When audited financial statements are presented in a document containing other information, the auditor

When audited financial statements are presented in a document containing other information, the auditor 

A. Has an obligation to perform auditing procedures to corroborate the other information.
B. Is required to issue an "except for" qualified opinion if the other information has a material misstatement of fact.
C. Should read the other information to consider whether it is inconsistent with the audited financial statements.
D. Has no responsibility for the other information because it is not part of the basic financial statements.


Answer: Should read the other information to consider whether it is inconsistent with the audited financial statements.

In a lease that is appropriately recorded as a direct-financing lease by the lessor, the unearned income

a. should be amortized over the period of the lease using the effective interest method.
b. should be amortized over the period of the lease using the straight-line method.
c. does not arise.
d. should be recognized at the lease's expiration.


Answer: should be amortized over the period of the lease using the effective interest method

An auditor may reasonably issue an "except for" qualified opinion for 

A. A scope limitation or an unjustified accounting change.
B. A scope limitation, but not an unjustified accounting change.
C. An unjustified accounting change, but not a scope limitation.
D. Neither an unjustified accounting change nor a scope limitation.


Answer: A scope limitation or an unjustified accounting change.

Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor?

Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor?

Transfers Ownership Contains Bargain Collectibility of Lease Any Important
By End Of Lease? Purchase Option? Payments Assured? Uncertainties?


a. No Yes Yes No
b. Yes No No No
c. Yes No No Yes
d. No Yes Yes Yes


Answer: No Yes Yes No

A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the

a. asset's remaining economic life.
b. term of the lease.
c. life of the asset or the term of the lease, whichever is shorter.
d. life of the asset or the term of the lease, whichever is longer.


Answer: asset's remaining economic life.

From the lessee's perspective, in the earlier years of a lease, the use of the

a. capital method will enable the lessee to report higher income, compared to the operating method.
b. capital method will cause debt to increase, compared to the operating method.
c. operating method will cause income to decrease, compared to the capital method.
d. operating method will cause debt to increase, compared to the capital method.


Answer: capital method will cause debt to increase, compared to the operating method