Chapter 15 Smartbook

True or false: The bylaws of a corporation usually require the treasurer approve borrowing.

False

Secured liabilities should be disclosed in the notes to the financial statements and cross-referenced to ______. Multiple choice question. related party pledged assets type of payee

pledged assets

Auditors review payments after the balance sheet date but before the end of the audit engagement to ______. Multiple choice question. determine appropriate classification of the liability determine completeness of the liability provide additional evidence on the liability

provide additional evidence on the liability

The board must approve all dividend declarations including the amount per share, the date of declaration, date of_____ , and date of payment.

record

When a trustee is used to make bond interest payments, the trustee maintains a current list of bond holders and remits checks to them for ______. Multiple choice question. registered bonds only both registered and bearer bonds bearer bonds only

registered bonds only

In addition to bank statements, auditors can also trace proceeds from capital stock issues to ______. Multiple choice question. registration statements of the SEC board of director meeting minutes treasury stock transactions

registration statements of the SEC

Bond transactions are usually confirmed directly with ______. Multiple choice question. financial institutions payee mortgagee trustees

trustees

In a small corporation that does not use a dividend-paying agent, which person is responsible for preparing a list of stockholders as of the date of record, the number of shares held by each, and the amount of dividends each is to receive? Multiple choice question. Secretary Treasurer Controller

Secretary

Which internal control feature allows auditors to account for all stock certificates? Multiple choice question. Board of director authorization Stock certificate numbers Stock certificate book

Stock certificate numbers

Testing for unrecorded liabilities, evaluating compliance with debt provisions, tests of interest expense is performed ______. Multiple choice question. in the period in advance of the balance sheet date after the close of the period being audited either before or after the balance sheet date

after the close of the period being audited

All changes in capital stock should be authorized by ______. Multiple choice question. controller board of directors treasurer transfer agent

board of directors

Long-term bonds backed only by the general credit of the issuing corporation and not by liens on specific assets are called bonds.

debenture

Testing for debt generally uses _____-______ transaction testing as auditors are able to substantiate individual transactions and test controls at the same time.

dual purpose

The acquisition and repayment of capital is sometimes referred to as the ______ cycle

financing

For stock option plans, auditors need to obtain detailed analyses for stock options ______. Multiple select question. retired issued outstanding authorized

issued outstanding authorized

Auditors should obtain an understanding of the client's internal control procedures for these activities related to capital stock transactions. Multiple select question. Authorizing Canceling Voting Recording

Authorizing Recording

True or false: Auditors generally perform audit work related to debt in advance of the balance sheet date.

False

True or false: Many of the principles related to accounts receivable also apply to the audit of debt.

False

True or false: One of the auditors' roles in the audit of debt is to judge the legality of a bond issue.

False

Auditors should be familiar with the terms of any stock options and stock purchase plans so they can determine ______. Multiple select question. cutoff of transactions adequate disclose appropriate measurement number of exercise options

adequate disclose appropriate measurement

Auditors should trace proceeds from the issuance of capital stock to ______. Multiple select question. bank statements stockholder agreements cash records board of director meeting minutes

bank statements cash records

Appropriations of retained earnings require specific authorization by the ______. Multiple choice question. treasurer of the company management board of directors

board of directors

For strong internal control, all changes in capital stock accounts should be authorized by the ______. Multiple choice question. controller board of directors chief executive officer (CEO) treasurer

board of directors

The bylaws of a corporation usually require that borrowing is approved by the ______. Multiple choice question. board of directors chief executive officer (CEO) chief financial officer (CFO) treasurer

board of directors

Auditors find evidence of authorizations of transactions related to the company's stock in ______. Multiple choice question. agreement with stock transfer agent stock invoices board of directors meeting minutes

board of directors meeting minutes

Noncompliance with debt covenants is a(n)_____ risk related to deb

business

For corporate clients, owner's equity consists of ______. Multiple select question. bonds payable capital stock accounts ownership transfer retained earnings

