Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Question
Chapter 13, Problem 34COQ
To determine
Identify the appropriate answer related to the least likely examination related to the verification of the related mortgage acquisition cost.
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Peak Industrial Corp. recently secured a loan to fund its new manufacturing facility. As part of the loan agreement, Peak Industrial incurred certain financing fees. How should these financing fees be treated in Peak Industrial’s financial statements? A)The fees should be immediately expensed in the income statement as they are directly associated with the loan acquisition. B) The fees should be capitalized and presented as a direct reduction of the carrying amount of the loan liability, amortizing the fees over the life of the loan. C) The fees should be recognized as a separate asset on the balance sheet and amortized over the life of the loan using a straight-line method. D)The fees should be deferred and amortized over the maximum possible term of the loan, including all extension options, regardless of the initial term agreed upon.
. Discuss the appropriate treatment in the financial statements of each of the following.
a. Gain on sale of investment securities.
b. A profit-sharing bonus to employees computed as a percentage of net income.
c. Additional depreciation on factory machinery because of an error in computing depreciation for the previous year.
d. Rent received from subletting a portion of the office space.
e. A patent infringement suit, brought 2 years ago against the company by another company, was settled this year by a cash payment of $725,000.
f. A reduction in the Allowance for Doubtful Accounts balance because the account appears to be considerably in excess of the probable loss from uncollectible receivables.
Red Business took out a mortgage loan of $400m on August 1, 2020 to construct an apartment complex and used the Head Office building and land as the security for the loan. Each month subsequent to the issue of the mortgage, a payment of $400,000 was paid to the mortgagor. You are in charge of the current year audit for Red Business, which has a balance sheet date of December 31, 2020.
Explain the importance of preparing an audit schedule for the permanent file in order to audit the above mortgage and state the type of information should be included the schedule.
In conducting the audit list and explain the four accounts that should be included in the audit.
Prepare a memo to the management of Red Business explaining the substantive procedure and the appropriate audit evidence required in order to verify the issue of the mortgage, the balance in the mortgage and interest payable accounts at December 31, 2020, and the balance in interest expenses for the year 2020.
Chapter 13 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 13 - Prob. 1RQCh. 13 - K-J Corporation has current assets of 5 million...Ch. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Explain the use of a system of authorizations for...Ch. 13 - Moultrie Company discovered recently that a number...Ch. 13 - Does a failure to record the retirement of...Ch. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 11RQCh. 13 - Prob. 12RQCh. 13 - Prob. 13RQCh. 13 - Prob. 14RQCh. 13 - Prob. 15RQCh. 13 - Gibson Manufacturing Company acquired new factory...Ch. 13 - Prob. 17RQCh. 13 - Do the auditors question the service lives adopted...Ch. 13 - Prob. 19RQCh. 13 - Explain how the existence of lease agreements may...Ch. 13 - Prob. 21RQCh. 13 - Prob. 22QRACh. 13 - Prob. 23QRACh. 13 - Gruen Corporation is a large diversified company...Ch. 13 - Prob. 25QRACh. 13 - Prob. 26QRACh. 13 - Prob. 27QRACh. 13 - Prob. 28QRACh. 13 - Prob. 29QRACh. 13 - Prob. 30QRACh. 13 - Prob. 31QRACh. 13 - To assure accountability for fixed-asset...Ch. 13 - Prob. 32BOQCh. 13 - Which of the following is an internal control...Ch. 13 - Which of the following accounts should be reviewed...Ch. 13 - Prob. 32EOQCh. 13 - Prob. 32FOQCh. 13 - Which of the following statements is not typical...Ch. 13 - Prob. 32HOQCh. 13 - Prob. 32IOQCh. 13 - An effective procedure for identifying unrecorded...Ch. 13 - Which of the following is not an overall test of...Ch. 13 - Prob. 32LOQCh. 13 - Prob. 33OQCh. 13 - Analysis of which account is least likely to...Ch. 13 - Prob. 34BOQCh. 13 - Prob. 34COQCh. 13 - Prob. 34DOQCh. 13 - A search for overstated property, plant, and...Ch. 13 - The following are typical questions that might...Ch. 13 - Prob. 36PCh. 13 - Prob. 37PCh. 13 - Chem-Lite, Inc., maintains its accounts on the...Ch. 13 - Prob. 39PCh. 13 - You are reviewing the property, plant, and...
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