Chapter 15

An audit plan for the examination of the retained earnings account should include a step that requires verification of the:

Authorization for both cash and stock dividends.

When no independent stock transfer agent is employed and the corporation issues its own stocks and maintains stock records, canceled stock certificates should:

Be defaced to prevent reissuance and attached to their corresponding stubs.

An auditor who is auditing for acquired treasury stock will normally expect to see an entry in which journal?

Cash disbursements.

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

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

The auditor can best verify a client's bond sinking fund transactions and year-end balance by:

Confirmation with the bond trustee.

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

Copied and placed in the permanent file.

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial statements is to:

Detect unrecorded liabilities.

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

Minutes of board of directors meetings.

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

Notes payable.

During its fiscal year, a company issued, at a discount, a substantial amount of first-mortgage bonds. When performing audit work in connection with the bond issue, the independent auditor should:

Review the minutes for authorization.

For a corporation that does not utilize the services of an independent registrar and stock transfer agent, which of the following represents a weakness in internal control over stock issuance?

Stock certificates are signed immediately upon receipt from the printer.

Changes in capital stock accounts should normally be approved by:

The board of directors.

Internal control over bonds payable is best when:

The company utilizes the services of a bond trustee.

Which of the following is an auditor most likely to confirm from the transfer agent and registrar?

Total shares of stock issued.

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

Vouching borrowing and repayment transactions.