capital stock accounts retained earnings

Auditors review renewals of notes maturing after the balance sheet date to determine proper _________of these liabilities

classification

Auditors examine the relationship between recorded interest expense and the average principal amount of debt outstanding during the year as a test of ______. Multiple choice question. completeness accuracy cutoff valuation

completeness

Auditors use their understanding of the client and its environment to directly ______. Multiple choice question. assess the risks of material misstatement and design substantive procedures consider inherent risks including fraud risks related to owners' equity assess the risks of material misstatement and design tests of controls

consider inherent risks including fraud risks related to owners' equity

Auditors should trace information in confirmation replies for shares outstanding to ______. Multiple choice question. corporate records contracts with underwriters the SEC registration statements

corporate records

When the company has not fully complied with the requirements of a bond issue, the debt may have to be reclassified as a ______. Multiple choice question. long-term note payable current liability reduction to stockholders' equity

current liability

Types of long-term debt include ______. Multiple select question. capital stock debentures unearned revenue secured bonds

debentures secured bonds

Treasury stock is usually shown as a(n) ______. Multiple choice question. deduction in the equity section intangible asset addition in the equity section current or long-term liability, depending on the company's intent

deduction in the equity section

To audit employee stock option plans, auditors should ______. Multiple choice question. trace option values to market transactions determine the assumptions of the pricing model used are reasonable use management's computations for options value

determine the assumptions of the pricing model used are reasonable

The financing cycle includes recording acquisition and payments of bank loans as well as ______. Multiple select question. dividend payments interest payments inventory purchases equipment purchases

dividend payments interest payments

Auditors should reconcile the general ledger control account, stockholders ledger, and stock certificate book to ______. Multiple select question. verify the proper amount of dividends were paid establish the amount of outstanding stock establish the number of authorized shares rule out the possibility of an overissuance of shares

establish the amount of outstanding stock rule out the possibility of an overissuance of shares

The compensation cost of employee stock options should be measured at ______ ______creating challenges for auditors to determine appropriate valuation.

fair value

Transactions in the owners' equity accounts are generally ______ in number and ______ in amount. Multiple choice question. large; immaterial large; material few; immaterial few; material

few; material

Changes in retained earnings during the year may be shown ______. Multiple select question. in a combined statement of income and retained earnings on the balance sheet on the statement of cash flows in a separate statement

in a combined statement of income and retained earnings in a separate statement

An organization that is large enough to issue bonds and able to find a market for the securities will typically seek the services of a large bank as a(n)___ ___

independent trustee

Current liabilities include ______. Multiple choice question. installments currently payable on long-term obligations only notes that are maturing within 12 months

installments currently payable on long-term obligations

The financing cycle includes recording acquisition and payments of bank loans as well as ______. Multiple select question. interest payments equipment purchases inventory purchases dividend payments

interest payments dividend payments

A bond due in six months that will be paid from special funds should be classified as a ______. Multiple choice question. long-term obligation current liability

long-term obligation

Adequate internal control for corporations using paper stock certificates required that all canceled stock certificates be ______. Multiple choice question. locked up and preserved for reissue in the future destroyed marked to prohibit future use

marked to prohibit future use

The propriety of installment payments should be verified by reference to the ______. Multiple choice question. trustee schedule financial institution confirmation note repayment schedule

note repayment schedule

An analysis of the ____ _____account serves a number of purposes, including verification of payments, the propriety or debits and credits, and the year end balance.

notes paybale

For the current year debt working papers, auditors should obtain analyses of general ledger accounts for ______. Multiple select question. notes receivable notes payable interest expense interest revenue

notes payable interest expense

Auditors must determine that the information provided about debt, including major provisions of loan agreements, is appropriate, to satisfy the ______ and ______ audit objective

presentation disclosure

Use of a notes payable analysis allows auditors to ______. Multiple select question. prove the year-end balance of the account establish the propriety of individual debits and credits confirm debt and evaluate debt provisions verify payment or disposition of outstanding notes in prior year's audit

prove the year-end balance of the account establish the propriety of individual debits and credits verify payment or disposition of outstanding notes in prior year's audit

