The auditors of STA, Inc., a calendar-year corporation, obtained the selected information for years 1 and 2
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Question:
The auditors of STA, Inc., a calendar-year corporation, obtained the selected information for years 1 and 2 located in the exhibit below.
Selected information | Year 2 | Year 1 | |||
Gross revenue | $ | 63,000,000 | $ | 60,000,000 | |
Net income before taxes | 11,650,000 | 11,000,000 | |||
Salary expense | 12,500,000 | 8,000,000 | |||
Rent expense | 1,920,000 | 1,200,000 | |||
Utilities expense | 155,000 | 120,000 | |||
Depreciation expense | 705,000 | 675,000 | |||
Repairs and maintenance | 375,000 | 300,000 | |||
Interest expense | 523,000 | 338,100 | |||
Miscellaneous | 151,000 | 135,000 | |||
Tax expense | 4,325,150 | 3,850,000 | |||
Additionally, the auditors noted the following information:
- STA rents space in an office building:
- Space in Building 1: 25,000 sq. ft.
- On January 1, year 2, the company added a second space:
- Space in Building 2: 11,000 sq. ft.
- The balance of interest-bearing debt outstanding:
- January 1, year 2: $4,830,000
- December 31, year 2: $10,262,000
- The company issued additional debt on July 1, year 2
The auditors are performing analytical procedures relative to the expectations of expenses for year 2 and have established a materiality threshold of 5% of the auditor's expected year 2 amount.
For each of the expenses in column A below, consider the additional notes in column B, and complete the following:
- In "Auditor's expectation" column, enter the auditor's expectation of year 2 expense. (Round all amounts to the nearest dollar.)
- In "Auditor's decision" column, select the auditor's decision as to whether further testing is needed. (Consider each account independently - an option may be used once, more than once, or not at all.)
Related Book For
Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil
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