ACTG 677 Test 2 Exam UPDATED
QUESTIONS AND CORRECT ANSWERS
To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an
auditor most likely would
A. inspect the stock certificates evidencing the investment.
B. examine the audited financial statements of the investee company.
C. review the broker's advice or canceled check for the investment's acquisition.
D. obtain market quotations from financial newspapers or periodicals. - CORRECT
ANSWER examine the audited financial statements of the investee company
An auditor is testing the reasonableness of dividend income from investments in publicly-held
companies.
The auditor most likely would compute the amount that should have been received and recorded by
the client
by:
a. Reading the details of the board of directors' meetings.
b. Confirming the details with the investee companies' registrars.
c. Electronically accessing the details of dividend records on the Internet.
d. Examining the details of the client's most recent cutoff bank statement. - CORRECT
ANSWER Electronically accessing the details of dividend records on the Internet.
In establishing the existence and ownership of long-term investments in the form of publicly-traded
stock, an auditor most likely would inspect the securities or
A. Apply analytical procedures to the dividend income and investments accounts.
B. Correspond with the investee company to verify the number of shares owned.
C. Inspect the cash receipts journal for amounts that could represent the sale of securities.
D. Confirm the number of shares owned that are held by an independent custodian. - CORRECT
ANSWER confirm the number of shares owned that are held by an independent custodian
In confirming with an outside agent, such as a financial institution, that the agent is holding
investment securities in the client's name, an auditor would most likely gather evidence in support of
management's financial statement assertions of existence - CORRECT ANSWER rights and
obligations
, An analysis of which of the following accounts would best aid in verifying that all fixed assets have
been capitalized - CORRECT ANSWER repairs and maintenance
In performing a search for unrecorded retirements of fixed assets, an auditor would most likely
a) inspect the property ledger and the insurance and tax records, and then tour the client's facilities
b) tour the client's facilities, and then inspect the properly ledger and the insurance and tax records
c) analyze the repair and maintenance account, and then tour the client's facilities
d) tour the client's facilities, and then analyze the repair and maintenance account - CORRECT
ANSWER inspect the property ledger and the insurance and tax records, and then tour the
client's facilities
Which of the following explanations most likely would satisfy an auditor who questions management
about significant debits to the accumulated depreciation accounts?
a) prior years' depreciation expenses were erroneously understated
b) current year's depreciation expenses was erroneously understated
c) the estimated remaining useful lives of plant assets were revised upward
d) plant assets were retired during the current year - CORRECT ANSWER plant assets were
retired during the current year
An audit plan to examine long-term debt most likely would include steps that require
a. Comparing the carrying amount of held-to-maturity securities with their year-end market values.
b. Correlating interest expense recorded for the period with outstanding debt.
c. Verifying the existence of the holders of the debt by direct confirmation.
d. Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. - CORRECT
ANSWER Correlating interest expense recorded for the period with outstanding debt.
In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to
be a misstatement that - CORRECT ANSWER involves an estimate
For all (non-trivial) factual misstatements identified by the auditor, the auditor should
a. Request management to review their assumptions and methods used to develop a more appropriate
accounting estimate.
QUESTIONS AND CORRECT ANSWERS
To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an
auditor most likely would
A. inspect the stock certificates evidencing the investment.
B. examine the audited financial statements of the investee company.
C. review the broker's advice or canceled check for the investment's acquisition.
D. obtain market quotations from financial newspapers or periodicals. - CORRECT
ANSWER examine the audited financial statements of the investee company
An auditor is testing the reasonableness of dividend income from investments in publicly-held
companies.
The auditor most likely would compute the amount that should have been received and recorded by
the client
by:
a. Reading the details of the board of directors' meetings.
b. Confirming the details with the investee companies' registrars.
c. Electronically accessing the details of dividend records on the Internet.
d. Examining the details of the client's most recent cutoff bank statement. - CORRECT
ANSWER Electronically accessing the details of dividend records on the Internet.
In establishing the existence and ownership of long-term investments in the form of publicly-traded
stock, an auditor most likely would inspect the securities or
A. Apply analytical procedures to the dividend income and investments accounts.
B. Correspond with the investee company to verify the number of shares owned.
C. Inspect the cash receipts journal for amounts that could represent the sale of securities.
D. Confirm the number of shares owned that are held by an independent custodian. - CORRECT
ANSWER confirm the number of shares owned that are held by an independent custodian
In confirming with an outside agent, such as a financial institution, that the agent is holding
investment securities in the client's name, an auditor would most likely gather evidence in support of
management's financial statement assertions of existence - CORRECT ANSWER rights and
obligations
, An analysis of which of the following accounts would best aid in verifying that all fixed assets have
been capitalized - CORRECT ANSWER repairs and maintenance
In performing a search for unrecorded retirements of fixed assets, an auditor would most likely
a) inspect the property ledger and the insurance and tax records, and then tour the client's facilities
b) tour the client's facilities, and then inspect the properly ledger and the insurance and tax records
c) analyze the repair and maintenance account, and then tour the client's facilities
d) tour the client's facilities, and then analyze the repair and maintenance account - CORRECT
ANSWER inspect the property ledger and the insurance and tax records, and then tour the
client's facilities
Which of the following explanations most likely would satisfy an auditor who questions management
about significant debits to the accumulated depreciation accounts?
a) prior years' depreciation expenses were erroneously understated
b) current year's depreciation expenses was erroneously understated
c) the estimated remaining useful lives of plant assets were revised upward
d) plant assets were retired during the current year - CORRECT ANSWER plant assets were
retired during the current year
An audit plan to examine long-term debt most likely would include steps that require
a. Comparing the carrying amount of held-to-maturity securities with their year-end market values.
b. Correlating interest expense recorded for the period with outstanding debt.
c. Verifying the existence of the holders of the debt by direct confirmation.
d. Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. - CORRECT
ANSWER Correlating interest expense recorded for the period with outstanding debt.
In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to
be a misstatement that - CORRECT ANSWER involves an estimate
For all (non-trivial) factual misstatements identified by the auditor, the auditor should
a. Request management to review their assumptions and methods used to develop a more appropriate
accounting estimate.