The use of dividend paying agent in dividend distributions ______. Multiple choice question. has no effect on the possibility of errors or fraud increases the possibility of errors or fraud reduces the possibility of errors or fraud

reduces the possibility of errors or fraud

To achieve effective control, many corporations assign the task of paying interest to the trustee for ______. Multiple select question. registered bonds notes payable bearer bonds

registered bonds bearer bonds

To verify details of complex financing arrangements, auditors ______ confirmation letter to the financial institution. Multiple choice question. include questions about the financing in the standard send a separate

send a separate

To verify details of complex financing arrangements, auditors ______. Multiple choice question. send a separate confirmation letter to the financial institution examine disclosure in the notes review notes payable agreements in the permanent file

send a separate confirmation letter to the financial institution

Auditors determine that the proper amounts have been transferred from retained earnings to capital stock and paid-in capital in the verification of ______ dividends.

stock

The record of serially numbered certificates with attached stubs used to track the number of shares, names of shareholders, and serial number of certificates is called the ______. Multiple choice question. stock transfer agent record stock registrar list stock certificate book stockholders ledger

stock certificate book

To establish the amount of outstanding stock, auditors should reconcile general ledger accounts for capital stock with stockholders ledger and the ______. Multiple choice question. stock certificate book registration statements contract with underwriters

stock certificate book

The primary responsibility of the ______ is to control the issuance of stock and prevent any over issuance of stock. Multiple choice question. treasurer stock registrar controller stock transfer agent

stock registrar

Auditors should inspect any shares of _______stock owned by the company that are on hand or confirm the transactions with the transfer agent.

treasury

A major potential audit problem is ______ of debt. Multiple choice question. understatement confirmation overstatement

understatement

Auditors test debt recorded at fair value using ______. Multiple select question. confirmations debt analysis unobservable inputs observable inputs

unobservable inputs observable inputs

A major inherent risk of debt is ______. Multiple choice question. overstatement of debt understatement of debt risk of material misstatement

understatement of debt

For stock options, auditors must determine that the number of shares held in reserve at the balance sheet date do not exceed the corporation's authorized but ________ stock.

unissued

Audit procedures for debt ______. Multiple select question. use dual-purpose transaction testing include a documentation of internal control distinguish between tests of controls and substantive procedures

use dual-purpose transaction testing include a documentation of internal control

Auditors vouch the cash received from the issuance of notes, bonds, or mortgages to ______. Multiple choice question. canceled notes payable payment checks validated bank deposit slips

validated bank deposit slips

True or false: The audit work for capital stock is usually far less than that required for assets, liabilities, revenue, or expense.

True

Material misstatements related to the financing cycle may occur when ______ Multiple select question. a loan is not recorded an interest bearing note is recorded as an accounts payable note disclosures are incomplete debt is recorded as a revenue

a loan is not recorded debt is recorded as a revenue

The analysis of stockholder's equity typically includes few transactions but material amounts so auditors typically perform the analysis ______. Multiple choice question. after the year-end date at the beginning of the client's fiscal year at interim before the year-end date

after the year-end date

Analytical procedures for interest-bearing debt include comparing the year-end amount of debt with ______. Multiple choice question. amount in prior year's balance sheet budgeted debt for next year amount in prior year's income statement discount amortization

amount in prior year's balance sheet

Debits to retained earnings ordinarily include entries for ______. Multiple select question. purchase of treasury stock appropriated reserves net losses dividends

appropriated reserves net losses dividends

Auditors review minutes of directors' meetings to determine bonds outstanding were ______. Multiple choice question. authorized properly recorded paid when due

authorized

For each issue of capital stock, auditors need information on the number of shares ______ and issued, par or stated value, and dividend rates.

