Which of the following is not a primary objective in the audit of interest-bearing debt?

39 Questions  |  By Assman | Last updated: Dec 7, 2022 | Total Attempts: 1470

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Quiz ch 15 for auditing. miller, you are a faggot.

• 1. 

  1. The formal documentation creating bond indebtedness is called the indenture.

  • A. 

    True

  • B. 

    False

• 2. 

  2. Registered bondholders receive periodic interest payments without any action on their

  • A. 

    True

  • B. 

    False

• 3. 

  3. The auditors are required to confirm bond holdings directly with the bondholders.

  • A. 

    True

  • B. 

    False

• 4. 

  The auditors should determine that the issuance of bonds was approved by the company's stockholders

  • A. 

    True

  • B. 

    False

• 5. 

  5. Long-term liabilities that are maturing must always be classified as a current liability.

  • A. 

    True

  • B. 

    False

• 6. 

  6. Corporations maintain either a stock certificate book or a stockholders' ledger.

  • A. 

    True

  • B. 

    False

• 7. 

  7. Dividends should be authorized by the stockholders of the corporation.

  • A. 

    True

  • B. 

    False

• 8. 

  The auditors generally refer to provisions in the partnership agreement when auditing the allocation of partnership income.

  • A. 

    True

  • B. 

    False

• 9. 

  When an independent registrar and stock transfer agent is used, it is likely that the auditor will confirm the number of shares outstanding with those parties rather than the shareholders.

  • A. 

    True

  • B. 

    Fale

• 10. 

  For a continuing client, the auditors will often find that audit time required for capital stock is small in relation to the dollars recorded in the accounts.

  • A. 

    True

  • B. 

    False

• 11. 

  11. A registrar/transfer agent system relating to capital stock is most likely used by:

  • A. 

    A) A small, nonpublic company.

  • B. 

    B) A large, publicly traded company.

  • C. 

    C) All companies must use this type of system.

  • D. 

    D) No companies use this system anymore.

• 12. 

  12. In auditing long-term debt, an auditor would be most likely to:

  • A. 

    A) Perform analytical procedures on the bond prenumbered discount accounts.

  • B. 

    B) Examine documentation of assets purchased with bond proceeds for liens.

  • C. 

    C) Compare interest expense with the long-term debt amount for reasonableness.

  • D. 

    D) Confirm the existence of individual long-term debt holders at year-end.

• 13. 

  An auditor obtains evidence of stockholders' equity transactions for a publicly traded company by reviewing the entity's:

  • A. 

    A) Minutes of board of directors meetings.

  • B. 

    B) Registrar's record of interbank transfers.

  • C. 

    C) Canceled stock certificates.

  • D. 

    D) Treasury stock certificate book.

• 14. 

  14. Which of the following most likely would approve the issuance of notes payable?

  • A. 

    Controller

  • B. 

    Payroll

  • C. 

    Personnel

  • D. 

    Treasurer

• 15. 

  15. Internal control over bonds payable is best when:

  • A. 

    A) The company utilizes the services of a bond trustee.

  • B. 

    B) The company segregates approval from issuance of the bonds.

  • C. 

    C) Bonds are countersigned by two officers.

  • D. 

    D) Bonds are serially numbered.

• 16. 

  The auditor's program to examine interest-bearing debt most likely will include steps that require

  • A. 

    A) Comparing the book value of the debt to its year-end market value.

  • B. 

    B) Vouching borrowing and repayment transactions.

  • C. 

    C) Verifying the proper presentation of the debt through the use of confirmations.

  • D. 

    Inspecting the accounts payable subsidiary ledger for unrecorded interest-bearing debt.

• 17. 

  17. Bond transactions are normally confirmed with:

  • A. 

    A) Individual holders of retired bonds.

  • B. 

    B) Recomputation procedures performed using interest expense.

  • C. 

    C) The bond trustee.

  • D. 

    D) Comparisons of retired bonds with those outstanding.

• 18. 

  Company A does not employ an independent stock transfer agent, but rather issues its own stock and maintains its stock records. When outstanding shares are transferred from one holder to another the certificate of the selling shareholder should be:

  • A. 

    A) Canceled (generally by perforation) and attached to the certificate book.

  • B. 

    B) Destroyed to prevent fraudulent reissuance.

  • C. 

    C) Retained by the selling shareholder.

  • D. 

    D) Sent to the state's registrar of investment securities.

• 19. 

  19. Which of the following procedures is least likely in the audit of capital stock?

  • A. 

    A) Examine all outstanding stock certificates for completeness.

  • B. 

    B) Account for the proceeds from stock issues.

  • C. 

    C) Reconcile shares outstanding with the general ledger.

  • D. 

    D) Evaluate compliance with stock option plans.

• 20. 

  When the auditors obtain an understanding of internal control for the financing cycle documentation will frequently include a written description as well as a(n):

  • A. 

    A) List of audit objectives.

  • B. 

    B) Decision table.

  • C. 

    C) Summary of tests of controls.

  • D. 

    D) Internal control questionnaire.

• 21. 

  21. Which of the following is not a primary objective in the audit of interest-bearing debt?

  • A. 

    A) Establish the completeness of recorded interest-bearing debt.

  • B. 

    B) Establish the legality of outstanding debt.

  • C. 

    C) Determine that debt is properly valued.

  • D. 

    ) Determine that the presentation and disclosure of interest-bearing debt is appropriate.

• 22. 

  In which of the following accounts would one expect a related party transaction to be easiest to detect?

  • A. 

    A) Accounts receivable.

  • B. 

    B) Accounts payable.

  • C. 

    C) Notes payable.

  • D. 

    Cash

• 23. 

  23. For audit purposes, a corporation's articles of incorporation are normally:

  • A. 

    A) Copied and placed on the owners' equity lead schedule.

  • B. 

    B) Copied and placed in the permanent file.

  • C. 

    C) Confirmed with the transfer agent.

  • D. 

    Ignored since they are not normally considered to be related to the internal control structure.

• 24. 

  24. The audit approach for acquired treasury stock will normally include:

  • A. 

    A) Confirmation with shareholders.

  • B. 

    B) Inspection of certificates.

  • C. 

    C) Inspection of cash receipts entries.

  • D. 

    D) Recomputation of all gains and losses.

• 25. 

  25. Changes in capital stock accounts should normally be approved by:

  • A. 

    A) The board of directors.

  • B. 

    B) The audit committee.

  • C. 

    C) The stockholders.

  • D. 

    D) The president.

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