Question 1

The dividend-disbursing agent prepares and mails dividends checks to the stockholders as of the date of declaration.

Accepted Answer

False

Question 2

The repurchase of stock includes the reacquisition of stock (treasury stock),but not the retirement of stock.

Accepted Answer

The repurchase of stock can include both the reacquisition of stock to hold as treasury stock and the retirement of stock, where the repurchased shares are permanently cancelled and cannot be reissued.

Question 3

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

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 detect unrecorded liabilities. This reconciliation helps to ensure that all interest-related transactions have been properly recorded and included in the financial statements. Any discrepancies between the interest expense recorded and the interest obligations outstanding can indicate unrecorded liabilities.

Question 4

Notes receivable is a common type of long-term financing.

Accepted Answer

Notes receivable are typically classified as a current asset on the balance sheet, representing amounts owed to the company that are expected to be received within one year. Long-term financing refers to financial obligations or securities that are due in more than one year, such as long-term loans or bonds payable.

Question 5

The auditor's program for the examination of long-term debt should include steps that require the

Accepted Answer

The examination of any bond agreement is necessary to understand the terms and conditions of the debt, including requirements for interest payments, maturity dates, and any restrictive covenants. Verification of the existence of bondholders, inspection of the accounts payable subsidiary ledger, and investigation of credits to the bond interest income account may also be relevant, but they are not as critical as examining the bond agreement.

Question 6

One major issue associated with long-term debt is the classification of the short-term portion of long-term debt that is due in the next year.

Accepted Answer

Long-term debt usually has a maturity period of more than one year. However, it may also have a short-term portion that is due within one year from the date of the financial statements. Determining how to classify this portion of debt is a critical accounting issue.

Question 7

Long-term borrowing should be properly authorized.

Accepted Answer

Long-term borrowing typically involves large amounts of money that can significantly impact an organization's financial stability. As such, it should be properly authorized through a formal process, which may involve obtaining board or shareholder approval and ensuring compliance with regulatory requirements. Failure to do so can result in financial and legal consequences.

Question 8

Generally,all dividends that are declared and paid will be audited.

Accepted Answer

The answer of Generally,all dividends that are declared and paid...

Question 9

Three types of transactions usually occur in stockholders' equity:
 issuance of stock,repurchase of stock,and payment of dividends.

Accepted Answer

These are the three main types of transactions that typically occur in stockholders' equity.

Question 10

A control which ensures that long-term borrowing is properly initiated by appropriate individuals addresses the control assertion of

Accepted Answer

The control of proper initiation of long-term borrowing ensures that the borrowing is authorized by appropriate individuals, addressing the control assertion of Authorization.

Question 11

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

Accepted Answer

The bond sinking fund is typically handled by a trustee responsible for holding and managing the funds set aside for bond redemption. Therefore, confirmation with the bond trustee would provide the most reliable verification of the sinking fund transactions and balance. Recomputation of interest expense, interest payable, and amortization of bond discount or premium may be useful in verifying the accuracy and completeness of the bond sinking fund transactions but may not provide direct evidence of the balance in the sinking fund. Confirmation with individual holders of retired bonds or examination and count of retired bonds would not provide complete information on the current status of the sinking fund.

Question 12

When auditing capital stock accounts,the cutoff assertion is the most important to consider.

Accepted Answer

The existence and rights and obligations assertions are typically more important when auditing capital-stock accounts, as auditors need to verify that the shares exist and the company has the right to issue them. The cutoff assertion is more critical for transactions that occur around the end of the reporting period to ensure they are recorded in the correct period.

Question 13

The registrar is responsible for preparing stock certificates and maintaining adequate stockholders' records.

Accepted Answer

The transfer agent is responsible for preparing and issuing stock certificates and maintaining stockholder records, not the registrar. The registrar's role is to ensure that the number of shares issued does not exceed the amount authorized by the corporation.

Question 14

Substantive analytical procedures can be used extensively to test revenue and expense accounts.

Accepted Answer

Substantive analytical procedures involve analyzing relationships between account balances or financial statement items to identify any unusual fluctuations or patterns. This is particularly useful when testing revenue and expense accounts, as these accounts are often subject to manipulation or misstatement. Analyzing trends and ratios can help auditors identify any changes that are not in line with historical performance or industry benchmarks and may indicate potential errors or fraud.

Question 15

Several years ago,Conway,Inc.,secured a conventional real estate mortgage loan.Which of the following audit procedures would least likely be performed by an auditor examining the mortgage balance?

Accepted Answer

Inspecting public records of lien balances is less likely to be directly related to examining the mortgage balance itself. The other options (A, B, D) are more directly related to verifying the accuracy of the mortgage balance and interest expense recorded in the financial statements.

Question 16

The auditor typically begins an audit of retained earnings by obtaining a schedule of account activity for the period.

Accepted Answer

This is true as the auditor would need to review the changes in retained earnings during the period, which can be obtained by looking at a schedule of account activity.

Question 17

The occurrence assertion is being tested when the auditor vouches stock repurchases to the canceled stock certificates.

Accepted Answer

Vouching the stock repurchases to canceled stock certificates is one of the procedures that auditors can use to test the occurrence assertion. This is to ensure that the company actually repurchased the stated amount of shares and that the canceled certificates are properly recorded and accounted for. Therefore, the answer is True.

Question 18

Income statement accounts must be accounted for in accordance with GAAP.

Accepted Answer

Income statement accounts, just like all other financial statement accounts, must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) to ensure consistency and comparability between companies. These principles provide guidelines and rules for reporting financial information, and failure to comply with them can result in inaccurate financial statements and potential legal consequences.

Question 19

For most companies,stockholders' equity includes the following three accounts:
 preferred stock,paid-in capital,and retained earnings.

Accepted Answer

The answer of For most companies,stockholders' equity includes the following...

Question 20

There are typically only a couple of disclosure items that need to be considered for stockholders' equity.

Accepted Answer

The answer of There are typically only a couple of...

Quiz 15: Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders Equity, and Income Statement Accounts