1 One of the last procedures that auditors perform on an engagement is to evaluate any potential misstatements in the financial statements that they have found during the audit. They do this to determine whether any accounts require adjustment to be fairly stated in accordance with GAAP. If adjustments are required, the auditors discuss them with their client. If material misstatements in the financial statements are not corrected, an unmodified audit opinion cannot be issued. Assume that you are on the team auditing Regacho Company's financial statements for the year ended December 31, 2021. You have been asked to review the following list of audit findings to determine the adjusting entry, if any, that should be recommended to the client. Assume all amounts are material. a. The bank confirmation returned by the bank indicated that Regacho Company had an outstanding note payable of $100,000 on December 31. Interest on the note is due on the last day of each month at a rate of 12% per year. The confirmation reported that December interest had not been paid. The auditor reviewing the bank confirmation indicated that Regacho Company remitted the interest payment to the bank on January 2, 2022. The outstanding note payable of $100,000 is correctly reflected on the year-end balance sheet; December interest was recorded when payment was made. b. Salaried employees of Regacho Company are paid on the first of each month for the previous month. Besides their regular salary, they receive overtime pay for any hours worked above 40 hours per week. The accounting system automatically records salary expense at the end of each month. Overtime pay is computed separately based on approved time sheets. It is normally paid and recorded on the fifth of each month. Overtime for December in the amount of $38,000 was paid and recorded on January 5, 2022. c. On December 28, 2021, Regacho Company received an advance payment of $50,000 for work to be provided to a client in January 2022. Regacho prepared the following journal entry when the cash was received: Cash Revenue 50,000 50,000 d. In January, 2022, Regacho Company was sued by a former client who seeks to recover $150,000 for work performed in December that the client claims is of poor quality. The letter received from Regacho's attorney indicated that it is "reasonably possible" that the company will be required to pay the damages asked. Required: For each of the four items, indicate the adjusting entry that should be recommended, if one is necessary. If no entry is required, is any other follow-up by the auditor indicated