During the Course of an Audit, a CPA Observes That

question 61

Multiple Choice

During the course of an audit, a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the long-term debt account. This observation could lead the auditor to suspect that

• A) long-term debt is understated.
• B) discount on bonds payable is overstated.
• C) long-term debt is overstated.
• D) premium on bonds payable is understated.

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Definitions:

Investing Activity

Financial actions involving the purchase and sale of long-term assets or investments outside of the core operations of a business.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since its acquisition.

Operating Activities

Business activities related directly to the production and delivery of goods and services, generating revenue.

Indirect Method

An accounting technique used in cash flow statements to derive operating cash flow by adjusting net income for non-cash transactions and changes in working capital.