Audit 4 - Audit Evidence

Question 1

Standard Auditing Procedures

FIVE CARROT CARS

Answer 1

Footing, crossfooting, & recalculation
Inquiry
Vouching
Examination/inspection

Confirmation
Analytical procedures
Re-performance
Reconciliation
Observation
Tracing

Cutoff review
Auditing related accounts simultaneously
Representation letter
Subsequent events review

Question 2

Revenue Cycle

Answer 2

Includes sales revenues, receivables, and cash receipts

Question 3

Expenditure Cycle

Answer 3

Includes purchases, payables, and cash disbursements

Question 4

Inventory Cycle

Answer 4

Includes perpetual inventory, physical counts, and manufacturing costs

Question 5

Investments Cycle

Answer 5

Includes investments in debt, equity, and the income received from investments

Question 6

Property, Plant, & Equipment Cycle

Answer 6

Includes acquisitions & disposals and related depreciation expense

Question 7

Payroll & Personnel Cycle

Answer 7

Includes payroll (salaried & hourly) and personnel functions

Question 8

Financing Cycle

Answer 8

Includes debt & equity financing, repayments to borrowers, interest expense, and dividends

Question 9

Working Capital Ratio

Answer 9

Current Assets - Current Liabilities

Question 10

Current Ratio

Answer 10

Current Assets/Current Liabilities

Question 11

Acid-Test Ratio

Answer 11

(Cash Equivalents+Marketable Securities+AR)/Current Liabilities

Question 12

Cash Ratio

Answer 12

(Cash Equivalents+Marketable Securities)/Current Liabilities

Question 13

Accounts Receivable Turnover

Answer 13

Net Credit Sales/Average Net Receivables

Question 14

Accounts Receivable Turnover in Days

Answer 14

Average Net Receivables/(Net Credit Sales/365)

Question 15

Inventory Turnover

Answer 15

Cost of Goods Sold/Average Inventory

Question 16

Inventory Turnover in Days

Answer 16

Average Inventory/(Cost of Goods Sold/365)

Question 17

Operating Cycle

Answer 17

AR Turnover in Days + Inventory Turnover in Days

Question 18

Working Capital Turnover

Answer 18

Sales/Average Working Capital

Question 19

Total Asset Turnover

Answer 19

Net Sales/Average Total Assets

Question 20

Accounts Payable Turnover

Answer 20

COGS/Average Accounts Payable

Question 21

Days in Accounts Payable

Answer 21

Average Accounts Payable/(COGS/365)

Question 22

Net Profit Margin

Answer 22

Net Income/Net Sales

Question 23

Return on Total Assets

Answer 23

Net Income/Average Total Assets

Question 24

Return on Assets (Alternate Version)

Answer 24

Net Profit Margin x Total Asset Turnover

Question 25

Return on Investment

Answer 25

(Net Income+Interest Expense(1-Tax Rate))/Average(Long Term Liabilities+Equity)

Question 26

Return on Common Equity

Answer 26

(Net Income - Preferred Dividends)/Avg. Common Equity

Question 27

Net Operating Margin Percentage

Answer 27

Net Operating Income/Net Sales

Question 28

Gross Profit Margin Percentage

Answer 28

Gross Profit Margin/Net Sales

Question 29

Operating Cash Flow Per Share

Answer 29

Operating Cash Flow/Common Shares Outstanding

Question 30

Degree of Financial Leverage

Answer 30

Earnings Before Interest & Taxes/Earnings Before Taxes

Question 31

Earnings Per Share

Answer 31

(Net Income - Preferred Dividends)/Weighted Average Number of Common Shares Outstanding

Question 32

Price/Earnings Ratio

Answer 32

Market Price Per Share/Diluted Earnings Per Share

Question 33

Dividend Payout Ratio

Answer 33

Dividends Per Common Share/Diluted Earnings Per Share

Question 34

Dividend Yield

Answer 34

Dividends Per Common Share/Market Price Per Common Share

Question 35

Book Value Per Share

Answer 35

(Total Stockholders’ Equity - Preferred Stock)/Number of Common Shares Outstanding

Question 36

Debt/Equity

Answer 36

Total Liabilities/Common Stockholders’ Equity

Question 37

Debt Ratio

Answer 37

Total Liabilities/Total Assets

Question 38

Times Interest Earned

Answer 38

Earnings Before Taxes & Interest/Interest

Question 39

Operating Cash Flow/Total Debt

Answer 39

Operating Cash Flow/Total Debt