Finance Questions

How are the proceeds from issuing a compound instrument allocated between the liability and equity components? a. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to the equity component. b. The proceeds is allocated to the liability and equity based on relative fair value c. The proceeds is allocated to the liability and equity based on relative on carrying amount d. The proceeds are not allocated because the compound instrume

Contingent liability will or will not become actual liabilities depending on a. the outcome of a future event b. the degree of uncertainty c. the present condition suggesting a liability d. whether they are probable and estimable

A bond convertible by the holder into a fixed number of ordinary shares of the entity is a. A compound financial instrument b. A primary financial instrument c. A derivative financial instrument d. An equity

A contingent asset is recognized only when a. probable b. either probable or measurable c. both probable and measurable d. virtually certain

An entity sells appliances that include a 3-year warranty. Service costs under the warranty are performed by an independent mechanic under a contract with the entity. Based on experience, warranty cost are expected to be incurred for each machine sold. When should the entity recognize these warrant costs? a. evenly over the life of the warranty b. when the service cost calls are preformed c. when payments are made to the machine d. when the machines are sold

In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor is most interested in examining the purchasea. Journal b. Requisitions c. Orders d. Invoices

It is an existing liability of uncertain timing or uncertain amount a. Provision b. Contingent Liability c. Accrued Liability d. Notes Payable

When there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the range to be used is the a. minimumb. maximum c. midpoint d. sum of the maximum and minimum

An auditor's program to audit long term debt should include steps that requirea. Examining bond trust indenturesb. Inspecting the accounts payable subsidiary ledger.c. Investigating credits to the bond interest income account.d. Verifying the existence of the bondholders.

When title to merchandise in transit has passed to the audit client the auditor engaged in the performance of a purchase cut-off will encounter the greatest difficulty in gaining assurance with respect to thea. Quantity b. Quality c. Price d. Terms

A currently maturing long-term debt is classified as noncurrent when I. An agreement to reschedule payment on a long term basis is completed after balance sheet date II. The entity has the discretion to refinance or roll over the liability for at least twelve months after balance sheet date under the existing loan facility. a. I only b. II only c. Both I and IId. Neither I nor II

Which of the following is a substantive test that an auditor is most likely to perform to verify the existence and valuation of recorded accounts payable?a. Investigating the open purchase order file to ascertain that pre-numbered purchase orders are used and accounted for.b. Receiving the client's mail, unopened, for a reasonable period of time after year end to search for unrecorded vendor'sinvoices.c. Vouching selected entries in the accounts payable subsidiary ledger to purchase o

All of the following are classified as current, except a. It is expected to be settled in the entity's normal operating cycle b. Held primarily for the purpose of trading c. It is due to be settled within twelve months after balance sheet date d. The liability has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

Unrecorded liabilities are most likely to be found during the review of which of the following documents?a. Unpaid bills b. Shipping records c. Bills of lading d. Unmatched sales invoices

Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the client's employees?a. Test footings in the accounts payable ledgerb. Reconcile unpaid invoices to vendors statementsc. Prepare a schedule of accounts payabled. Mail confirmations for selected account balances

The primary audit test to determine if accounts payable are valued properly isa. Confirmation of accounts payableb. Vouching accounts payable to supporting documentationc. An analytical procedured. Verification that accounts payable was reported as a current liability in the balance sheet

Which of the following procedures is least likely to be performed before the balance sheet date?a. Observation of inventory b. Testing of internal control over cash c. Search for unrecorded liabilitiesd. Confirmation of receivables

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.b. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.c. Examining unusual relationships between monthly accounts payable balances and recorded cash

In auditing long-term bonds payable, an auditor most likely willa. Perform analytical procedures on the bond premium and discount accounts.b. Examine documentation of assets purchased with bond proceeds or liensc. Compare interest with the bond payable amount for reasonableness.d. Confirm the existence of individual bondholders at year-end.

In an audit of bonds payable, an auditor expects the trust indenture to include thea. Auditee's debt-to-equity ratio at the time of issuanceb. Effective yield of the bonds issuedc. Subscription listd. Description of the collateral