual owners of the stock are recogn...
View Answer

Correct Answer
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