authorized

When auditing owner's equity accounts, auditors also obtain evidence about the related accounts of ______. Multiple select question. capital stock discounts dividends payable bonds payable premium capital stock premiums

capital stock discounts dividends payable capital stock premiums

Transfer of ownership of shares from one shareholder to another ______. Multiple choice question. affects the company's capital stock accounts may or may not affect retained earnings does not affect the company's equity accounts

does not affect the company's equity accounts

Auditors confirm debt with ______. Multiple select question. stock transfer agents using confirmation requests financial institutions using standard confirmation forms bond trustees payees using confirmation requests customers using confirmation requests

financial institutions using standard confirmation forms bond trustees payees using confirmation requests

Auditors confirm the number of shares issued and outstanding with the ______. Multiple select question. individual stockholders independent registrar stock transfer agent board of directors

independent registrar stock transfer agent

Internal control over bonds payable is strengthened by the use of a(n) ______. Multiple choice question. bank independent trustee board of directors treasurer

independent trustee

When auditing debt, auditors also obtain evidence about all of the following except ______. Multiple choice question. interest expense bond discount interest revenue bond premium

interest revenue

Auditors can document their understanding of internal control over capital stock transactions by using ______. Multiple select question. internal control questionnaires written descriptions walkthroughs flowcharts confirmations with transfer agents

internal control questionnaires written descriptions flowcharts

For cash dividends, auditors ______. Multiple select question. determine the proper amount has been transferred to capital stock verify the amounts paid verify amounts received for stock issuance determine the dates and amounts of dividends authorized

verify the amounts paid determine the dates and amounts of dividends authorized

Auditors test whether a company is in compliance with indenture provisions by ______. Multiple select question. counting cash on hand to ensure the minimum amount is being maintained vouching payments to a sinking fund examining evidence of insurance coverage comparing amounts of management compensation to agreements

vouching payments to a sinking fund examining evidence of insurance coverage comparing amounts of management compensation to agreements

The presentation of stockholder's equity should include all of the following except ______. Multiple choice question. changes in retained earnings during the year the title of each capital stock issue; par or stated value, numbers of shares authorized, issued and in treasury treasury stock at cost as a deduction from combined total of paid-in capital and retained earnings

changes in retained earnings during the year

Long-term liabilities that maturity within one year are ______. Multiple choice question. classified as long-term if the client has the intent and ability to refinance always classified as current liabilities, regardless of client intent always classified as long-term liabilities with a note that discusses maturity

classified as long-term if the client has the intent and ability to refinance

Auditors test the valuation of debt by ______. Multiple choice question. testing the amounts of premium or discount amortizations determining the fair market value at the balance sheet date examining paid checks related to debt

testing the amounts of premium or discount amortizations

To determine bonds outstanding were authorized, auditors review: Multiple choice question. minutes of directors' meetings bank deposits confirmation letters

minutes of directors' meetings

Auditors design substantive procedures that substantiate the existence of owner's equity and the ____ of the related transactions.

occurence

Copies of loan agreements relating to a bond issue should be put in the auditor's ______. Multiple choice question. current year working papers permanent file prior year working papers

permanent file

For companies not served by a transfer agent, auditors usually prepare a list of shareholders and the number of shares owned by each for the ______. Multiple choice question. permanent file prior year working papers current year working papers

permanent file

Separation of duties for equity transactions is strong when the company uses an independent stock registrar and a(n) ______. Multiple choice question. board of directors registered clearing house independent treasurer stock transfer agent

stock transfer agent

To determine the total number of shares owned by any one person the auditor can review the_____ _____.

stockholders ledger

Auditors need to vouch changes in capital stock accounts to ______. Multiple choice question. prior year working papers supporting documents and records financial statement disclosures

supporting documents and records