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:

Explicit Costs

Direct payments made to others in the course of running a business, such as wages, rent, and materials.

Total Revenues

The overall amount of money generated by a business from its sales or services before any costs or expenses are deducted.

Normal Rate

The standard or average rate at which something occurs, such as interest rates, inflation, or unemployment rates.

Accounting Profit

The net income of a business as calculated by subtracting total expenses from total revenues, according to standard accounting principles.