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3710301468 - CHAPTER 15 Debt and Equity Capital Review...

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CHAPTER 15 Debt and Equity Capital Review Questions 15-7 Testing the reasonableness of the Interest Expense account may disclose the existence of unrecorded notes payable upon which interest payments are being made. 15-13 Transactions affecting owners' equity accounts are generally few in number but substantial in amount; the audit time required for this part of the examination is relatively small. Detailed review of individual transactions is therefore appropriate; the tests of controls that are so important for assets and current liabilities are much less applicable to owners' equity. 15-18 The work done by the auditors in the examination of Capital Stock accounts during an initial audit includes the analysis of these accounts for the entire period since the organization of the corporation, as well as obtaining copies of the articles of incorporation, bylaws, and minutes of meetings of directors and stockholders. In subsequent audits, this work is merely brought up to date by adding an analysis of the events of the current period. 15-22 Verification of this entry in the Retained Earnings account would include tracing the entry to the general journal and the dividend declaration to the minutes of directors' meetings. From the minutes, the auditors would determine the nature of the dividend (cash or stock), the amount per share, date of declaration, date of record, and date of payment. The total amount to be distributed should also be determined by extending the amount per share by the total number of shares outstanding. If the payment date falls after the balance sheet date, the auditors should ascertain that any cash dividend payable is included among the current liabilities and that adequate disclosure is made for any stock dividend.
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