You have been engaged to audit the financial statements of mercury corporation for the year ended December 31, 2020. During the year, mercury obtained a long term loan from a local bank pursuant to a finanacing agreement, which provided the following:

1. The loan is to be secured by the companys inventory and accounts receivable

2. the company is to maintain a debt equity ratio to exceed 2:1

3. The company is not to pay dividends without permission from the bank

4. monthly installment payments are to commenece july 1, 2020. In addition, during the year, the company also borrowed on a short term basis, substantial amounts just prior to the year end from the president of the company.

required:

1. For the purposes of your audit of the mercury corporation financial statements, which procedures should you employ in examining the described loans? Dont discuss internal control.

2. What are the financial statement decisions that you should expect to find with respect to the loan from the president?