The Redford Corporation took out a 20-year mortgage on June 15, 2019, for $2,600,000 and pledged its only manufacturing building and the land on which
the building stands as collateral. Each month subsequent to the issue of the mortgage,
a payment of $17,885 was paid to the mortgagor. You are in charge of the current year
audit for Redford, which has a balance sheet date of December 31, 2019. The client has
been audited previously by your CPA firm, but this is the first time Redford has had a
mortgage.
a. Explain why it is desirable to prepare an audit schedule for the permanent file for the
mortgage. What type of information should be included in the schedule?
b. Explain why the audit of mortgage payable, interest expense, and interest payable
should all be done together.
c. List the audit procedures that should ordinarily be performed to verify the issue of
the mortgage, the balance in the mortgage and interest payable accounts at December
31, 2019, and the balance in interest expense for the year 2019.
d. Identify the types of information that should be disclosed in the footnotes for this
long-term note payable to help the auditor determine whether the presentation audit
objective is satisfied.
