EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 22, Problem 23DQP
a.
To determine
Explain the emphasis in the verification of notes payable in the situation given.
b.
To determine
Explain the purpose of each of the four
c.
To determine
Examine the weather each of the four audit procedures are required and examine the
d.
To determine
List other audit procedures that must be executed in the audit of notes payable in these circumstances.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Crane Inc. (CI) has a short-term working capital loan to help finance its working capital. The terms of the loan enable CI to borrow an
amount of up to 35% of its inventory balance and 55% of its accounts receivable. One of the loan covenants requires that CI maintain
a current ratio greater than 2. Information related to CI's current assets and current liabilities is shown in the following table:
In thousands
Cash
Accounts receivable
Inventory
Other current assets,
Accounts payable
Short-term bank loan
Other current liabilities
(a)
Current ratio
2024
CI
$161
2,054
1,342
338
1.402
562
56
2023
$224
1,230
2,306
395
1.343
Does CI satisfy the loan covenant in both years? (Round answers to 2 decimal places, eg. 18.45)
278
112
2024
times
the loan covenant in 2024
the loan covenant in 2023
2023
times
During its first year of operations, Fertig Company had credit sales of $3,000,000, of which $400,000 remained uncollected at year-
end. The credit manager estimates that $18,000 of these receivables will become uncollectible.
The accounts receivable turnover is 10 times and average collection period is 36.5 days. Assume that average net accounts receivable
were $300.000. Explain what these measures tell us.
BI V T, TI E LE
E
H
I
99
H
E
à ला 11 A
A
OWord(s)
Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table:
Customer
Accounts
Receivable
Average age
of account
Average payment
period of customer
A
$11,000
42 days
50 days
B
$25,000
70 days
65 days
C
$10,000
48 days
45 days
D
$28,000
55 days
50 days
E
$14,000
50 days
60 days
F
$19,000
21 days
35 days
G
$30,000
10 days
30 days
H
$16,000
25 days
40 days…
Chapter 22 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
Ch. 22 - List four examples of interest-bearing liability...Ch. 22 - Prob. 2RQCh. 22 - Prob. 3RQCh. 22 - Prob. 4RQCh. 22 - Prob. 5RQCh. 22 - Distinguish between (a) tests of controls and...Ch. 22 - Prob. 7RQCh. 22 - Prob. 8RQCh. 22 - Prob. 9RQCh. 22 - Prob. 10RQ
Ch. 22 - Prob. 11RQCh. 22 - Prob. 12RQCh. 22 - Prob. 13RQCh. 22 - Prob. 14RQCh. 22 - Explain the relationship between the audit of...Ch. 22 - Prob. 16.1MCQCh. 22 - Prob. 16.2MCQCh. 22 - Prob. 16.3MCQCh. 22 - Prob. 17.1MCQCh. 22 - Prob. 17.2MCQCh. 22 - Prob. 17.3MCQCh. 22 - Prob. 18.1MCQCh. 22 - Prob. 18.2MCQCh. 22 - Prob. 18.3MCQCh. 22 - Items 1 through 6 are questions typically found in...Ch. 22 - Prob. 20DQPCh. 22 - Prob. 21DQPCh. 22 - Prob. 22DQPCh. 22 - Prob. 23DQPCh. 22 - Prob. 24DQPCh. 22 - The Redford Corporation took out a 20 -year...Ch. 22 - Prob. 26DQPCh. 22 - Prob. 27DQPCh. 22 - The following audit procedures are commonly...Ch. 22 - Prob. 30DQPCh. 22 - Prob. 31DQP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Malibu Corporation has annual credit sales of $25 million. The average collection period is 27 days. What is the average investment in accounts receivable as shown on the balance sheet? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Average receivablesarrow_forwardSome data regarding the financial enterprise are as follows;- The company collects its sales 25% in cash, 40%: 1 month term and the remainder with 2 months maturity.- Purchases are made in advance.- It is required to have 50000 balances in the cash register of the company at all times.- In cases where there is a deficit, credit will be used from the management bank and this deficit will be closed. Likewise, in cases of excess, the loans used from the relevant bank will be closed.- There is 35000 cash in the company account as of 30.04.2021. In addition, the company owes 75000 loans to the management bank as of the same date. When the cash budget of the enterprise for the period of May-August 2021 is prepared, what is the "cumulative loan" balance for August 2021?arrow_forwardLarkspur Corporation is having financial difficulty and therefore has asked Cullumber National Bank to restructure its $6.05 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value.The following are four independent situations. Prepare the journal entry that Larkspur and Cullumber National Bank would make for each of these restructurings. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) (a) Cullumber National Bank agrees to take an equity interest in Larkspur by accepting common stock valued at $3,756,000 in exchange for relinquishing its claim on this note. The common stock has a par value of $1,757,000. (b) Cullumber National Bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of $3,181,000 and…arrow_forward
