Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Analytical Procedures and Interest Expense. Weyman Z. Wannamaker is the chief financial officer of Cogbum Company. He prides himself on being able to manage the

image text in transcribed
image text in transcribed
Analytical Procedures and Interest Expense. Weyman Z. Wannamaker is the chief financial officer of Cogbum Company. He prides himself on being able to manage the company's cash resources to minimize the interest expense. Consequently, on the second business day of each month, Weyman pays down or draws cash on Cogburn's revolving line of credit at First National Bank in accordance with his cash requirements forecast. You are the auditor. You find the information on this line of credit in the following table. You inquired at First National Bank and learned that Cogburn Company's loan agreement specifies payment on the first day of each month for the interest due on the previous month's outstanding balance at the rate of "prime plus 1.5 percent." The bank gave you a report that showed the prime rate of interest was 8.5 percent for the first six months of the year and 8.0 percent for the last six months. Cogburn Company Notes Payable Balances Date Balance Jan 1 $150,000 Feb 1 200,000 Apr 1 225.000 May 1 285,000 Jun 1 375,000 Aug 1 430,000 Sep 1 290,000 Oct 1 210,000 Nov 1 172,000 Dec 1 95.000 Oct 1 Nov 1 210,000 172,000 95,000 Dec 1 Required: a. Prepare an audit estimate of the amount of interest expense you expect to find as the balance of the interest expense account related to these notes payable. b. Which of the types of analytical procedures did you use to determine this estimate? c. Suppose that you find that the interest expense account shows expense of $23,650 related to these notes. What could account for this difference? d. Suppose that you find that the interest expense account shows expense of $24,400 related to these notes. What could account for this difference? e. Suppose that you find that the interest expense account shows expense of $25,200 related to these notes. What could account for this difference

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And Assurance Services A Systematic Approach

Authors: William F. Messier

6th Edition

0073526908, 9780073526904

More Books

Students also viewed these Accounting questions

Question

=+f. Does it promise a benefit or solve a problem?

Answered: 1 week ago

Question

=+ Why do some seem like a personalized, individual message?

Answered: 1 week ago