You were engaged to examine the financial statements of Ronlyn Corporation for the year ended June 30.

On May 1, the Co poration borrowed \(\$ 500,000\) from Second National Bank to finance plant expansion. The long-term note agreement provided for the annual payment of principal and interest over five years. The existing plant was pledged as security for the loan.

Due to unexpected difficulties in acquiring the building site, the plant expansion had not begun at June 30. To make use of the borrowed funds, management decided to invest in stocks and bonds, and on May 16, the \(\$ 500,000\) was invested in securities.

Required:

a. What are the audit objectives in the examination of long-term debt?

b. Prepare an audit program for the examination of the long-term note agreement between Ronlyn and Second National Bank.

c. How could you verify the security position of Ronlyn at June 30?

d. In your audit of investments, how would you 1. Verify the dividend or interest income recorded?

2. Determine market value?

3. Establish the authority for security purchases?