Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 22RQ
To determine
Explain the procedure of auditing the stock options of Company S.
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During the current year the management of Hanover Inc. entered into a futures contract to hedge the price of silver that will be needed for the next year’s production. The contract, which is held by Hanover’s commodity broker, is marketable and exchanged on the CME Global Exchange.
Required:
Describe the types of controls that should be established by a company that engages in derivative trading.
List the substantive procedures that the auditors would use the audit this derivative.
Upvote will be given. Write the complete solutions legibly. The encircled letter is the correct answer. Solve it manually.
Potter Industries Inc. has warrants outstanding that permit its holders to purchase 1 share of stock per warrant at a price of $18. (Refer to Chapter 18 for parts a, b, and c.)
a. Calculate the exercise value of Potter’s warrants if the common stock sells at each of the following prices: $18, $21, $25, and $70.
b. At what approximate price do you think the warrants would sell under each condition indicated in part a? What premium is implied in your price? Your answer will be a guess, but your prices and premiums should bear reasonable relationships to each other.
c. How would each of the following factors affect your estimates of the warrants’ prices and premiums in part b?
The life of the warrant is lengthened.
The expected variability (sp) in the stock’s price decreases.
The expected growth rate in the stock’s EPS increases.
The company announces the following change in dividend policy: Whereas it formerly paid no dividends, henceforth it will pay out all earnings as dividends.
d.…
Chapter 10 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prepare an example of lapping of cash receipts,...Ch. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Explain two procedures by which auditors may...Ch. 10 - Prob. 18RQCh. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 24RQCh. 10 - Prob. 25RQCh. 10 - Prob. 26QRACh. 10 - Henry Mills is responsible for preparing checks,...Ch. 10 - During the first few months of the year, John...Ch. 10 - Prob. 29QRACh. 10 - Prob. 30QRACh. 10 - Prob. 31QRACh. 10 - Prob. 32QRACh. 10 - Prob. 33QRACh. 10 - Prob. 34QRACh. 10 - Prob. 35QRACh. 10 - Prob. 36QRACh. 10 - Prob. 37QRACh. 10 - Select the best answer for each of the following...Ch. 10 - Prob. 38BOQCh. 10 - Prob. 38COQCh. 10 - Prob. 38DOQCh. 10 - Prob. 38EOQCh. 10 - Prob. 38FOQCh. 10 - Reconciliation of the bank account should not be...Ch. 10 - The auditors suspect that a clients cashier is...Ch. 10 - Prob. 38IOQCh. 10 - Prob. 38JOQCh. 10 - Prob. 38KOQCh. 10 - Prob. 38LOQCh. 10 - Which of the following represents a correct...Ch. 10 - Which of the following correctly identifies a risk...Ch. 10 - Which of the following correctly identifies a risk...Ch. 10 - Prob. 39DOQCh. 10 - Prob. 39EOQCh. 10 - Prob. 39FOQCh. 10 - Prob. 40OQCh. 10 - Prob. 41OQCh. 10 - Prob. 42OQCh. 10 - Prob. 43OQCh. 10 - Prob. 44OQCh. 10 - Prob. 45OQCh. 10 - Prob. 46PCh. 10 - Prob. 47PCh. 10 - Prob. 48PCh. 10 - Prob. 49PCh. 10 - Prob. 50ITCCh. 10 - Prob. 51ITCCh. 10 - Prob. 52RDCCh. 10 - Prob. 53EC
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- Upvote will be given. Write the complete solutions legibly. The encircled letter is the correct answer. Solve it manually.arrow_forwardAssume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue? Multiple Choice The red herrings can finally be distributed as their distribution was awaiting SEC approval. The waiting period started when the approval was received this morning. The SEC believes the issue will be a profitable investment for all purchases made at the offer price. The issuer is following all the required rules and regulations in regard to this issue. The final prospectuses have all been delivered or the SEC would not have approved the issue.arrow_forwardPlease hep me with question below . Impact on earnings of an option and an interest rate swap. Millikin Corporation decided to hedge two transactions. The first transaction is a forecasted transaction to buy 500 tons of inventory in 60 days. The company was concerned that selling prices might increase, and it acquired a 60-day option to buy inventory at a price of $1,200 per ton. Upon acquiring the option, the company paid a premium of $10 per ton when the spot price was $1,201. At the end of 30 days, the option had a value of $19 per ton and a current spot price of $1,214 per ton. Upon expiration of the option, the spot price was $1,216 per ton. In another transaction, the company borrowed $3,000,000 at a fixed rate of 8%; after three months, the company became concerned that variable rates would be lower than 8%. In response, the company entered into an interest rate swap whereby it paid variable rates to a counterparty in exchange for a fixed rate of 8%. The reset rate for the first…arrow_forward
- Could you please give further explanation and visualize the transaction below, step by step ,focus on the procedure, assume that you try to make the newly investor understand the process and core concept of the transaction below (the newly investor don’t understand the process to trade futures or forward contract & just have knowledge in stock trading and basic of price movement relation between underlying asset and its derivative product .) “Jewelry Company receives a jewelry order to be made in 6 months from now, it needs to use 10,000 ounces of silver to fulfill this order. “ Step 1: The jewelry company wants to secure its cost in next 6 months by long 2 silver futures contracts in the market at $33/oz. which is the price it agrees to pay at the delivery. (How the company does in open long position at this price, why the company decides to long at this?) : Assume that the contract size of silver futures is 5,000 troy-ounces per contract, and current trade price is at $33/oz.)…arrow_forwardi need the answer quicklyarrow_forwardAn investor makes the decision to purchase 10,000 shares of ABC based on a price of $32 per share. Accordingly, the investor's broker makes the following trades over one trading day: Time Buy/Sell Price Volume 10:01:00 Buy $32.24 Buy $33.08 Buy $34.78 6,000 600 12:01:00 12:02:00 600 13:07:00 14:54:00 Buy $32.61 Buy $32.89 600 600arrow_forward
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