The Adverse Effects of Events Causing an Auditor to Believe

question 60

Multiple Choice

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the

• A) Ability to expand operations into new product lines in the future.
• B) Feasibility of plans to purchase leased equipment at less than market value.
• C) Marketability of assets that management plans to sell.
• D) Committed arrangements to convert preferred stock to long-term debt.

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Definitions:

Authorized Capital Stock

As stated in its charter, the number of shares of capital stock (common and preferred) that a corporation can sell.

Issued Capital Stock

Stock that the corporation issues for assets or services contributed by the stockholders.

Mutual Agency

A principle in partnership where each partner is fully authorized to act on behalf of the partnership, making decisions that bind all parties.