As the in-charge auditor, you begin your field work to examine the December 31 financial statements of a client on January 5, knowing that you must leave temporarily for another engagement on January 7 after outlining the audit program for your assistant. Before leaving, you inquire about the assistant's progress in his examination of notes receivable. Among other things, he shows you a working paper listing the makers' names, the due dates, the interest rates, and amounts of seventeen outstanding notes receivable totaling \(\$ 100,000\). The working paper contains the following notations:

1. Reviewed system of internal control and found it to be satisfactory.

2. Total of \(\$ 100,000\) agrees with general ledger control account.

3. Traced listing of notes to sales journal.

The assistant also informs you that he is preparing to request positive confirmation of the amounts of all outstanding notes receivable and that no other audit work has been performed in the examination of notes receivable and interest arising from equipment sales. There were no outstanding accounts receivable for equipment sales at the end of the year.

You ask your assistant to examine all notes receivable on hand before you leave. He returns in thirty minutes from the office safe where the notes are kept and reports that \(19 \times 0\) notes on hand total only \(\$ 75,000\).

Required:

List the possible explanations that you would expect from the client for the \(\$ 25,000\) difference. (Eliminate fraud or misappropriation from your consideration.) Indicate beside each explanation the audit procedures you would apply to determine if each explanation is correct.