2. Analytical Procedures and Interest Expense. Weyman Z. Wannamaker is the chief
ID: 2340266 • Letter: 2
Question
2. Analytical Procedures and Interest Expense. Weyman Z. Wannamaker is the chief financial officer of Sandifer, Inc. He prides himself on being able to manage the company's cash resources to minimize the interest expense. Consequently, on the second business day of each eyman pays down or draws cash on the revolving line of credit at First National Bank You are the auditor. You find the information on this line of credit in the following table. You day of each month for the interest due on the previous month's outstanding balance at the rate of 5.5 percent for the first six months of the year and 5.0 percent for the last six months. in accordance with his cash requirements forecast. inquired at First National Bank and learned that the loan agreement specifies payment on the first "prime plus 1.0 percent" The bank gave you a report that showed the prime rate of interest was Cogburn Company Notes Payable Balances Date Balance Jan 1 Feb 1 Apr 1 May 1 Jun 1 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1 $250,000 200,000 325,000 285,000 175,000 430,000 230,000 250,000 175,000 95,000 Using Excel, prepare an audit estimate of the amount of interest expense you expect to find as the balance of the interest expense account related to these notes payable. Formulas should be used for all calculations. Please label all your work and set up the workpaper in good form. a. b. Suppose that you find that the interest expense account shows expense of S14,080 related to c. Suppose that you find that the interest expense account shows expense of $14,560 related to d. Suppose that you find that the interest expense account shows expense of $15,700 related to these notes. What could account for this difference? these notes. What could account for this difference? these notes. What could account for this difference?
Explanation / Answer
1.
2.
This difference is because December Interest might not be included in Total Interest.
3.
This difference is due to rounding off.
4.
This difference is due to September Interest not being included in the Total Interest.
Date Balance Rate Interest(Balance*Rate*1/12) 01-Jan 250000 6.5% 1354.17 01-Feb 200000 6.5% 1083.33 01-Mar 200000 6.5% 1083.33 01-Apr 325000 6.5% 1760.42 01-May 285000 6.5% 1543.75 01-Jun 175000 6.5% 947.92 01-Jul 175000 6.0% 875.00 01-Aug 430000 6.0% 2150.00 01-Sep 230000 6.0% 1150.00 01-Oct 250000 6.0% 1250.00 01-Nov 175000 6.0% 875.00 01-Dec 95000 6.0% 475.00 14547.92Related Questions
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