Solutions Chapters 11

Solutions Chapters 11 - SOLUTIONS FOR MULTIPLE-CHOICE...

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SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 11.26 a. Incorrect Interest income is related to the examination of notes receivable. b. Correct Interest expense can be calculated from the notes payable information and is examined in conjunction with that information c. Incorrect Notes payable are not related to goodwill amortization. d. Incorrect Notes payable are not directly related to royalty revenue. 11.27 a. Incorrect Management representations do not shift responsibility to auditors for the financial statements. b. Incorrect Management representations should not substitute for other evidence sources. c. Incorrect Management makes assertions directly in the financial statements and not as part of the management representations. d. Correct This responsibility is explicitly included in the management representations. 11.28 Note to Instructor: Since this question asks students to identify which audit procedure is not used to obtain evidence about contingencies, the response labeled “correct” is not used to obtain evidence about contingencies and those labeled “incorrect” are used to obtain evidence about contingencies. a. Correct Scanning expenses is unlikely to reveal any information about a contingency. b. Incorrect Attorneys letters can provide information about contingencies. c. Incorrect Minutes of board of directors’ meetings can provide information about contingencies. d. Incorrect Sales contracts can provide information about right of return that may need to be disclosed as a contingency. 11.29 a. Incorrect The issuance of stock occurred after December 31. b. Incorrect The injury related to the lawsuit was sustained after December 31. c. Correct Since an estimate had been made as of December 31, the event giving rise to the lawsuit had occurred, and the settlement introduced new information about the actual amount of the liability at December 31. d. Incorrect The storm occurred after December 31. 11.30 a. Incorrect The report date is the last day of fieldwork, not the balance sheet date. b. Correct The report date is the last day of fieldwork and the dual date is the date related to the specific event. c. Incorrect The report date is the last day of fieldwork, not the balance sheet date. d. Incorrect The report date is the last day of fieldwork, not the date of the subsequent event. 11.31 a. Incorrect See (d) below. b. Incorrect See (d) below. c. Incorrect See (d) below. d. Correct Under the 1933 Securities Act, the auditor’s responsibility extends to the effective date of the registration statement. 11.32 a. Correct Subsequent discovery of facts refers to knowledge obtained after the issuance of the audit reports.
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b. Incorrect See (a) above. These types of events are referred to as subsequent events. c.
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Solutions Chapters 11 - SOLUTIONS FOR MULTIPLE-CHOICE...

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