An Auditor Is Determining Whether an Issuance of Notes Payable

question 74

Multiple Choice

An auditor is determining whether an issuance of notes payable for cash was correctly recorded.Her best course of action would be to

• A)confirm with the bond trustee as to the amount of bonds issued.
• B)confirm with the underwriter as to the appropriate market yield on the bonds.
• C)trace the cash received from the proceeds to the accounting records.
• D)verify that the amount was included in a footnote disclosure.

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Definitions:

Covered Interest Arbitrage

An investment strategy where an investor takes advantage of the interest rate differential between two countries while hedging exchange rate risk.

Nominal Risk-Free Rate

The nominal risk-free rate is the rate of return on an investment with no risk of financial loss, not adjusted for inflation.

Forward Rate

The agreed-upon interest rate for a financial transaction that will be conducted at a future date.

Net Present Value

A financial metric used to evaluate the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows over a period of time.