- Some data regarding the financial enterprise are as follows;- The company collects its sales 25% in cash, 40%: 1 month term and the remainder with 2 months maturity.- Purchases are made in advance.- It is required to have 50000 balances in the cash register of the company at all times.- In cases where there is a deficit, credit will be used from the management bank and this deficit will be closed. Likewise, in cases of excess, the loans used from the relevant bank will be closed.- There is 35000 cash in the company's safe as of 30.04.2021. In addition, the company has a loan debt of tl 75000 to the management bank as of the same date. When the cash budget of the enterprise for the period of May-August 2021 is prepared, what is the "cumulative loan" balance for August 2021?arrow_forwardLarkspur Corporation is having financial difficulty and therefore has asked Cullumber National Bank to restructure its $6.05 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value.The following are four independent situations. Prepare the journal entry that Larkspur and Cullumber National Bank would make for each of these restructurings. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) a Cullumber National Bank agrees to take an equity interest in Larkspur by accepting common stock valued at $3,756,000 in exchange for relinquishing its claim on this note. The common stock has a par value of $1,757,000. b Cullumber National Bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of $3,181,000 and a fair…arrow_forwardHoffman Paper Company, a profitable distributor of stationery and office supplies, has an agreement with its banks that allows Hoffman to borrow money on a short-term basis to finance its inventories and accounts receivable. The agreement states that Hoffman must maintain a current ratio of 1.5 or higher and a debt ratio of 50 percent or lower. Cash $ 55,000 Current liabilities $ 210,000 Accounts receivable 160,000 Long-term debt 300,000 Inventory 250,000 Stockholders' equity 635,000 Fixed assets (net) 680,000 Total liabilities and stockholders' equity $1,145,000 Total assets $1,145,000 a.) Given the balance sheet provided above, determine how much additional money Hoffman could borrow at this time to invest in inventory and accounts receivable without violating the terms of its borrowing agreement. Round your answer to the nearest dollar.arrow_forward
- The Caccamisse Corporation has annual credit sales of $29 million. The average collection period is 34 days. Assume 365 days per year. What is the average investment in accounts receivable as shown on the balance sheet? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Average receivablesarrow_forwardThe beginning Accounts Receivable and Allowance for Doubtful Accounts balances of Justin Corporation are 500,000 and 50,000. Net credit sales totaled 4,500,000 during the year while collections amounted to 4,400,000. Bad debt expense for the year is 30,000. Included in the collections was a 10,000 account that was written off in the prior year and was recovered during the current year. What is the net realizable value of the Accounts Receivable as of the end of the year?arrow_forwardJackson Industries has borrowed $125,000 under a line-of-credit agreement. While the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate on the borrowed funds is 10%. 1.What is the effective annual rate of interest on the line of credit? Format: 11.11%arrow_forward
- Maris Bank has analyzed the accounts receivable of Anthony Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime 3% and a 2% commission charge. The prime rate currently is 8.5%. Show Solutions and Explanation. A. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Anthony Software? (Format: 111,111) B. What is Anthony Software’s effective annual rate of interest if it borrows $100,000 for 12 months? (Note: Assume a 365-day year and a prime rate that remains at 8.5% during the life of the loan.) (Format: 11.1%)arrow_forwardHolland Construction Company has an outstanding 180-day bank loan of $393,000 at an annual interest rate of 9.7%. The company is required to maintain a 14% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.arrow_forwardThe Blake Company has an outstanding bank loan of P400,000 at an interest rate of 12%. The company is required to maintain a 20% compensating balance in its checking account. What is the effective interest cost of the loan? Assume that the company would not normally maintain this average amount? Format: 11%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
7.2 Ch 7: Notes Payable and Interest, Revenue recognition explained; Author: Accounting Prof - making it easy, The finance storyteller;https://www.youtube.com/watch?v=wMC3wCdPnRg;License: Standard YouTube License, CC-BY