Acc 403 homework 1-17 (Objective 1-3) Busch Corporation has an existing loan in the amount of $6 million With an annual interest rate of 6.0%. The company provides an internal company prepared Financial statement to the bank under the loan agreement. Two competing Banks have offered to replace Busch Corporations existing loan agreement with a new One. United National Bank has offered to loan Busch $6 million at a rate of 5.0% but Requires Busch to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires Busch to Provide financial statements that have been audited by a CPA firm. Busch Corporations Controller approached a CPA firm and was given an estimated cost of $35,000 to perform A review and $60,000 to perform an audit. A. Explain why the interest rate for the loan that requires a review report is lower than That for the loan that did not require a review. Explain why the interest rate for the loan That requires an audit report is lower than the interest rate for the other two loans. b. Calculate Busch Corporations annual costs under each loan agreement, including Interest and costs for the CPA firms services. Indicate whether Busch should keep its Existing loan, accept the offer from United National Bank, or accept the offer from First City Bank. c. Assume that United National Bank has offered the loan at a rate of 4.5% with a Review, and the cost of the audit has increased to $80,000 due to new auditing Standards requirements. Indicate whether Busch should keep its existing loan, accept The offer from United National Bank, or accept the offer from First City Bank. 1-19 (Objective 1-1) James Burrow is the loan officer for the National Bank of Dallas. National has a loan of $325,000 outstanding to Regional Delivery Service, a company Specializing in delivering products of all types on behalf of smaller companies. Nationals Collateral on the loan consists of 25 small delivery trucks with an average original cost of $24,000. Burrow is concerned about the collectability of the outstanding loan and whether the Trucks still exist. He therefore engages Samantha Altman, CPA, to count the trucks, using Registration information held by Burrow. She was engaged because she spends most of Her time auditing used automobile and truck dealerships and has extensive specialized Knowledge about used trucks. Burrow requests that Altman issue a report stating the Following: 1. Which of the 25 trucks is parked in Regionals parking lot on the night of June 30? 2013. 2. Whether all of the trucks are owned by Regional Delivery Service. 3. The condition of each truck, using the guidelines of poor, good, and excellent. 4. The fair market value of each truck, using the current blue book for trucks, which States the approximate wholesale prices of all used truck models, and also using the Poor, good, and excellent condition guidelines. a. For each of the following parts of the definition of auditing, state which part of the Preceding narrative fits the definition: (1) Information (2) Established criteria (3) Accumulating and evaluating evidence (4) Competent, independent person (5) Reporting results B. Identify the greatest difficulties Altman are likely to have doing this audit. 1-22 (Objectives 1-3, 1-5) Dave Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he is Surprised when his friend James Foley asks him, Doesnt it bother you that your clients Dont look forward to seeing their auditors each year? Dave responded, Well, auditing Is only one of several services we provide? Most of our work for clients does not involve Financial statement audits and our audit clients seem to like interacting with us. a. Identify ways in which a financial statement audit adds value for clients. b. List other services other than audits that Czarnecki and Hogan likely pro…
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