You are conducting an annual audit of Granite Corporation, which has total assets of approximately $1 million
Question:
During your audit of accounts and notes receivable, you uncover the information shown below concerning three short-term notes receivable due in the near future. All three of these notes receivable were discounted by Granite Corporation with its bank shortly before the balance sheet date.
1. A 13 percent 60-day note for $50,000 received from a customer of unquestioned financial standing.
2. A 15 percent six-month note for $60,000 received from the affiliated company, Desert Sun, Inc. The affiliated company is operating profitably, but it is presently in a weak cash position because of recent additions to buildings and equipment. The president of Granite Corporation intends to make an $80,000 advance with a five-year maturity to Desert Sun, Inc. The proposed advance will enable Desert Sun, Inc., to pay the existing 15 percent $60,000 note at maturity and to meet certain other obligations.
3. A 14 percent $20,000 note from a former key executive of Granite Corporation whose employment had been terminated because of chronic alcoholism and excessive gambling. The maker of the note is presently unemployed and without personal resources.
Describe the proper balance sheet presentation with respect to these discounted notes receivable. Use a separate paragraph for each of the three notes, and state any assumptions you consider necessary.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany
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