Question 1

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 2

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

Accepted Answer

Confirmation with the bond trustee is the best way to verify an entity's bond sinking fund transactions and year-end balance as the trustee is responsible for managing the sinking fund and retiring the bonds.

Question 3

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 4

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 preparation of a reconciliation between interest-bearing obligations outstanding and interest expense is done to detect unrecorded liabilities. This reconciliation allows for the identification of any discrepancies between the interest expense recorded in the financial statements and the actual interest that should have been paid on outstanding obligations. Any unrecorded liabilities can then be identified and properly recorded in the financial statements.

Question 5

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

The short-term portion of long-term debt due in the next year must be classified as a current liability, which can impact a company's financial ratios and overall financial health.

Question 6

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

Accepted Answer

Vouching stock repurchases to canceled stock certificates is a test of occurrence assertion. This is because it ensures that the repurchase transaction actually occurred and that the company's financial statements are not overstating the number of outstanding shares.

Question 7

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

Accepted Answer

The auditor's program for the examination of long-term debt should include the examination of any bond agreement to ensure that the terms and covenants are accurately stated in the financial statements. The verification of the existence of the bond holders, inspection of the accounts payable subsidiary ledger, and investigation of credits to the bond interest income account are not relevant steps in the examination of long-term debt.

Question 8

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 9

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

Accepted Answer

Income statement accounts, like all financial statement accounts, must be accounted for in accordance with Generally Accepted Accounting Principles (GAAP) to ensure consistency, comparability, and transparency in financial reporting.

Question 10

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

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

Long-term borrowing should be properly authorized.

Accepted Answer

Long-term borrowing involves taking on significant amounts of debt for extended periods of time, which can have far-reaching financial implications for an organization. Therefore, it is important that long-term borrowing is properly authorized by the appropriate individuals or governing body, such as board of directors or shareholders. This ensures that the borrowing is undertaken in a responsible and transparent manner, with due consideration given to the organization's financial position and ability to meet its debt obligations.

Question 13

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

Accepted Answer

The answer of The dividend-disbursing agent prepares and mails dividends...

Question 14

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...

Question 15

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 16

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

Accepted Answer

The control assertion of authorization is being addressed by ensuring that appropriate individuals initiate long-term borrowing. This control ensures that only authorized individuals have the ability to initiate long-term borrowing transactions.

Question 17

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...

Question 18

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

Accepted Answer

This statement is true. Stockholders' equity transactions typically involve the issuance of stock, repurchase of stock, and payment of dividends.

Question 19

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 20

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

Accepted Answer

Substantive analytical procedures involve comparing financial information to other sources, such as industry data or prior years' financial statements, to identify any significant fluctuations or anomalies. These procedures can be applied to revenue and expense accounts to detect potential misstatements or errors in financial reporting.

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

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

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

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

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

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.

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

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

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

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

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

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

Long-term borrowing should be properly authorized.

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

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

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

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

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

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

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?

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