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Assess the risk of material misstatement at assertion level

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Reference no: EM132706801

Question - In 2019, SI undertook two transactions related to financial instruments.

Investment - Management decided to invest in the stock market, selecting several public companies that have been receiving strong buy ratings from analysts. Management hopes to take advantage of the expected short-term increases in value so that the shares can be resold in the next fiscal year at a gain. Details of the investments are as follows:

 

Acquisition price per share

Trading price per share at Dec. 31, 2019

Aqua Inc. - 700 shares

$100

$103

Monoman Inc. - 3,000 shares

85

45

Charger Inc. - 500 shares

50

60

The CFO has stated that he would like unrealized gains and losses on the share portfolio to not impact net income, and he wants to know whether this is an option.

The investments are currently reported at acquisition price.

Bonds - Due to favourable market conditions, SI decided to retire bonds in advance of their maturity date. Bonds with a face value of $5,000,000 were retired at 98% on October 31, 2019. The bonds paid 7% interest every December 31 and had been issued eight years earlier at par value.

The bookkeeper recorded the following journal entry on October 31 to retire the bonds and pay accrued interest:

DR Bond retirement expense 5,191,667

CR Cash 5,191,667

{($5,000,000 × 7% × 10/12 months) - [$5,000,000 - ($5,000,000 × 98%)]}

Required - For each of the accounting issues, assess the risk of material misstatement at the assertion level?

Reference no: EM132706801

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