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Chapter 10 - Finance and Investment Cycle Chapter 10 Finance and Investment Cycle Multiple Choice Questions 1. The typical business activity of the finance and investment cycle would not include A. Proposals for cash forecasts, capital budgets, and business expansion. B. Analyses of excess cash funds. C. Reconciliation of cash. D. Sale of stocks, bonds, or notes. 2. Selecting a sample of paid notes and tracing interest to the general ledger account is a test of the PCAOB assertion for A. Accounting. B. Valuation or allocation. C. Completeness. D. Existence or occurrence. 3. The typical assertions related to investments and related accounts would not include the PCAOB assertion that A. Capitalized intangible costs relate to intangibles acquired in exchange transactions. B. Amortization is properly calculated. C. Research and development costs are properly classified. D. Goodwill is valued at market value. 4. The decision of a company to have a transfer agent handle exchanges of shares is related primarily to which of the functional responsibilities? A. Rights and obligations. B. Custody. C. Recordkeeping. D. Periodic reconciliation. 10-1
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Chapter 10 - Finance and Investment Cycle 5. ABC Company has issued a bond that pays 5% interest semi-annually to bond holders on record June 30 and December 30. Payments are made on July 15 and January 15. ABC Company has a December 31 fiscal year end. The auditor vouches the January 15, 2010 payment to the liabilities recorded on the December 31, 2009 balance sheet. Which of the following ASB balance assertions is the auditor testing? A. Existence. B. Rights and obligations. C. Completeness. D. Valuation. 6. Auditors count investment securities held by the client primarily to test the ASB balance assertion of A. Existence. B. Rights and obligations. C. Completeness. D. Valuation. 7. Which of the following is not a substantive audit procedure for estimates of management? A. Recalculating the mathematical estimate. B. Observing whether estimates are prepared by qualified personnel. C. Developing an independent estimate based on alternative assumptions. D. Comparing the estimates of management to subsequently discovered facts before the end of fieldwork. 8. Which of the following would not be a place in which owners' equity transactions would be documented? A. Capital budget. B. Minutes of the meetings of the board of directors. C. Proxy statements. D. Securities offering registration statements. 10-2
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Chapter 10 - Finance and Investment Cycle 9. If it would be appropriate to confirm capital stock, the auditor would obtain the confirmation from A. Management. B. The board of directors. C. Stockholders. D. An independent registrar.
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