Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 22, Problem 24DQP
To determine
List any audit steps or reporting requirements that must be taken to recognized in connection with each of the situation given.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The following covenants are extracted from the indenture of abond issue. The indenture provides that failure to comply with its terms in any respectautomatically makes the loan immediately due (the regular date is 20 years hence). Listany audit steps or reporting requirements you think should be taken or recognized inconnection with each one of the following:a. The debtor company shall endeavor to maintain a working capital ratio of 2 to 1at all times, and in any fiscal year following a failure to maintain said ratio, thecompany shall restrict compensation of officers to $100,000 per individual. Officersfor this purpose shall include chairman of the board of directors, president, all vicepresidents, secretary, and treasurer.b. The debtor company shall keep all property that is security for this debt insuredagainst loss by fire to the extent of 100% of its actual value. Policies of insurancecomprising this protection shall be filed with the trustee.c. The debtor company shall pay all…
an entity has an existing note maturing within 12 months from the balance sheet date. The entity has the right to refinance the obligation for 15 months from the report date the obligation should be accounted for as
A. Accounted for as a current liability when refinancing was done after the report date and after the issuance of the financial statement, with a corresponding disclosure in the notes regarding the refinancingB. Accounted for as a current liability when refinancing was done on or before the reporting date.C. Accounted for as a current liability when refinancing was done after the report date but before the issuance of the financial statement.
D. Accounted for as a noncurrent liability when refinancing was done on or before the maturity date
Question 5.
On 1 January 2021 Corgi Ltd issued a £5m convertible bond at nominal value. There
were no issue costs. The bond is redeemable at par on 1 January 2024 or bond
holders can convert their bond into ordinary shares, with a nominal value of £1. The
terms of the conversion are 2 shares for every £100 of bond.
The coupon rate on the bond is 10%, payable annually in arrears. Bonds issued by
similar entities without the conversion rights bear interest at 15%.
Chapter 22 Solutions
Auditing and Assurance Services (16th Edition)
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
- Please assist with the following: Required: use the information provided below to prepare the following: 2.1 The correct Debtors Control Account properly balanced for May 2021. 2.2 Reconciliation of the debtors list with the debtors control account for themonth ended 31 May 2021. Sport Enterprises have individual accounts for their debtors in a debtors subsidiary ledger and have a debtors control account in the general ledger. The balance of the debtors control account at 1 May 2021 is R169 200. The following information was provided for the month ending 31 May 2021:1. Journals provided the following totals for relevant transactions: For the month ended 31 May 2021: R Sales journal: Debtors column- 762 000Sales returns journal- 6 300Cash receipts journal: Debtors column- 586 800General Journal: Interest charged on overdue debtors’ accounts- 2 100General Journal: Debtors balances written off as irrecoverable- 2 700 2. The debtors ledger clerk submitted the following : List of…arrow_forward9. Which of the following items would be excluded from current liabilities? Group of answer choices a. Normal accounts payable which had been assigned by the creditor to a finance company. b. Long-term debt callable within one year or less because the debtor violated a debt provision. c. A short-term debt which at the discretion of the entity can be rolled over at least twelve months after the balance sheet date. d. A long-term liability callable or due on demand by the creditor even though the creditor have given no indication that the debt will be called.arrow_forwardWhich of the following is a current liability? Bond payable due in two years for which there is an adequate sinking fund. Bond payable due in three years expected to be refinanced. Bond payable due in eleven months for which there is an appropriation of retained earnings. Bond payable due in eight months and refinanced on a long-term basis at the end of reporting period.arrow_forward
- An entity has financial assets in the form of bonds that mature in 10 years with variable interest rates. However, the interest rate is capped at the interest rate 10%. The bond is one of the bonds owned by the entity in a bond portfolio. The entity actively manages the returns on the portfolio. These returns consist of obtaining contractual payments as well as gains and losses from the sale of financial assets. As a result, the entity has financial assets to collect contractual cash flows and sells financial assets to reinvest in higher-yielding financial assets or to better match the durability of the entity. In the past, this strategy resulted in sales activity Repeat and the sale is significant in value. This activity is expected to continue in the future. Requested: Determine the proper classification of the bonds.arrow_forward5. You are assigned to perform a review of minutes of meeting for the year end audit ending December 31, 2021. Which of the following agendas would least likely affect the total liabilities of the entity? Group of answer choices a. The payment of real property taxes for the year 2021 at the beginning of 2021. b. Property dividends declared on December 27, 2021. c. The approval of the board of directors of the issuance of a 5-year term bond last September 2021. d. The settlement of a pending litigation with another entity on January 5, 2022. 