Multiple Choice Questions The following multiple choice questions concern interest-bearing liabilities. Choose the best response. a. The

Question:

Multiple Choice Questions
The following multiple choice questions concern interest-bearing liabilities. Choose the best response.
a. The audit program for long-term debt should include steps that require the
(1) Verification of the existence of the bondholders.
(2) Examination of any bond trust indenture.
(3) Inspection of the master file.
(4) Investigation of credits to the bond interest income account.
b. During the year under audit, a company has completed a private placement of a substantial amount of bonds. Which of the following is the most important step in the auditor's program for the audit of bonds payable?
(1) Recomputing the annual interest cost and the effective yield.
(2) Confirming the amount issued with the bond trustee.
(3) Tracing the cash received from the issue to the accounting records.
(4) Examining the bond records maintained by the transfer agent.
c. Which of the following controls will most likely justify a reduced assessed level of control risk for the completeness assertion for notes payable?
(1) The accounting staff reviews board of director minutes for any indication of any transactions involving outstanding debt to make sure all borrowings are included in the general ledger.
(2) All borrowings that exceed $500,000 require approval from the board of directors before loan contracts can be finalized.
(3) Before approving disbursement of principal payments on notes payable, the treasurer reviews terms in the note.
(4) Accounting maintains a detailed schedule of outstanding note payable that is reconciled monthly to the general ledger.
d. In the audit of notes payable, which balance-related audit objective is generally one of the most important for the auditor to verify?
(1) Notes payable reflected on the at the end of the year exist.
(2) Notes payable due to related parties are properly reflected on the Existing notes payable are included on the as of year end.
(4) Notes payable are reflected at net realizable value as of the date.

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