1. A company holds bearer bonds as a short-term investment.

Responsibility for custody

of these bonds and submission of coupons for periodic interest collections probably
should be delegated to the
A. Chief accountant.
B. Internal auditor.
C. Cashier.
D. Treasurer.
2. Of the following, which is the most efficient audit procedure for testing accrued interest
earned on bond investments?
A. Tracing interest declarations to an independent record book.
B. Recomputing interest earned.
C. Confirming interest rate with the issuer of the bonds.
D. Vouching the receipt and deposit of interest checks.
3. During the audit of a publicly held company, the auditor could obtain written
confirmation regarding long-term bond transactions from the
A. Bond holders.
B. Client's attorney.
C. Internal auditors.
D. Trustee.
4. The auditor's program for examining long-term investment should include
A. Verification of the existence of the bondholders.
B. Examination of any bond trust agreement.
C. Inspection of the accounts receivable subsidiary ledger.
D. Investigation of credits to the bond interest income account.
5. Jones was engaged to audit the financial statements of Gamma Corporation, a June
30 year-end client. Having completed testing of the investment securities, which of the
following is the best method of verifying the accuracy of recorded dividend income?
A. Tracing recorded dividend income to cash receipts records and validated deposit
slips.
B. Utilizing analytical review techniques and statistical sampling.
C. Comparing recorded dividends with amounts appearing on Ledger.
D. Comparing recorded dividends with a standard financial reporting service's record of
dividends.
6. A company has temporarily excess funds to invest. The board of directors decided to
purchase marketable securities and assigned the future purchase and sale decisions to
a responsible financial executive.
The best person(s) to make periodic reviews of the investment activity would be
A. The investment committee of the board of directors.
B. The treasurer.
C. The corporate controller.
D. The chief operating officer of the company.
7. Which of the following is a responsibility that should not be assigned to only one
employee?

A. Access to securities in the company's safe deposit box

B. Custodianship of the cash working fund.
C. Reconciliation of bank statements.
D. Custodianship of tools and small equipment.
8 When no independent stock transfer agents are employed and the corporation issues
its own stocks and maintains stock records, canceled stock certificates should
A. Be defaced to prevent reissuance and attached to their corresponding stubs.
B. Not be defaced but segregated from other stock certificates and retained in a
canceled certificates file.
C. Be destroyed to prevent fraudulent reissuance.
D. Be defaced and sent to the secretary of state.
9. Which of the following is not one of the auditor's concerns in an examination 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 balance sheet.
10. When negotiable securities are of considerable volume, planning by the auditor is
necessary to guard against
A. Unauthorized negotiation of the securities before they are counted.
B. Unrecorded sales of securities after they are counted.
C. Substitution of securities already counted for other securities which should be on
hand but are not.
D. Substitution of authentic securities with counterfeit securities.
11. During its fiscal year, a company issued, at a discount, a substantial amount of
first-mortgage bonds. When performing audit work, the independent auditor
a. Confirms the existence of the bondholders.​
b. Reviews the minutes for authorization.​
c. Traces the net cash received from the issuance to the bonds payable account.​
d. Inspects the records maintained by the bond trustee.
12. All corporate capital stock transactions should ultimately be traced to the
A. Minutes of the board of directors.
B. Cash receipts journal.
C. Cash disbursements journal.
D. Numbered stock certificates.
13. If a company employs a capital stock registrar and/or a transfer agent, the registrar
or agent should be requested to confirm directly to the auditor the number of shares of
each class of stock
A. Surrendered and canceled during the year.
B. Authorized at the balance sheet date.
C. Issued and outstanding at the balance sheet date.
D. Authorized, issued, and outstanding during the year.
14. The auditor's program for testing long-term debt should include steps that require
A. Verifying the existence of the bondholders.
B. Examining any bond trust indenture.
C. Inspecting the accounts payable subsidiary ledger.
D. Investigating credits to bond interest income.
15. During the year under audit, a company has completed a private placement of a
substantial amount of bonds. Which of the following steps is the most important in the
auditor's tests of existence?
A. Confirm the amount issued with the bond trustee.
B. Trace cash received from the issue to the accounting records.
B. Examine bond records maintained by the transfer agent.
C. Re-compute annual interest cost and the effective yield.
16. During the course of an audit, an auditor observes that the recorded interest
expense seems excessive in relation to the balance in long-term debt. This observation
could lead the auditor to suspect that
A. Long-term debt is understated.
B. Discount on bonds payable is overstated.
C. Long-term debt is overstated.
D. Premium on bonds payable is understated.
47. Which of the following information is most important when auditing shareholders'
equity?
a. changes in the capital stock account are verified by an independent stock transfer
agent.
B Stock dividends and/or stock splits during the year were approve by the shareholders.
C. Stock dividends are capitalized at par or stated value on the dividend declaration
date.
D. Entries in the capital stock account can be traced to a resolution in the minutes of the
board of directors' meetings.
18. When negotiable securities are of considerable volume, planning by the auditor is
necessary to guard against
A. Substitution of securities already counted for other securities which should be on
hand but are not.
B. Substitution of authentic securities with counterfeit securities.
C. Unauthorized negotiation of the securities before they are counted.
D. Unrecorded sales of securities after they are counted.
19. In auditing investments for proper valuation, the auditor should do all but the
following:
A. Vouch purchases and sales of securities by tracing to brokers advices and canceled
checks.
B. Compare cost and market by reference to year end market values for selected
securities.
C. Confirm securities held in safekeeping off the client's premises.
D. Recalculate gain or loss on disposals.