Question

Many of the granada corporation's convertible bondholders have converted their bonds into stock during the year under audit. the independent auditor should review the granada corporation's statement of cash flow and related disclosures to ascertain that they show:_______.

a. only the cash used to reduce the convertible debt
b. only the cash provided by the issuance of stock
c. the issuance of the stock and reduction in convertible debt
d. nothing relating to the conversion because it does not affect cash

Answer 1

c. the issuance of the stock and reduction in convertible debt

Step-by-step explanation:

Based on the scenario that is been described in the question the independent auditor should review the Granada corporation's statement of cash flow and related disclosures to ascertain that they show the issuance of the stock and reduction in convertible debt in the account of the company, thereby making good audit of Granada corporation.

Answer 2

The correct answer is d. nothing relating to the conversion because it does not affect cash .

Step-by-step explanation:

The nature of the bonds leads us to consider a condition that must be met if the cash is verified, since in this case what was done was a conversion of a security for a different one without actually converting it into money. This situation must be considered by the Granada corporation in its accounts, in order to reflect the reality in terms of bonds and, consequently, it must reveal this movement to serve as a tool for the auditor's work.