1.

Understanding the management assertions related to a specic control

is an important factor in preparing the tests of controls. Using the
assertions provided below, select the management assertion(s) that
relates to the purpose of the controls in the table. (A management
assertion may be selected once, more than once, or not at all.)
Management Assertions
(a) Existence or occurrence
(b) Completeness
(c) Rights and obligations
(d) Valuation or allocation
(e) Presentation and disclosure
(f) Authorization
(g) Cutof
Purpose of Control
Management Assertion
To ensure that credit is approved before a
sale is executed and service is provided or
goods are shipped
To ensure that transactions shown as sales are
properly classied
To ensure that when cash receipts are recorded
they show cash that was actually received by the
company and deposited
To ensure that cash receipts transactions are
properly posted to the accounts receivable
subsidiary ledger and general ledger
To ensure that all cash received by the company
is deposited and recorded in the cash receipts
journal and that amounts and details, including
the date, are shown correctly
To ensure that sales transactions are recorded

based on the correct dates

2.
Below is an audit report for an integrated audit combined to include
the opinions on both ICFR and the nancial statements. Phrases
reflecting 20 items that are required to be in this report have been
removed and are provided in the list after the report. Select the proper
phrase for each missing item and place the letter of the phrase on the
answer space provided. All phrases will be used, and none will be used
twice.
Report of _1_ Registered Public Accounting Firm
We have audited the accompanying balance sheets of W Company as
of December 31, 20X8 and 20X7, and the related statements of
income, stockholders equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December
31, 20X8. We also have audited W Companys internal control over
nancial reporting as of December 31, 20X8, based on [Identify control
criteria, for example, criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).].
W Companys management is responsible for these__2__, for
maintaining __3__, and for__4_, included in the accompanying ___5__.
Our responsibility is to __6__ and __7__. __8__. Those __9__the audits to
obtain reasonable assurance about whether the nancial statements
are free of material misstatement and whether efective internal
control over nancial reporting was maintained __10__. Our audits of
the nancial statements __11__ evidence supporting the amounts and
disclosures in the nancial statements, assessing the accounting
principles used and signicant estimates made by management, and
__12__. Our audit of internal control over nancial reporting included
obtaining an understanding of internal control over nancial reporting,
assessing the risk that a material weakness exists, and testing __13__.
Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions. A companys internal
control over nancial reporting is a process designed to provide
reasonable assurance regarding __14__ and the preparation of nancial
statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over
nancial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that

transactions are recorded as necessary to permit preparation of

nancial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the companys assets that could have a material
efect on the nancial statements. __15__internal control over nancial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of efectiveness to future periods __16__ may
become inadequate __17__, or that the degree of compliance with the
policies or procedures may deteriorate. __18__, the nancial
statements referred to above present fairly, in all material respects,
the nancial position of W Company as of December 31, 20X8 and
20X7, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 20X8 __19__.
Also in our opinion, W Company maintained, in all material respects,
efective internal control __20__as of December 31, 20X8, based on
[Identify control criteria, for example, criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).].
[SIGNATURE]
[City and State or Country]
[Date]
Phrases to choose from:
a. express an opinion on these nancial statements
b. because of its inherent limitations
c. standards require that we plan and perform
d. independent
e. included examining, on a test basis
f. because of changes in conditions
g. its assessment of the efectiveness of internal control over nancial
reporting
h. the reliability of nancial reporting

i. over nancial reporting

j. nancial statements
k. we conducted our audits in accordance with the standards of the
Public Company
Accounting Oversight Board (United States)
l. in conformity with accounting principles generally accepted in the
United States
of America
m. efective internal control over nancial reporting
n. in our opinion
o. and evaluating the design and operating efectiveness of internal
control based
on the assessed risk
p. [title of managements report]
q. evaluating the overall nancial statement presentation
r. an opinion on the companys internal control over nancial reporting
based on
our audits
s. in all material respects
t. are subject to the risk that controls
Place the letter of the correct phrase on the answer line.
1._____ 11._____
2._____ 12._____
3._____ 13._____
4._____ 14._____

5._____ 15._____
6._____ 16._____
7._____ 17._____
8._____ 18._____
9._____ 19._____
10._____ 20._____

3.
Jackson Trucking Company is in the process of setting its target capital
structure. The CFO believes the optimal debt-to-capital ratios is
somewhere between 20% and 50% and her staf has compiled the
following projections for EPS and the stock price at various debt levels.
Debt/Capital Ratio
20%

Projected EPS
$3.20

Projected Stock Price

$35.00

30%

$3.45

$36.50

40%

$3.75

$36.25

50%

$3.50

$35.50

Assuming that the rm uses only debt and common equity, what is
Jackson's optimal capital structure? At what debt-to-capital ratio is the
company's WACC minimized?