36) You work for a CPA firm, and you have been assigned the task of performing the firm's second-year audit of the financial statements of Paul's Guitar Shop, Inc. (see next page). For each line item in the financial statements, describe the substantive testing you will perform to determine whether these financial statements are materially correct in accordance with U.S. generally accepted accounting principles assuming control risk is high (30 pts). Paul's Guitar Shop, Inc. Statement of Finandal Position December 31, 2015 Assets Current Assets Cash 32,800 39,800 72,600 Inventory Total Current Assets Fixed Assets Leasehold Improvements Accumulated Depreciation Total Fixed Assets Other Assets Trademarks Accumulated Amortization Total Other Assets Total Assets 100,000 (2,000) 98,000 1 20,000 (8,000) 12,000 182,600 Liabilities Current Liabilities Accounts Payable Accrued Expenses Total Current Liabilities Long-term Liabilities Total Liabilities 49,000 1,000 50,000 25,000 75,000 Owner's Equity Owner's Equity Common Stock Retained Earnings Total Owner's Equity Total Liabilities and Owner's Equity 20,000 87,600 107,600 182,600 Paul's Guitar Shop, Inc. Income Statement For the Year Ended December 31, 2015 $ Revenues Merchandise Sales Music Lesson Income Total Revenues: 24,800 3,000 $ 27,800 10,200 2,000 750 Expenses Cost of Goods Sold Depreciation expense Wage expense Rent expense Interest expense Supplies expense Utilities expense Total Expenses: 500 500 500 400 14,850 Net Income $ 12,950 36) You work for a CPA firm, and you have been assigned the task of performing the firm's second-year audit of the financial statements of Paul's Guitar Shop, Inc. (see next page). For each line item in the financial statements, describe the substantive testing you will perform to determine whether these financial statements are materially correct in accordance with U.S. generally accepted accounting principles assuming control risk is high (30 pts). Paul's Guitar Shop, Inc. Statement of Finandal Position December 31, 2015 Assets Current Assets Cash 32,800 39,800 72,600 Inventory Total Current Assets Fixed Assets Leasehold Improvements Accumulated Depreciation Total Fixed Assets Other Assets Trademarks Accumulated Amortization Total Other Assets Total Assets 100,000 (2,000) 98,000 1 20,000 (8,000) 12,000 182,600 Liabilities Current Liabilities Accounts Payable Accrued Expenses Total Current Liabilities Long-term Liabilities Total Liabilities 49,000 1,000 50,000 25,000 75,000 Owner's Equity Owner's Equity Common Stock Retained Earnings Total Owner's Equity Total Liabilities and Owner's Equity 20,000 87,600 107,600 182,600 Paul's Guitar Shop, Inc. Income Statement For the Year Ended December 31, 2015 $ Revenues Merchandise Sales Music Lesson Income Total Revenues: 24,800 3,000 $ 27,800 10,200 2,000 750 Expenses Cost of Goods Sold Depreciation expense Wage expense Rent expense Interest expense Supplies expense Utilities expense Total Expenses: 500 500 500 400 14,850 Net Income $ 12,950