Question

Assignment: You are the audit senior in charge of field work for the 2017 audit of Curl Up and Dye, Inc., a chain of women’s beauty parlors. Substantive tests reveal that CU&D’s Accounts Receivable account as of December 31, 2017 includes $184,900 due from officers. Minutes indicate that the Board of Directors approved those loans. A member of the audit committee gives you copies of the “demand notes” which appear to be properly signed and dated by the officers who borrowed from the company. You ask the CEO, an officer who owes approximately half of $184,900 due to the company, whether the company will require officers to repay these loans. He replies that officers might someday repay the loans, but it is possible that the Board of Directors will eventually forgive the loans as part of officers’ annual bonuses. $184,900 is a material amount for this audit.

1) What other questions, if any, would you ask for information, if any, would you like to obtain for the existence and valuation assertions?

2) What disclosure is necessary in the company’s financial statements, including notes to the financial statements? Search FASB Acccounting Standards Codification for required disclosure (See below for search method). Cite the Code section(s) that you think is (are) relevant.

3) What journal entry(ies), if any, would you propose?

Answer 1

Other Question on Existence Assertion is that all account balances exist for assets, liabilities, and equity.

Valuation Assertion- The assertion is that all asset, liability, and equity balances have been recorded at their proper valuations.

XXX-YY-50 Disclosure

Disclosure necessary in the company’s financial statements, including notes to the financial statementsThis Section may include references to general disclosure requirements that encompass the items addressed by the Subtopic.The Receivables Subtopic contains a link to the general financial instrument disclosure requirements that relate to receivables.This Section contains implementation guidance and illustrations, which are an integral part of the standards. The Codification separates implementation guidance and illustrations from the main body of the standards but provides references and links in both directions. This Section provides guidance relating to the standards in simplified and generalized situations.

Journal Entry

Loan A/cDr. 184900

To recievable Account 184900