You have been engaged to examine the financial statements of the Elliott Company for the year ended December \(31,19 X 1\). You performed a similar examination as of December 31, 19X0.

A partial trial balance for the company as of December \(31,19 \times 1\) shows:

You have obtained the following data concerning these accounts:
1. The Bowen common stock was purchased on September 30, 19X1, for cash in the market where it is actively traded. It is used as security for the note payable and held by the bank. Elliott's investment in Bowen represents approximately one percent of the total outstanding shares of Bowen.
2. Elliott's investment in Woods represents 40 percent of the outstanding common stock which is actively traded. Woods is audited by another CPA and has a December 31 year-end.

3. Elliott neither purchased nor sold any stock investments during the year other than that noted above.
Required:
For each of the above account balances, discuss

(a) the types of evidential matter you should obtain and

(b) the audit procedures you should perform during your examination.

Transcribed Image Text:

Dividends receivable Investments at cost: Bowen common stock Investments at equity: Woods common stock Dividend revenue Equity in earnings of investments carried at equity Dr. (Cr.) $ 1,750 322,000 284,000 (3,750) (40,000)