Question 1

The authorization of an issuance of capital stock normally includes all but which of the following?

Accepted Answer

The authorization of an issuance of capital stock usually includes the type of stock to be issued, the number of shares to be issued, and the date that shares are to be issued. However, the amount of dividend to be paid on the shares issued is usually determined after the shares have been issued and will depend on factors such as the company's financial performance and profitability.

Question 2

The three most important balance-related audit objectives for notes payable are existence, realizable value, and accuracy.

Accepted Answer

The three most important balance-related audit objectives for notes payable are existence, completeness, and valuation and allocation.

Question 3

The record of the issuance and repurchase of capital stock for the life of the corporation is maintained in the:

Accepted Answer

The record of the issuance and repurchase of capital stock is maintained in the capital stock certificate record, which tracks the ownership of the corporation's stock. The shareholders' capital stock master file and schedule of stock owners may exist, but they are not the primary record of the issuance and repurchase of capital stock. The corporate directory is a document that contains the contact information for the corporation's officers and directors.

Question 4

The audit procedure "Examine notes payable, minutes, and bank confirmations for restrictions" is performed when verifying the classification objective for notes payable.

Accepted Answer

This audit procedure is performed when verifying the disclosure objective for notes payable, as it aims to ensure that any restrictions on the use of the borrowed funds or the payment terms are properly disclosed in the financial statements.

Question 5

The record of the outstanding shares at any given time is maintained in the:

Accepted Answer

The shareholders' capital stock master file is the most likely choice for maintaining the record of outstanding shares, as it provides a comprehensive overview of all shareholders and their ownership stakes in the company. Options A, B, and C are not as likely, as the corporate directory may not include ownership information, stock certificate books only track specific transactions, and a schedule of stock owners may not be a formal document.

Question 6

The amount of time spent verifying owners' equity is frequently minimal for closely held corporations because:

Accepted Answer

The answer of The amount of time spent verifying owners'...

Question 7

The audit procedure "Foot the notes payable list and trace the totals to the general ledger" is performed when verifying the accuracy objective for notes payable.

Accepted Answer

The answer of The audit procedure "Foot the notes payable...

Question 8

The audit procedure "Examine paid notes for cancellation to make sure they are not still outstanding" is performed when verifying the completeness objective for notes payable.

Accepted Answer

This is a valid audit procedure for verifying the completeness objective for notes payable, as it ensures that all paid notes have been properly cancelled and are not still outstanding.

Question 9

Which of the following owners' equity transactions usually require specific authorization from a company's board of directors?

Accepted Answer

The answer of Which of the following owners' equity transactions...

Question 10

Any company with stock listed on a securities exchange is required to engage a(n) ________.

Accepted Answer

The answer of Any company with stock listed on a...

Question 11

Discuss the four key controls over notes payable.

Accepted Answer

The answer of Discuss the four key controls over notes...

Question 12

Which of the following types of owners' equity transactions would not require authorization by the board of directors?

Accepted Answer

All the listed transactions typically require board authorization as they significantly impact the company's financial structure and shareholder interests.

Question 13

The balance-related audit objective realizable value is not applicable when auditing notes payable.

Accepted Answer

Realizable value is a relevant audit objective for assets, not liabilities. Notes payable is a liability and is not subject to realizable value considerations.

Question 14

When a company maintains its own records of stock transactions and outstanding stock, internal controls must be adequate to ensure that:

Accepted Answer

Internal controls must be in place to ensure that the correct amount of dividends is paid to stockholders who own the stock on the dividend record date, which is typically a few weeks before the payment date. This helps prevent errors or fraud in the distribution of dividends. While the company's bylaws and minutes should accurately reflect ownership, these records do not directly impact the payment of dividends.

Question 15

Which of the following would generally not need to be approved by the board of directors?

Accepted Answer

Payment of a dividend would typically not require approval by the board of directors as long as the company has sufficient funds and the dividend does not exceed any restrictions or limitations set by the board or relevant laws/regulations. However, the declaration of a dividend (Option C) may require board approval as it involves the decision to distribute earnings to shareholders. Issuing and repurchasing capital stock (Options A and B) would also typically require board approval as they involve significant changes to the company's ownership and capital structure.

Question 16

If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock:

Accepted Answer

The registrar or transfer agent can provide confirmation of the number of shares issued and outstanding at the balance sheet date, which is important information for the audit. The other options are also important, but not as essential as knowing the number of shares outstanding at the balance sheet date.

Question 17

Discuss the overall objectives of the audit of notes payable.

Accepted Answer

The answer of Discuss the overall objectives of the audit...

Question 18

When a dividend is declared by the board of directors, the source for determining who should receive dividend checks is the:

Accepted Answer

The shareholders' capital stock master file contains detailed information about each shareholder, including their current address and the number of shares owned, making it the primary source for determining who should receive dividend checks when they are declared.

Question 19

When performing analytical procedures for notes payable, if actual interest expense is materially larger than the auditor's expectation, one possible cause would be interest payments on unrecorded notes payable.

Accepted Answer

If actual interest expense is materially larger than the auditor's expectation, it could be due to interest payments on unrecorded notes payable, which would cause an understatement of the company's liabilities and expenses. Other possible causes could also be considered by the auditor, such as changes in interest rates, terms of the notes or noncompliance with loan covenants. The auditor should investigate the discrepancies and obtain sufficient evidence to support the financial statement assertions.

Question 20

Notes payable are generally for short periods of time.

Accepted Answer

The answer of Notes payable are generally for short periods...

Quiz 22: Audit of the Capital Acquisition and Repayment Cycle