Multiple Choice 1 The tick mark most likely indicates that
Multiple Choice
1. The tick mark most likely indicates that the amount was traced to the
a. December cash disbursements journal.
b. Outstanding check list of the applicable bank reconciliation.
c. January cash disbursements journal.
d. Year- end bank confirmations.

2. The tick mark most likely indicates that the amount was traced to the
a. Deposit in transit of the applicable bank reconciliation.
b. December cash receipts journal.
c. January cash receipts journal.
d. Year- end bank confirmations.

3. An auditor ordinarily sends a standard confirmation request to all banks with which the entity has done business during the year under audit, regard-less of the year- end balance. One purpose of this procedure is to
a. Provide the data necessary to prepare a proof of cash.
b. Request that a cutoff bank statement and related checks be sent to the auditor.
c. Detect kiting activities that may otherwise not be discovered.
d. Seek information about loans from the banks.

4.The primary evidence regarding year- end bank balances is documented in the
a. Standard bank confirmations.
b. Outstanding check listing.
c. Interbank transfer schedule.
d. Bank deposit lead schedule.

5. On receiving the cutoff bank statement, the auditor should vouch
a. Deposits in transit on the year- end bank reconciliation to deposits in the cash receipts journal.
b. Checks dated before year- end listed as outstanding on the year- end bank reconciliation to the cutoff statement.
c. Deposits listed on the cutoff statement to deposits in the cash receipts journal.
d. Checks dated after year- end to outstanding checks listed on the year- end bank reconciliation and to the cutoff statement.

6. Which of the following cash transfers results in a misstatement of cash at December 31?

7. Which of the following controls would most effectively ensure that the proper custody of assets in the investing process is maintained?
a. Direct access to securities in the safe- deposit box is limited to one corporate officer.
b. Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger.
c. Purchase and sale of investments are executed on the specific authorization of the board of directors.
d. The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safe- deposit box by independent personnel.

8. An auditor testing long- term investments would ordinarily use substantive analytical procedures to ascertain the reasonableness of the
a. Existence of unrealized gains or losses in the portfolio.
b. Completeness of recorded investment income.
c. Classification between current and noncurrent portfolios.
d. Valuation of marketable equity securities.

9. To establish the existence and rights of a long- term investment in the common stock of a publicly traded company, an auditor ordinarily performs a security count or
a. Relies on the entity’s internal controls if the auditor has reasonable assur-nce that the control activities are being applied as prescribed.
b. Confirms the number of shares owned that are held by an independent custodian.
c. Determines the market price per share at the balance sheet date from pub-lished quotations.
d. Confirms the number of shares owned with the issuing company.

10. Which of the following is likely to be the most effective audit procedure for verifying dividends earned on investments in publicly traded equity securities?
a. Trace deposits of dividend checks to the cash receipts book.
b. Reconcile recorded earnings with the dividend earnings reported in the investment broker statement.
c. Compare the amounts received with prior- year dividends received.
d. Recompute selected extensions and footings of dividend schedules and compare totals to the general ledger.

11. An auditor would most likely verify the interest earned on bond investments by
a. Vouching the receipt and deposit of interest checks.
b. Confirming the bond interest rate with the issuer of the bonds.
c. Recomputing the interest earned on the basis of face amount, interest rate, and period held.
d. Testing the controls over cash receipts.

12. The audit firm’s valuation specialist would likely be brought in to assist in the audit of fair value measurements at an entity when the following is present:
a. The entity is a new audit client.
b. Significant uncertainty exists in key inputs to the entity’s valuation models.
c. The entity has a financial instrument with a Level 2 input.
d. The entity owns a large and diverse portfolio of publicly tradedstock.
Membership TRY NOW
  • Access to 800,000+ Textbook Solutions
  • Ask any question from 24/7 available
  • Live Video Consultation with Tutors
  • 50,000+ Answers by Tutors
Relevant Tutors available to help