Response to the following problem:
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 balance sheet date of December 31, 2013. The client has been audited previously by your CPA firm, but this is the first time Redford Corporation has had a mortgage.
Required:
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 audit procedures that should ordinarily be performed to verify the issue 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.