A CPA Firm Is Engaged to Audit the Financial Statements

question 61

Essay

A CPA firm is engaged to audit the financial statements of Garrison Corporation.The company's financial statements have never been audited before.The stockholders' equity section of Garrison Corporation's balance sheet at year-end follows:
Stockholders' Equity:
$\begin{array}{l}\text { Capital stock-20,000 shares of } \$ 10 \text { par value authorized: }\\\begin{array}{lr}5,500 \text { shares issued and outstanding } & \$ 55,000 \\\text { Capital contributed in excess of par value of capital stock } & 63,800 \\\text { Retained earnings } & 110,000 \\\hline\end{array}\end{array}$



Total stockholders' equity $\quad$$\quad$$\quad$$\quad$$\quad$ $\underline {\$ 228,800}$
Founded four years ago, Garrison Corporation has ten stockholders and serves as its own registrar and transfer agent. It has no capital stock subscription contracts in effect.
REQUIRED:
Prepare the detailed audit program for the examination of the three accounts composing the stockholders’ equity section of Garrison Corporation’s balance sheet. (Do not include in the audit program the verification of the results of the current-year operations.)

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Definitions:

Accounting Period

A specific time frame in which financial transactions are recorded and financial statements are prepared, typically a year or a quarter.

Prepayment

Payments made in advance for goods or services, recorded as an asset until the corresponding goods or services are received.

Adjusting Entry

An accounting record made to update the book value of an asset or to correct or allocate income and expenses to the appropriate period.

Prepaid Asset

Expenses paid in advance for future benefits, such as insurance or rent, recognized as assets until they are utilized.