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Multiple Choice
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1

The audit program in the area of bonds payable, notes payable, and other long-term debt would most likely involve a procedure to:
A)Confirm the existence of individual bondholders at year-end
B)Perform analytical procedures on bond premium and discount accounts
C)Compare interest expense with the bonds payable balance for reasonableness
D)Examine the documentation of assets acquired with bond proceeds
2

Which of the following statements is false with regard to the audit of the capital acquisition and repayment (financing) cycle for most clients?
A)There are generally a small number of highly material transactions in this area.
B)Auditors tend to rely more heavily on internal control testing than on tests of detailed account balances
C)A review of the minutes of board meetings may be helpful in identifying activity in this area of the audit
D)Analytical procedures may be useful in estimating interest expense.
3

To test the audit objective for validity for long-term debt, the auditor could complete which of the following procedures?
A)Recompute accrued interest payable.
B)Obtain an analysis of notes payable and reconcile to the general ledger.
C)Review interest expense for payments to debtholders not listed on the debt analysis schedule.
D)Examine copies of new note agreements.
4

Which of the following questions would most likely to be found on an auditor's internal control questionnaire related to notes payable?
A)Are two or more signatures required on checks written on repayment of the notes?
B)Are the proceeds from borrowing used solely to acquire non-current assets?
C)Are the assets that serve as collateral on the debt reviewed monthly for possible impairment?
D)Are all note payable borrowings authorized by the board of directors?
5

Segregations of duties for stockholders' equity transactions include all of the following except:
A)Those responsible for issuing stock certificates should be separate from accounting.
B)The person responsible for keeping detailed stockholder records should be separate from the general ledger function.
C)The person responsible for keeping detailed stockholder records should be separate from processing cash disbursements.
D)The person who maintains the stockholders' ledger should be separate from the individual ensuring that dividend transactions comply with the corporate charter.
6

Footing the shares outstanding in the stock register and comparing the total to shares outstanding in the general ledger stock account addresses the audit objective of
A)Completeness.
B)Validity.
C)Ownership.
D)Valuation.
7

Which of the following pairs of income statement and balance sheet accounts typically would not be audited in conjunction with each other?
A)Premium on bonds payable and interest income.
B)Accounts receivable and bad debt expense.
C)Prepaid insurance and insurance expense.
D)Long-term debt and interest expense.
8

Further detailed examination of accounts such as travel and entertainment expense can occur for all of the following reasons except:
A)These accounts typically are not affected by a business process.
B)These accounts often contain sensitive information.
C)Controls usually do not exist for these accounts.
D)These accounts include information required for tax return preparation.
9

When the client of a CPA firm does not maintain its own shareholder records, the auditor should obtain written confirmation from the transfer agent and registrar concerning:
A)Guarantees of preferred stock liquidation value
B)The number of shares subject to repurchase agreements (treasury)
C)Any restrictions on dividend payments
D)The type and number of shares issued and outstanding
10

Which of the following transactions is an auditor most likely to examine when auditing the retained earnings account?
A)Changing from one method of depreciation to another.
B)Correcting an error in depreciation in a prior year.
C)Adjusting the percentage used to estimate the allowance for doubtful accounts.
D)Changing from the FIFO to LIFO method of inventory valuation.





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