Response to the following problem:
Your client, Red Horse, Inc., prepared the following schedule for long term debt for the audit of financial statements for the year ended December 31, 2013:
|
Notes
Payable Description
|
Interest
Rate
|
Due
Date
|
1/1/13
Beginning
Balance
|
Additions
|
Payments
|
12/31/13
Ending
Balance
|
|
Mortgage Payable
|
6.25%
|
2022
|
$1,125,000
|
-
|
$200,000
|
$ 925,000
|
|
Unsecured Notes Payable
|
6.00%
|
2024
|
7,500,000
|
|
475,000
|
7,025,000
|
|
Secured Bonds
|
5.75%
|
2020
|
2,700,000
|
$ 1,250,000
|
300,000
|
3,650,000
|
|
Convertible Debentures
|
5.25%
|
2027
|
|
10,000,000
|
|
10,000,000
|
|
Total
|
|
|
$11,325,000
|
$11,250,000
|
$975,000
|
$21,600,000
|
Required
a. What type of evidence would you examine to support the beginning balances in the accounts?
b. What types of evidence would you use to support the additions to each account?
c. What types of evidence would you examine to support payments?
d. What procedures would you perform related to the ending balances in the accounts?
e. What evidence would you use to verify interest rates and due dates?
f. How might you use the information presented above to audit interest expense and interest payable accounts?