Auditing and Assurance service 16th edition, alvin arens, page258-259
Pinnacle Manufacturing: part I
A) refer to the finanical statement data in figure 8-9 for thecurrent year and prior two years. analyze the year-to-year changein account balance for at least five financial statement lineitems. documents the trend analysis in a format similar to thefollowing:
Account Balance _________%change 2015-2016___________%change2014-2015
Net sales
B) calculate at least five common ratios shown in chapter 7 onpage 196-199 and document them in format similar to thefollowing:
Ratio____________________2016__________2015________2014
current ratio
C) based on the analytical procedures calculated in parts a andb, summarize your observation about pinnacle's business, includingyour assessment of the clients's business risk.
D) go to the pinnacle link on the textbookweb site(www.personhighered.com/arens) and open the pinnacle incomestatement, which is located in the pinnacle income statementworksheet of the pinnacle_financials excel file. use the incomestatement information to prepare a common-size income statement forall three years (see figure 8-4 pg. 233) for an example. use theinformation to identify accounts for which you believe there is aconcern about material misstatements. use a format to thefollowing:
account balance____________________estimate of $amount ofpotential misstatement
E) use the three divisional income statements in thepinnacle_financials excel file on the web site to prepare acommon-size income statement for each of the three divisions forall three years. each division's income statement is in separateworksheet excel file. use the information to identify accounts forwhich you believe there is a concern about material misstatements.use a format similar to the one in requirement D.
F) explain whether you believe the information is requirement Dor E provides the most useful data for evaluting the potential formisstatements. explain why.
G) analyze the account balances for accounts receivable,inventory, and short/current long-tern debt. describe anyobservation about those accounts and discuss additional informationyou want to consider duuring the current year audit.
H) based on your calculations, assess thelikelihood(high,medium,low) that pinnacle is likely to failfinancially in the next 12 months.
Pinnacle ManufacturingCompany Balance Sheet - All Divisions As of December 31 2016 2015 2014 ASSETS Dollar Value Dollar Value Dollar Value CURRENT ASSETS Cash and cash equivalents $ 7,721,279 $ 7,324,846 $ 8,066,545 Accounts receivable: Trade 14,008,633 9,586,325 8,879,352 Less: Allowance for bad debts (966,468) (966,468) (942,943) Inventory 32,236,021 25,537,198 25,271,503 Prepaid expenses 119,081 106,353 102,650 Deposits 53,197 36,853 29,092 Total current assets 53,171,743 41,625,107 41,406,199 PROPERTY, PLANT, AND EQUIPMENT Land 11,490,036 11,490,036 4,159,580 Automobiles 266,071 220,313 220,313 Accum. depreciation: Automobiles (198,218) (166,835) (122,769) Office equipment 5,494,707 5,238,368 4,924,055 Accum.depreciation: Office equipment (2,962,472) (2,136,395) (1,417,025) Manufacturing equipment 13,918,820 11,543,824 11,179,813 Accum. depreciation: Manufacturingequipment (3,319,983) (2,796,754) (2,429,272) Manufacturing building 41,106,800 38,056,625 38,056,625 Accum. depreciation: Manufacturingbuilding (11,098,836) (8,410,681) (7,074,110) Office building 13,262,479 13,025,447 13,025,447 Accum.depreciation: Office building (5,696,357) (4,428,418) (2,253,925) Total property, plant, and equipment 62,263,047 61,635,530 58,268,732 TOTAL ASSETS $ 115,434,790 $ 103,260,637 $ 