Download Chapter15 - Answer PDF

TitleChapter15 - Answer
TagsRetained Earnings Dividend Treasury Stock Preferred Stock Equity (Finance)
File Size182.1 KB
Total Pages14
Table of Contents
                            Liabilities and Shareholders’ Equity
Preference Shares Schedule
Paid-in Capital Schedule
		P 56,000
			P 30,000
		P 56,000
Document Text Contents
Page 2

15-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition

b. (1) Make a quick inspection of open stubs to determine whether they provide
a ready clue to the reason for difference, e.g., one certificate issued for
10,000 shares. If so, investigate the facts regarding its issue.

(2) If a quick inspection fails to provide a clue, refer to a list of shareholders
supporting the entries in the cash receipts book for the 72,000 shares
originally sold. Check this list item by item against stubs for shares
originally issued and mark the stubs so checked. Then check returned
certificates attached to stubs against new stubs issued in exchange for
those certificates, marking the new stubs. Prepare a list of unmarked
stubs. This should total 10,000 shares and serve to identify the
outstanding certificates with respect to which shares are not recorded in
the general ledger.

(3) If errors are found in the number of shares issued, as shown by stubs in
the share certificate book after comparison with the cash receipts entries,
it may be necessary to circularize the original shareholders to determine
how many shares were actually issued.

The cash receipts book and general journal for the first few days of
2007 should be examined for entries which may be for shares issued late
in 2006.

(4) If it is found that excess shares have been issued, inquiry should be made
of responsible officers with respect to the circumstances in which they
were issued. The answers obtained should be substantiated by
appropriate evidence, e.g., resolutions of the board, etc.

15-5. The proposal for the limitation of procedure is not justified by the stated facts.
Although the transfer agent and the registrar know the number of shares issued,
they do not necessarily know the number of shares outstanding. Furthermore, the
audit of share capital includes more than determining the number of shares
outstanding. For example, the auditor must determine what authorizations exist
for the issuance of shares, what assets were received in payment of shares, how
the transactions were recorded, and what subscription contracts have been entered
into. Confirmation from the registrar could not help in determining these things.

In addition to confirmation from the registrar, the audit of share capital might
include the following procedures for which the purposes are briefly indicated:

(1) Examine the corporation charter to determine the number of shares authorized
and the special provisions relating to each class of shares if more than one
class is authorized.

(2) Examine minutes of shareholders’ and directors’ meetings to determine
authorization for appointments of the registrar and the transfer agent, and to
determine authorization for the issuance or reacquisition of shares.

(3) Examine provisions relating to share capital in the corporation law of the state
of incorporation to determine any special provisions such as, for example,
those relating to the issuance of no-par shares.

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