In Auditing Long-Term Bonds Payable, an Auditor Most Likely Would

question 20

Multiple Choice

In auditing long-term bonds payable, an auditor most likely would:

• A)perform analytical procedures on the bond premium and discount accounts.
• B)examine documentation of assets purchased with bond proceeds for liens.
• C)compare interest expense with the bonds payable amount for reasonableness.
• D)confirm the existence of individual bond holders at year-end.

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Definitions:

Premium on Bonds Payable

The amount by which the cash received from issuing bonds exceeds their face value, signifying an interest rate lower than the market rate.

Adjunct Liability Account

An account that is associated with a liability and increases its amount, unlike a contra liability account which reduces it.

Call Option

A financial contract giving the buyer the right but not the obligation to buy an asset at a specified price within a certain period.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where the borrower commits to paying back the principal along with interest.