FA QUIZ CHAP 23

Which item is excluded from cash and cash equivalents? 

• A. Treasury bills 

• B. Commercial papers 

• C. Certificates of deposits

• D. Unbreakable certificates of deposits 

1. What misstatement will a bank reconciliation identify?

• A. Failure to include a check that has not cleared the bank on the outstanding check list, even though it has been recorded in the cash disbursements

• B. Improper payments of officers' personal expenditures

• C. Payment of raw materials that were not received

• D.Failure to bill a customer

What misstatement will not be detected by a reconciliation of cash?

• A. Cash received by the client subsequent to the balance sheet date, but recorded as cash receipts in the current year

• B. Deposits recorded as cash receipts near the end of the year; deposited in the bank in the same month, and included in the bank reconciliation as a deposit in transit

• C. Payment of interest to a related party for an amount in excess of the going rate

• D. Payments on notes payable debited directly to the bank balance by the bank but not entered in the client's records

1. The auditor should ordinarily send confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-balance, because

• A. This procedure will detect kiting activities that would otherwise not be detected

• B. The confirmation form also seeks information about indebtedness to the bank

• C. The sending of confirmation requests to all such banks is required by auditing standards

• D. This procedure relieves the auditor of any responsibility with respect to nondetection of forged checks

1. By preparing a four-column reconciliation ("proof of cash") for the last month of the

year, an auditor will generally be able to detect:

• A. An unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation.

• B. A cash sale which was not recorded on the books and was stolen by a bookkeeper

• C. An embezzlement of unrecorded cash receipts on receivables before they had been deposited into the bank.

• D.  A credit sale which has been recorded twice in the sales journal.

1. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except

• A. cut-off bank statement

• B. bank confirmation

• C. year-end bank statement

• D. general ledger

1. A CPA obtains a January 10 cutoff bank statement for a client directly from the bank. Very few of the outstanding checks listed on the client’s December 31 bank reconciliation cleared during the cutoff period. A probable cause for this is that the client

• A. is engaged in kitting

• B. in engaged in lapping 

• C. transmitted the checks to the payees after year end

• 1. D. has overstated its year- end bank balance

Which of the following is one of the better auditing techniques to detect kiting?

• A. Review composition of authenticated deposit slips 

• B. Review subsequent bank statements and cancelled checks received directly from the banks 

• C. Prepare year - end bank reconciliations

• D. Prepare a schedule of bank transfers from the client’s books

1. How are the majority of financial instruments valued?

• A. Net realizable value

• B. Fair value

• C. Historical cost

• D. Present value

 In establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities or

• A. obtain written representations from management confirming that the securities are properly classified as trading securities.

• B. inspect the audited financial statements of the investee company.

• C. confirm the number of shares owned that are held by an independent custodian. 

• D. determine that the investment is carried at the lower of cost or market.