The Redford Corporation took out a 20-year mortgage on June 15,2013, for $2,600,000 and pledged its only manufacturing building and the land on whichthe building stands as collateral. Each month subsequent to the issue of the mortgage,a payment of $20,000 was paid to the mortgagor. You are in charge of the current yearaudit for Redford, which has a balance sheet date of December 31, 2013. The client hasbeen audited previously by your CPA firm, but this is the first time Redford Corporationhas had a mortgage.a. Explain why it is desirable to prepare an audit schedule for the permanent file forthe mortgage. What type of information should be included in the schedule?b. Explain why the audit of mortgage payable, interest expense, and interest payableshould all be done together.c. List the audit procedures that should ordinarily be performed to verify the issueof the mortgage, the balance in the mortgage and interest payable accounts atDecember 31, 2013, and the balance in interest expense for the year 2013.d. Identify the types of information that should be disclosed in the footnotes for thislong-term note payable to help the auditor determine whether the completenesspresentation and disclosure audit objective is satisfied.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The Redford Corporation took out a 20-year mortgage on June 15,
2013, for $2,600,000 and pledged its only manufacturing building and the land on which
the building stands as collateral. Each month subsequent to the issue of the mortgage,
a payment of $20,000 was paid to the mortgagor. You are in charge of the current year
audit for Redford, which has a
been audited previously by your CPA firm, but this is the first time Redford Corporation
has had a mortgage.
a. Explain why it is desirable to prepare an audit schedule for the permanent file for
the mortgage. What type of information should be included in the schedule?
b. Explain why the audit of mortgage payable, interest expense, and interest payable
should all be done together.
c. List the
of the mortgage, the balance in the mortgage and interest payable accounts at
December 31, 2013, and the balance in interest expense for the year 2013.
d. Identify the types of information that should be disclosed in the footnotes for this
long-term note payable to help the auditor determine whether the completeness
presentation and disclosure audit objective is satisfied.
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