Exam 13: Auditing Long-Term Liabilities and Stockholders Equity Transactions

A CPA firm is engaged to audit the financial statements of Garrison Corporation.The company's financial statements have never been audited before.The stockholders' equity section of Garrison Corporation's balance sheet at year-end follows: Stockholders' Equity: Capital stock-20,000 shares of \ 10 par value authorized: 5,500 shares issued and outstanding \ 55,000 Capital contributed in excess of par value of capital stock 63,800 Retained earnings 110,000 Total stockholders' equity $\quad$$\quad$$\quad$$\quad$$\quad$ $\underline {\$ 228,800}$ Founded four years ago, Garrison Corporation has ten stockholders and serves as its own registrar and transfer agent. It has no capital stock subscription contracts in effect. REQUIRED: Prepare the detailed audit program for the examination of the three accounts composing the stockholders’ equity section of Garrison Corporation’s balance sheet. (Do not include in the audit program the verification of the results of the current-year operations.)

If the auditor determines that the client's current ratio is below a particular covenant level,which of the following would the auditor not do?

Which of the following is not a potential fraud related to stockholders' equity accounts?

Which of the following is not true regarding planning analytical procedures performed by the auditor when planning the audit?

Which of the following is not an inherent risk typically associated with the existence of dividends?

If the auditor wants to obtain evidence as to whether the dividend payment was made to the stockholders who owned the stock as of the dividend record date,which of the following would the auditor do?

Which of the following is not an inherent risk typically associated with recording debt transactions?

Which of the following is the auditor's primary objective when auditing debt?

Which of the following is not a common transaction affecting stockholders' equity?

Valuation is a relevant assertion when auditing bond premium or discount.

Which of the following procedures is a typical substantive procedure related to the relevant assertion of completeness for debt?

When auditing debt and equity transactions,the auditor should be skeptical,and therefore alert to the possibility that management is managing earnings by not appropriately recording expenses,such as charging expenses directly to retained earnings or under-recording interest expense.

Which of the following is not important documentation for substantive procedures for debt?

When planning the audit related to stockholders' equity transactions,the auditor is not required to perform planning analytical procedures.

What type of information should be disclosed in the footnotes for this mortgage to help the auditor determine whether the completeness and presentation/disclosure assertions are satisfied?

Which of the following is a typical control for debt?

Which of the following is not a relevant account when auditing stockholders' equity?

If an auditor discovers that a company intentionally applied loan payments to interest rather than principal,this would result in fraudulent overstatement of income.

Which of the following procedures would be included in the auditor's audit program for long-term debt?

When an auditor is investigating the inherent risk associated with stock issuances/sales that are recorded in the wrong period,the auditor is most likely assessing the risks of material misstatements associated with the existence assertion.