SOLVED

Learning Objective 22-2 1) Which of the following is not an objective of the auditor’s examination of notes payable? A) To determine whether internal controls are adequate. B) To determine whether client’s financing arrangements are effective and efficient. C) To determine whether transactions regarding the principal and interest of notes are properly authorized. D) To determine whether the liability for notes and related interest expense and accrued liabilities are properly stated. 2) Responsibility for the issuance of new notes payable would normally be vested in the: A) board of directors. B) purchasing department. C) accounting department. D) accounts payable department. 3) An auditor is determining whether an issuance of notes payable for cash was correctly recorded. Her best course of action would be to: A) confirm with the bond trustee as to the amount of bonds issued. B) confirm with the underwriter as to the appropriate market yield on the bonds. C) trace the cash received from the proceeds to the accounting records. D) verify that the amount was included in a footnote disclosure. 4) The auditor’s independent estimate of interest expense from notes payable uses average interest rates and: A) average notes payable outstanding. B) year-end notes payable outstanding. C) only notes payable above the level of materiality. D) only notes payable to major lenders. 5) The tests of details of balances procedure which requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the audit objective of: A) accuracy. B) existence. C) detail tie-in. D) completeness. 6) The audit objective to determine that notes payable in the schedule actually exist is verified by the test of details of balances procedure to: A) foot the notes payable list. B) confirm notes payable. C) recalculate interest expense. D) examine the balance sheet for proper disclosure of noncurrent portions. 7) An auditor’s substantive analytical procedure provides the auditor with an interest expense amount that is significantly higher than the client’s recorded interest expense. This finding would most likely lead the auditor to conclude that: A) client has not recorded all long-term interest bearing debt in the accounting records. B) client has not recorded all interest expense paid or accrued. C) client has not properly accounting for the discount of bonds payable account. D) client has not properly recorded interest income. 8) You are auditing the long-term notes payable account for a client. Which of the following audit procedures would you most likely employ? A) compare interest expense recorded by the client with the notes payable account for reasonableness B) confirm bonds payable with individual bond holders C) perform analytical procedures on the bond discount or premium account D) examine bond documents for the presence of hybrid securities 9) The two most important balance related audit objectives for notes payable are: A) completeness and detail tie-in. B) completeness and valuation. C) accuracy and valuation. D) accuracy and completeness. 10) Which of the following audit tests would provide evidence regarding the balance-related audit objective of existence for an audit of notes payable? A) Examine due dates on duplicate copies of notes. B) Examine balance sheet for proper presentation and disclosure of notes payable. C) Examine corporate minutes for loan approval. D) Foot the notes payable list for notes payable and accrued interest.