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Exam 22: Audit of the Capital Acquisition and Repayment Cycle

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Question 31

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An auditor is determining whether an issuance of notes payable for cash was correctly recorded. Her best course of action would be to:

A) confirm with the bond trustee as to the amount of bonds issued.
B) confirm with the underwriter as to the appropriate market yield on the bonds.
C) trace the cash received from the proceeds to the accounting records.
D) verify that the amount was included in a footnote disclosure.

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

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Question 32

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

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 issued

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

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Question 33

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The audit objective that requires that existing notes payable be included in the notes payable schedule is satisfied by performing which of the following audit procedures?

The audit procedure "examine duplicate copies of notes payable to determine whether the notes payable were dated on or before the balance sheet date" is done for which of the following balance-related audit objective?

When conducting the audit of stockholders' equity it is normal practice to verify all capital stock transactions:

The emphasis in the audit of dividends is on the ending balance rather than the transactions.

The record of the issuance and repurchase of capital stock for the life of the corporation is maintained in the:

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

The exclusion of a single equity transaction is often highly material.

Match six of the terms (a-i) used in the capital acquisitions and repayment cycle with the descriptions provided below (1-6): a. Capital acquisition and repayment cycle b. Capital stock certificate book c. Closely held corporation d. Independent registrar e. Note payable f. Publicly held corporation g. Stock transfer agent h. Schedule of notes payable and accrued interest i. Stock maintenance agent ________ 1. An outside person engaged by a corporation to make sure that its stock is issued in accordance with capital stock provisions in the corporate charter and authorizations by the board of directors. ________ 2. The normal starting point for the audit of notes payable; includes detailed information of all transactions related to notes payable that took place during the year. ________ 3. A record of the issuance and repurchase of capital stock for the life of the corporation. ________ 4. An outside person engaged by a corporation to maintain the stockholder records, and often to disburse cash dividends. ________ 5. An entity that is required to engage an independent registrar. ________ 6. The cycle that concerns the acquisition of capital resources through interest-bearing debt and owners' equity and repayment of the capital.

A prior period adjustment may result in a debit or credit to a company's retained earnings account.

The audit objective that requires the auditor to determine that notes payable on the notes payable schedule are properly classified can be tested by performing the procedure to:

You are auditing the long-term notes payable account for a client. Which of the following audit procedures would you most likely employ?

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.

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

Discuss the overall objectives of the audit of notes payable.

In the audit of the transactions and amounts in the capital acquisitions and repayments cycle, the auditor must take great care in making sure that the significant legal requirements affecting the financial statements have been properly fulfilled and:

The audit procedure "Foot the notes payable list and trace the totals to the general ledger" is performed when verifying the accuracy objective for notes payable.

What is the difference between an independent registrar and a stock transfer agent?

A company issued long-term notes payable for cash during the year under audit. To ascertain that this transaction was properly recorded, the auditor's best course of action is to: