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wsrdpc
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32791
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acct 241 ch 10
Updated:
2010-09-10 21:29:13
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acct
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acct 241 ch 10
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  1. A clause in a loan agreement that is intended to keep the borrow's financial position at the same level it was when the loan was made is called a
    A. loan covenant
    B. indenture
    C. guarantee
    D. collateral
    A. loan covenant
    (this multiple choice question has been scrambled)
  2. Sales of capital stock and large debt financing transactions are usually authorized by
    A. management
    B. the shareholders
    C. the transfer agent
    D. the board of directors
    D. the board of directors
    (this multiple choice question has been scrambled)
  3. Company bonds and stocks are normally handled by an intermediary called a
    A. trustee
    B. transfer agent
    C. registar
    D. broker
    B. transfer agent
    (this multiple choice question has been scrambled)
  4. Controls over making estimates include all of the following except
    A. ensuring the effects of the estimate are in line with analysts forecasts
    B. comparison of prior estimates with subsequent results
    C. management communications of the need for proper accounting estimates
    D. consideration of whether estimates are consistent with the company's operation plans
    A. ensuring the effects of the estimate are in line with analysts forecasts
    (this multiple choice question has been scrambled)
  5. Inspecting marketable securities provides primary evidence about the ASB balance assertion of
    A. valuation
    B. rights and obligations
    C. existence
    d. all of the above
    C. existence
    (this multiple choice question has been scrambled)
  6. Hedging refers to
    A. management not giving direct answers in their representations
    B. using derivatives for market speculation
    C. calculating goodwill impairment
    D. using derivatives to protect companies from market uncertainties
    D. using derivatives to protect companies from market uncertainties
    (this multiple choice question has been scrambled)
  7. If market prices are not readily available for fair value measurements, management should use
    A. the previous year's value
    B. historical costs
    C.auditors' best estimates
    D. their own assumptions as long as there are no contrary data
    D. their own assumptions as long as there are no contrary data
    (this multiple choice question has been scrambled)
  8. Goodwill impairment refers to
    A. a need for increased professional skepticism
    B. the amount of amortization
    C. loss of trust from customers
    D. a permanent decline in value of recorded goodwill
    D. a permanent decline in value of recorded goodwill
    (this multiple choice question has been scrambled)
  9. Estimates in the finance and investment cycle include
    a. probability of a correlated hedge
    b. classification of equity investments
    c. actuarial assumptions for pension costs
    d. all of the above
    d. all of the above
  10. Financial planning usually starts with the
    A. authorization of stock sale or debt financing
    B. cash flow forecast
    C. capital budget
    d. none of the above
    B. cash flow forecast
    (this multiple choice question has been scrambled)
  11. In determining the effectiveness of an entity's policies and procedures relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and:
    A. verify the preparation of the monthly payroll account bank reconciliation
    B. inspect evidence of accounting for pre-numbered payroll checks
    C. observe the segregation of duties concerning personnel responsibilities and payroll disbursement
    D. re compute the payroll deductions for employee fring benefits
    C. observe the segregation of duties concerning personnel responsibilities and payroll disbursement
    (this multiple choice question has been scrambled)
  12. Jones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities. Which of the following is the best method of verifying the accuracy of recorded dividend income?
    A. comparing recorded dividends with a standard financial reporitng service's record of dividends
    B. utilizing analytical procedures and statistical sampling
    C. tracing recorded dividend income to cash receipts records and validated deposit slips
    D. comparing recorded dividends with amounts appearing on federal information Form 1099
    A. comparing recorded dividends with a standard financial reporitng service's record of dividends
    (this multiple choice question has been scrambled)
  13. When a large amount of negotiable securities is held by the client, auditors need to plan to guard against:
    A. subsitution of authentic securities with counterfeit securities
    B. unrecorded sales of securities after they are counted
    C. unauthorized negotiation of the securities before they are counted
    D. substitution of securities already counted for other securities that should be on hand but are not
    D. substitution of securities already counted for other securities that should be on hand but are not
    (this multiple choice question has been scrambled)
  14. In connection with the audit of an issue of long term bonds payable, the auditor should:
    A. ascertain that the client has obtained the opinion of counsel on the legality of the issue
    B. calculate the effective interest rate to see if it is substantially the same as the rates for similar issues
    C. determine whether bondholders are persons other than owners, directors, or officers of the company issuing the bond
    D. decide whether the bond issue was made without violating state or local law
    A. ascertain that the client has obtained the opinion of counsel on the legality of the issue
    (this multiple choice question has been scrambled)
  15. Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?
    A. entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors
    B. stock dividends and stock splits during the year under audit were approved by the stockholders
    C. changes in the capital stock account are verified by an independent stock transfer agent
    D. stock dividends are capitalized at par or stated value on the dividend declaration date
    A. entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors
    (this multiple choice question has been scrambled)
  16. If the auditor discovers that the carrying amount of a client's invsetments is overstated because of a loss in value that is other than a temporary decline in market value, the auditor should insist that:
    A. the equity section of the balance sheet separately shows a charge equal to the amount of the loss
    B. the investments are classified as long term for balance sheet purposes with full disclosure in the footnotes
    C. the approximate market value of the investments is shown in parentheses on the face of the balance sheet
    D. the loss in value is recognized in the financial statements
    D. the loss in value is recognized in the financial statements
    (this multiple choice question has been scrambled)
  17. The primary reason for preparing a reconciliation between interest bearing obligations outstanding during the year and interest expense in the financial statements is to:
    A. detect unrecorded liabilities
    B. determine the validity of prepaid interest expense
    C. evaluate internal control over securities
    D. ascertain the reasonableness of imputed interest
    A. detect unrecorded liabilities
    (this multiple choice question has been scrambled)
  18. The auditor should insist that a representative of the client be present during the inspection and count of securities to:
    A. acknowledge the receipt of securities returned
    B. detect forged securities
    C. lend authority to the auditor's directives
    D. coordinate the return of all securities to proper locations
    A. acknowledge the receipt of securities returned
    (this multiple choice question has been scrambled)
  19. When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records, canceled stock certificates should:
    A. be defaced and sent to the Secretary of State
    B. not be defaced, but segregated from other stock certificates and retained in a canceled certificates file
    C. be defaced to prevent re-issuance and attached to their corresponding stubs
    D. be destroyed to prevent fraudulent re-issuance
    C. be defaced to prevent re-issuance and attached to their corresponding stubs
    (this multiple choice question has been scrambled)
  20. When a clent company does not maintain its own capital stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning:
    A. the number of shares subject to agreements to repurchase
    B. the number of shares issued and outstanding
    C. restrictions on the payment of dividends
    D. guarantees of preferred stock liquidation value
    B. the number of shares issued and outstanding
    (this multiple choice question has been scrambled)
  21. All corporate capital stock transactions should ultimately be traced to the:
    A. numbered stock certificates
    B. cash receipts journal
    C. minutes of meetings of the baord of directors
    D. cash disbursements journal
    C. minutes of meetings of the baord of directors
    (this multiple choice question has been scrambled)
  22. An audit program for the examination of the retained earnings account should include a step that requires verification of the (choose 2 steps)
    A. gain or loss resulting from disposition of treasury shares
    B. approval of the adjustment to the beginning balance as a result of a write down of accounts receivable
    C. market value used to charge retained earnings to account for a 2 for 1 stock split
    D. authorization for both cash and stock dividends
    D. authorization for both cash and stock dividends

    d. gain or loss resulting from disposition of treasury shares
    (this multiple choice question has been scrambled)
  23. When a entity uses a trust company as custodian of its marketable securites, the possibility of concealing fraud most likely would be reduced if the:
    A. trust company places the securties in a bank safe-depost vault under the custodian's exclusive control
    B. securities are registered in the name of the trust comapny, rather than the entity itself
    C. trust company has no direct contact with the entity empoloyees responsible for maintain investment accounting records
    D. interest and dividend checks are mailed directly to an entity employee who is authorized to sell
    C. trust company has no direct contact with the entity empoloyees responsible for maintain investment accounting records
    (this multiple choice question has been scrambled)
  24. An auditor would most likely verify the interest earned on bond investments by:
    A. testing internal controls relevant to cash receipts
    B. confirming the bond interest rate with the issuer of the bonds
    C. vouching the receipt and deposit of interest checks
    D. recomputing the interest earned on the basis of face amount, interest rate, and period held
    D. recomputing the interest earned on the basis of face amount, interest rate, and period held
    (this multiple choice question has been scrambled)
  25. A client has a large and active investment portfolio that is kept in bank safe deposit box. If the auditor is unable to count securities at the balance sheet date, the auditor most likely will:
    A. request the client to have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date
    B. examine supporting evidence for transactions occurring during the year
    C. request the bank to confirm to the auditor the contents of the safe-deposit box at the balance sheet date
    D. count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date
    A. request the client to have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date
    (this multiple choice question has been scrambled)
  26. An auditor testing long-term investments would ordinarily use analytical procedures to ascertain the resonableness of the:
    A. valuation of trading securities
    B. completeness of recorded investment income
    C. existence of unrealized gains or losses
    D. classification as available for sale or trading securities
    B. completeness of recorded investment income
    (this multiple choice question has been scrambled)
  27. In auditing for unrecorded long term bonds payable, an auditor most likely will:
    A. confirm the existence of individual bondholders at year end
    B. examine documentation of assets purchased with bond proceeds for liens
    C. perform analytical procedures on the bond premium and discount accounts
    D. compare interest expense with the bonds payable amount of reasonableness
    D. compare interest expense with the bonds payable amount of reasonableness
    (this multiple choice question has been scrambled)
  28. An auditor's program to examine long term debt most likely would include steps that require:
    A. inspecting the accounts payable subsidiary ledge for unrecorded long term debt
    B. correlating interest expense recorded for the period with outstanding debt
    C. comparing the carrying amount of held to maturity securities with their year end market values
    D. verifying the existence of the holders of the debt by direct confirmation
    B. correlating interest expense recorded for the period with outstanding debt
    (this multiple choice question has been scrambled)
  29. Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?
    A. Are direct borrowings on notes payable authorized by the board of directors?
    B. Are 2 or more authorized signatures required on checks that repay notes payable?
    C. Are assets the collateralize notes payable critically needed for the entity's continued existence?
    D. Are the proceeds from notes payable used for the purpose of noncurrent assets?
    A. Are direct borrowings on notes payable authorized by the board of directors?
    (this multiple choice question has been scrambled)
  30. An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely to obtain evidence concerning management's assertions about:
    A. valuation or allocation
    B. presentation and disclosure
    C. existence or occurrence
    D. completeness
    A. valuation or allocation
    (this multiple choice question has been scrambled)