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:

Interest Rate

Borrowers face a cost, expressed as a percentage of the fundamental amount, for the privilege of using lenders' assets.

Supply of Loanable Funds

The total amount of funds available for borrowing in the economy, influenced by savings, government policies, and financial institutions.

Shift of the Supply Curve

A movement of the entire supply curve to the left or right, caused by a change in a factor other than the price of the good or service itself, indicating a change in the quantity supplied at every price.

Quantity of Loanable Funds

The total amount of funds available for borrowing in the financial markets, based on savings and the supply of credit.