You are a CPA engaged in an examination of the financial statements of Pate Corporation for the year ended December 31, 19X3. The financial statements and records of Pate Corporation have not been audited by a CPA in prior years.

The stockholders'. equity section of Pate Corporation's balance sheet at December 31, 19X3 follows:

Pate Corporation was founded in 19X0. The corporation has ten stockholders and serves as its own registrar and transfer agent. There are no capital stock subscription contracts in effect.
Required:

a. Prepare the detailed audit program for the examination of the three accounts comprising the Stockholders' Equity section of Pate Corporation's balance sheet. (Do not include in the audit program the verification of the results of the current year's operations.)

b. After every other figure on the balance sheet has been audited by the CPA, it might appear that the retained earnings figure is a balancing figure and requires no further verification. Why does the CPA verify retained earnings as he does the other figures on the balance sheet? Discuss.

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Stockholders' equity: Capital stock-10,000 shares of $10 par value au- thorized; 5,000 shares issued and outstanding ... $ 50,000 Capital contributed in excess of par value of capital stock..... Retained earnings Total stockholders' equity 32,580 47,320 $129,900