An Audit Plan for the Examination of the Retained Earnings

question 86

Multiple Choice

An audit plan for the examination of the retained earnings account should include a step that requires verification of the:

• A)market value used to charge retained earnings to account for a 2-for-1 stock split.
• B)approval of the adjustment to the beginning balance as a result of a write-down of account receivables.
• C)authorization for both cash and stock dividends.
• D)dividends received from investments.

---

Definitions:

Market

Any structure that allows buyers and sellers to exchange any type of goods, services, and information.

Perfectly Inelastic

A situation in demand where the quantity demanded does not change regardless of changes in price.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.

Binding Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service, which is set below the market equilibrium price, leading to shortages.