E-Antiques, Inc. is an Internet-based market maker for buyers and sellers of antique furniture and jewelry. The
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The company, founded in 2007, initially obtained capital through equity funding provided by the founders and through loan proceeds from financial institutions. In early 2010, E-Antiques became a publicly held company when it began selling shares on a national stock exchange. Although the company had never generated profits, the stock offering generated large proceeds based on favorable expectations for the company, and the stock quickly increased to above $100 per share.
Management used the proceeds to pay off loans to financial institutions and to reacquire shares issued to the company founders. Proceeds were also used to fund purchases of hardware and software used to support the online market. The balance of unused proceeds is currently held in the company's bank accounts.
Required
a. Before performing analytical procedures related to the capital acquisition and repayment cycle accounts, consider how the process of becoming publicly held will affect accounts at E-Antiques, Inc. Describe whether each of the following balances would have increased, decreased, or experienced no change between 2009 and 2010 because of the public offering:
(1) Cash
(2) Accounts receivable
(3) Property, plant, and equipment
(4) Accounts payable
(5) Long-term debt
(6) Common stock
(7) Additional paid-in capital
(8) Retained earnings
(9) Treasury stock
(10) Dividends
(11) Revenues
b. During 2011, the stock price for E-Antiques plummeted to around $19 per share. No new shares were issued during 2011. Describe the impact of this drop in stock price on the following accounts for the year ended December 31, 2011:
(1) Common stock
(2) Additional paid-in capital
(3) Retained earnings
c. How does the decline in stock price affect your assessment of client business risk and acceptable audit risk?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
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a b While the decline in stock market price to 19 share is not favorable news for EAntiques that dec...View the full answer
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Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley
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