An audit plan for the examination of the retained earnings account should include a step that requires verification of the:
A)market value used to charge retained earnings to account for a 2-for-1 stock split.
B)approval of the adjustment to the beginning balance as a result of a write-down of account receivables.
C)authorization for both cash and stock dividends.
D)dividends received from investments.

Question

Quizplus · Accepted Answer

Verification of authorization for both cash and stock dividends is necessary to ensure that the dividends are properly recorded in the retained earnings account. The other options do not directly relate to the balance in the retained earnings account. The market value used to charge retained earnings for a stock split would affect the number of shares outstanding, but not the overall balance in the retained earnings account. The write-down of account receivables would affect the balance in the allowance for doubtful accounts or bad debt expense accounts, not retained earnings. Dividends received from investments would be recorded as dividend income, not as an adjustment to retained earnings.

An Audit Plan for the Examination of the Retained Earnings