Multiple Choice Questions 1. The best evidence regarding year-end bank balances is documented in the a. Cutoff

Question:

Multiple Choice Questions
1. The best evidence regarding year-end bank balances is documented in the
a. Cutoff bank statement.
b. Bank reconciliations.
c. Interbank transfer schedule.
d. Bank deposit lead schedule.

2. Which of the following sets of information does an auditor usually confirm on one form?
a. and purchase commitments.
b. Cash in bank and collateral for loans.
c. Inventory on consignment and .
d. and accrued interest receivable.

3. An auditor should test bank transfers for the last part of the audit period and first part of the subsequent period to detect whether
a. The cash receipts journal was held open for a few days after year-end.
b. The last checks recorded before year-end were actually mailed by year-end.
c. Cash balances were overstated because cash was included in two accounts at year-end.
d. Any unusual payment to or receipts from related parties occurred.

4. On receiving a client's bank cutoff statement, an auditor most likely will trace
a. Prior-year checks listed in the cutoff statement to the year-end outstanding check list.
b. Deposits in transit listed in the cutoff statement to the year-end bank reconciliation.
c. Checks dated after year-end listed in the cutoff statement to the year-end out standing check list.
d. Deposits recorded in the cash receipts journal after year-end to the cutoff statement.

5. A client has a large and active investment that is kept in a bank safe deposit box. If the auditor is unable to count the securities at the date, the auditor most likely will
a. Request the bank to confirm to the auditor the contents of the safe-deposit box at the date.
b. Examine supporting evidence for transactions occurring during the year.
c. Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the date.
d. Request the client to have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.

6. Which of the following is the most effective audit procedure for verification of dividends earned on investment in equity securities?
a. Tracing deposited checks to the cash receipts book.
b. Reconciling amounts received with published records.
c. Comparing the amounts received with preceding year dividends received.
d. Recomputing selected extensions and footings of schedules and com paring totals to the general ledger.

7. A company makes a practice of investing excess short-term cash in trading securi ties that are traded regularly on national exchanges. A reliable test of the valuation of these securities is
a. Consideration of current market quotations.
b. Confirmation of securities held by the broker.
c. Recalculation of investment value using a valuation model.
d. Calculation of premium or discount amortization.

8. The auditor is most likely to verify the interest earned on bond investments by
a. Verifying the receipt and deposit of interest checks.
b. Confirming 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 controls relevant to cash receipts.

9. Which of the following is not one of the auditor's primary objectives in an audit of trading securities?
a. To determine whether securities are authentic.
b. To determine whether securities are the property of the client.
c. To determine whether securities actually exist.
d. To determine whether securities are properly classified on the

10. In establishing the existence and ownership of an investment held by a in the form of publicly traded stock, an auditor should inspect the securities or
a. Obtain written representations from management confirming that the securities are properly classified as trading securities.
b. Inspect the auditor's of the investee company.
c. Confirm the number of shares owned that are held by an independent custodian.
d. Determine that the investment is carried at the lower of cost of market.

Contingent liabilities
A contingent liability is an obligation of business related to an uncertain future event. The business must record it in its financial statements if the amount can be reliably estimated and it is probable that amount will be paid by business as a... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...