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Old Thursday, January 03, 2008
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Question Help with Accounting and Auditing Questions Plz..

Can anyone kindly provide answers to the following questions please? Prompt replies with be greatly appreciated.

Question1: A firm needs $85,000 cash. A local bank will make a one-year loan but requires a 15% compensatory balance (the company would ordinarily keep a zero balance since the balance maintained in the account earns no interest). If the stated rate of interest is 12%, what is the effective cost?

Question2: Enumerate four items you would expect to find in an auditor's permanent audit file.

Question3: What should an auditor be looking for, or trying to ascertain, during his examination of accounts receivable at balance date?

Question4:The High Company obtained a short term loan for $80,000 from the Centrum Bank on 1 December. The loan term was 60 days with an annual interest rate of 9.5%. On the maturity date the note was renewed for a further 30 days at an interest rate of 10.25%. On this date High Company issued a check to pay the interest for the accrued interest. At the end of the 30 days High Company issued a check to pay for the final amount owing to the Bank, including the principal.
a) Prepare entries to record the issue of the note.
b) Assume that at the end of each month High Company recorded in its books the accrual of interest. Prepare month end entries.
c) Show entries for the check issued on the first maturity date.
d) Show entries for the check issued at the second maturity date.
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Old Tuesday, February 19, 2008
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Default Answers of Accounting Questions

Answer of Question #1:

Load will be availed for = $100.000
Compensatory Balance = $15,000
Load = 85,000

Interest 100,000 @ 12% = 12000
Effective Inetrest = 12000/85000 * 1000 = 14.11%
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Answer of Question 2:
1 - Copy of memorandum of association of the company.
2- Copy of Articles of association of the company.
3- Terms of engagement (audit engagement letter).
4- Company's structure / profile / nature of concern.
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Answer of Question #3
1- Whether these receivable belongs to the company under review.
2- Probability of recovery.
3- Aging of accounts receivable.
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Answer of Question #4
a: Prepare entries to record the issue of the note:

Bank a/c 80,000
Short term load 80,000

b: Assume that at the end of each month High Company recorded in its books of accrual of interest. Prepare month and entries:

Interest for december 80000 * 9.5 % * 62/345 = 645
interest for january 80000 * 9.5 % * 31/365 645
interest for feb 80000* 10.25 * 28/365 = 965

31-12 interest a/c 645
Interest payable 645

31-01 interest a/c 645
interest paybale a/c 645

c: Show entries for the check issued on the first maturity date

Interest payable a/c 1290
To bank a/c 1290

D: Show entries for the check issued at the second maturity date

28-02 Interest a/c 629
To Interest Payable a/c 629

28-02 Short term loan a/c 80,000
Interest payable a/c 629
To Bank a/c 80629
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Last edited by Shooting Star; Thursday, April 05, 2012 at 11:37 PM.
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