EarthWear Working Papers
Willis & Adams, CAs
Income Statement Accounts
SAA
1/7/07
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EarthWear Clothiers
Reasonableness Test of Interest Expense
12/31/06
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Month spacer Balance
    (in thousands)
spacer spacer spacer
January spacer
$ 21,500
February spacer
18,600
March spacer
18,100
April spacer
17,900
May spacer
16,100
June spacer
15,500
July spacer
14,200
August spacer
20,200
September spacer
34,500
October spacer
28,100
November spacer
15,200
December spacer
11,000
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line
Total spacer
$ 230,900
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Double Line
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Average spacer
19,240
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Double Line
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$19,240,000 x .0525† = $1,010,000
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Legend:
£ = Traced to monthly general ledger balance.
† = Recaluated the average interest rate for the client’s debt.
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Conclusion:
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EarthWare’s income statement shows $983,000 of interest expense. The difference of $27,000 from the auditor’s calculation is not material based on tolerable difference of $49,150. No further investigation.
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