6. As the audit associate, you were asked by the senior associate to check the completeness of confirmation letters. Upon your review, there is a supplier that has not yet given their reply. What alternative audit procedure would most likely be performed by the audit associate, assuming the audit is at its wrap-up stage? Group of answer choices a. Perform analytical procedures b. Send another confirmation letter c. Vouch subsequent…arrow_forwardDetermine the correct classification of the following liabilities:(1) Liability due in 6 months.(2) Liability refinanced with long term debt between the statement of financial position date and the date of issuance of financial statement.(3) Liability which will be refinanced on a long-term basis between the statement of financial position date and date of issuance of financial statement through an irrevocable agreement signed by debtor.(4) Liability paid between statement of financial position date and date of issuance of financial statement with cash; the cash is replenished with proceeds from long term debt also between the statement of financial position date and date of issuance of Only number 3 is noncurrent. All are current liabilities. Both numbers 3 and 4 are noncurrent. Only number 1 is current.arrow_forward
- Lechon Corporation has multiple long-term arrangement containing a debt covenant. As of December 31, 2022, the company disclosed current liabilities of P450,786 in its financial statements. The following notes refer to these six (6) long-term loans each amounting to P75,131:Note 1: The specific requirements in the debt covenant have to be met as at December 31 every year. The loan is due in 3 years. The company breaches the debt covenant before the period end. As a result, the loan becomes payable on demand.Note 2: Same details in note 1, but the loan arrangement stipulates that the entity has a grace period of 3 months to rectify the breach and during which the lender cannot demand immediate repayment.Note 3: Same details in note 1, but the lender agreed not to demand repayment as a consequence of the breach. The company obtains this waiver on December 31 and the waiver is for a period of more than 12 months after the period end. Note 4: Same details in note 3, however the company…arrow_forwardOn September 31, 2021, an entity issues bonds with face amount of P8,000,000 forP9,105, 022 including accrued interest. The bonds are dated January 1, 2021 and payannual interest of 11% every December 31. The effective interest rate is 9%.Requirement:a. Compute for the initial carrying amount of the bonds.b. Provide the entry on September 1, 2021 to record the issuance of the bonds.c. Compute for the interest expense in 2021.arrow_forward(Disclosures, Conditional and Contingent Liabilities) Presented below are three independent situations.Situation 1: A company offers a one-year warranty for the product that it manufactures. A history of warranty claims has been compiled, and the probable amounts of claims related to sales for a given period can be determined.Situation 2: Subsequent to the date of a set of financial statements but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated.Situation 3: A company has adopted a policy of recording self-insurance for any possible losses resulting from injury to others by the company’s vehicles. The premium for an insurance policy for the same risk from an independent insurance company would have an annual cost of $4,000. During the period covered by the financial statements, there were no accidents involving the company’s vehicles that…arrow_forward
- a) Prepare the journal entry at the date of the bond purchase b) Prepare a bond amortization schedule to December 31, 2024 c) Prepare the entries and year-end entries from December 31, 2023, through to the collection of interest on December 31, 2024 d) Following the three-step approach, prepare the journal entries for the sale of the bond on December 31, 2024. Include the reclassification of unrealized gains and losses to net income.arrow_forwardLong-term debt can be reported either (a) as a single amount, net of any discount or increased by any premium or (b) at its face amount accompanied by a separate valuation account for the discount or premium. Any portion of the debt to be paid during the upcoming year, or operating cycle if longer, should be reported as a current amount. Regarding amounts to be paid in the future, what additional disclosures should be made in connection with long-term debt?arrow_forwardThe chief accountant of KYB Ltd has prepared and presented the following schedule for long term debt for the audit of financial statements for the year ended March 31, 2020: Notes Payable Description Interest Rates Maturity Date Opening Balance Additions Payments to date Closing Balance Mortgage Payable 4.5% 2050 2,415,886 172,757 2,588,643 Unsecured Notes Payable 5.5% 2030 5,879,800 850,000 5,029,800 Secured Bonds 5.75% 2021 6,228,000 1,272,000 7,500,000 Convertibles Debentures 3.5% 2025 3,500,000 3,500,00 Total 14,520,686 4,944,757 850,000 18,615,443 Required: Describe substantive procedures the auditor should perform to confirm the transactions in the schedule above for the year-end.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
BIG Problem with Bond Investing Today!!!; Author: Learn to Invest - Investors Grow;https://www.youtube.com/watch?v=1ScT15of0Vo;License: Standard Youtube License