In Connection with the Audit of an Issue of Long-Term

question 91

Multiple Choice

In connection with the audit of an issue of long-term bonds payable, the audit team should:

• A)determine whether bondholders are persons other than owners, directors, or officers of the company issuing the bond.
• B)calculate the effective interest rate to see if it is substantially the same as the rates for similar issues.
• C)decide whether the bond issue was made without violating state or local law.
• D)ascertain that the client has obtained the opinion of counsel on the legality of the issue.

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Definitions:

Binomial Experiment

An experiment with two outcomes (success and failure) for each trial, with a fixed number of trials and constant probability of success.

Successes

The occurrences of a defined outcome of interest in a series of trials or tests.

Hypergeometric Distribution

A discrete probability distribution that describes the probability of k successes in n draws, without replacement, from a finite population of size N that contains exactly K successes.

Probability Distribution

A mathematical description of a random phenomenon in terms of the probabilities of its outcomes.