acct 241 ch 10

  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

    D. loan covenant
  2. Sales of capital stock and large debt financing transactions are usually authorized by

    C. the board of directors
  3. Company bonds and stocks are normally handled by an intermediary called a

    A. transfer agent
  4. Controls over making estimates include all of the following except

    C. ensuring the effects of the estimate are in line with analysts forecasts
  5. Inspecting marketable securities provides primary evidence about the ASB balance assertion of

    A. existence
  6. Hedging refers to

    B. using derivatives to protect companies from market uncertainties
  7. If market prices are not readily available for fair value measurements, management should use

    B. their own assumptions as long as there are no contrary data
  8. Goodwill impairment refers to

    B. a permanent decline in value of recorded goodwill
  9. Estimates in the finance and investment cycle include

    D. all of the above
  10. Financial planning usually starts with the

    B. cash flow forecast
  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:

    B. observe the segregation of duties concerning personnel responsibilities and payroll disbursement
  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
  13. When a large amount of negotiable securities is held by the client, auditors need to plan to guard against:

    C. substitution of securities already counted for other securities that should be on hand but are not
  14. In connection with the audit of an issue of long term bonds payable, the auditor should:

    C. ascertain that the client has obtained the opinion of counsel on the legality of the issue
  15. Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?

    C. entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors
  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:

    C. the loss in value is recognized in the financial statements
  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:

    D. detect unrecorded liabilities
  18. The auditor should insist that a representative of the client be present during the inspection and count of securities to:

    B. acknowledge the receipt of securities returned
  19. When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records, canceled stock certificates should:

    B. be defaced to prevent re-issuance and attached to their corresponding stubs
  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 issued and outstanding
  21. All corporate capital stock transactions should ultimately be traced to the:

    B. minutes of meetings of the baord of directors
  22. An audit program for the examination of the retained earnings account should include a step that requires verification of the (choose 2 steps)

    C. authorization for both cash and stock dividends

    d. gain or loss resulting from disposition of treasury shares
  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:

    D. trust company has no direct contact with the entity empoloyees responsible for maintain investment accounting records
  24. An auditor would most likely verify the interest earned on bond investments by:

    B. recomputing the interest earned on the basis of face amount, interest rate, and period held
  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:

    D. request the client to have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date
  26. An auditor testing long-term investments would ordinarily use analytical procedures to ascertain the resonableness of the:

    B. completeness of recorded investment income
  27. In auditing for unrecorded long term bonds payable, an auditor most likely will:

    D. compare interest expense with the bonds payable amount of reasonableness
  28. An auditor's program to examine long term debt most likely would include steps that require:

    C. correlating interest expense recorded for the period with outstanding debt
  29. Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?

    D. Are direct borrowings on notes payable authorized by the board of directors?
  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:

    C. valuation or allocation
Card Set
acct 241 ch 10
acct 241 ch 10