99,674,931 LIABILITIES AND STOCKHOLDERS' EQUITY - - CURRENT LIABILITIES Note payable: Bank $ 11,459,080 $ 10,257,598 $ 9,631,600 Accounts payable: Trade 12,969,686 9,460,776 7,586,374 Current portion of long-term debt 3,916,739 41,070 41,070 Accrued payroll and withholding taxes 1,593,276 1,263,461 1,238,454 Accrued interest 229,575 196,545 178,478 Federal income taxes payable 244,792 307,354 265,619 Total current liabilities 30,413,148 21,526,804 18,941,595 LONG-TERM DEBT 24,420,090 22,342,006 22,379,920 STOCKHOLDERS' EQUITY Common stock: $1 par value Authorized: 1,500,000 shares Issued and outstanding: 1,000,000shares 1,000,000 1,000,000 1,000,000 Additional paid-in capital 15,717,645 15,717,645 15,717,645 Retained earnings 43,883,907 42,674,182 41,635,771 Total stockholders' equity 60,601,552 59,391,827 58,353,416 - - TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 115,434,790 $ 103,260,637 $ 99,674,931
Pinnacle ManufacturingCompany Income Statement - All Divisions For the Year Ended December 31 2016 2015 2014 Dollar Value Dollar Value Dollar Value Sales 150,918,731 148,764,555 144,860,245 Sales Returns andAllowances 181,103 178,518 173,832 Cost of Sales* 109,284,780 106,255,499 101,988,165 Gross Profit 41,452,848 42,330,538 42,698,248 OPERATINGEXPENSES-Allocated Salaries-Management 2,281,266 2,387,993 2,295,081 Salaries-Office 315,169 296,681 306,856 Licensing and certificationfees 190,650 172,883 162,279 Security 550,603 637,580 630,353 Insurance 93,197 103,842 108,491 Medical benefits 23,721 29,453 28,810 Advertising 162,512 178,009 165,678 Business publications 6,989 5,555 774 Property taxes 22,585 178,009 175,692 Bad debts 841,699 1,034,060 992,094 Depreciation expense 5,336,783 4,641,982 4,367,565 Accounting fees 273,956 297,777 299,789 Total operatingexpenses-Allocated 10,099,130 9,963,824 9,533,462 OPERATING EXPENSES-Direct Salaries-Sales 14,970,669 15,327,777 14,904,392 Wages Rental 491,794 595,389 575,725 Wages-Mechanics 1,113,539 1,339,626 1,333,411 Wages-Warehouse 4,891,065 5,340,271 5,473,249 Garbage collection 27,649 29,771 37,969 Payroll benefits 2,657,889 2,937,730 2,894,300 Rent- Warehouse 802,855 764,346 758,345 Telephone 32,402 45,173 57,867 Utilities 262,393 267,005 274,365 Postage 89,763 133,518 151,278 Linen service 17,282 12,350 16,083 Repairs and maintenance 166,985 168,405 178,213 Cleaning service 89,800 81,589 78,088 Legal service 396,016 190,540 152,238 Fuel 286,547 341,192 279,512 Travel and entertainment 103,389 103,842 100,479 Pension expense 228,555 237,350 127,011 Office supplies 149,828 148,340 171,109 Miscellaneous 300,188 105,931 144,012 Total operatingexpenses-Direct 27,078,608 28,170,145 27,707,646 Total Operating Expenses 37,177,738 38,133,969 37,241,108 Operating Income 4,275,110 4,196,569 5,457,140 Other Expense-Interest 2,181,948 2,299,217 2,397,953 Income Before Taxes 2,093,162 1,897,352 3,059,187 Federal Income Taxes 883,437 858,941 1,341,536 Net Income 1,209,725 1,038,411 1,717,651 * Details of manufacturingexpenses are not included in this
schedule.
Auditing and Assurance service 16th edition, alvin arens, page258-259
Pinnacle Manufacturing: part I
A) refer to the finanical statement data in figure 8-9 for thecurrent year and prior two years. analyze the year-to-year changein account balance for at least five financial statement lineitems. documents the trend analysis in a format similar to thefollowing:
Account Balance _________%change 2015-2016___________%change2014-2015
Net sales
B) calculate at least five common ratios shown in chapter 7 onpage 196-199 and document them in format similar to thefollowing:
Ratio____________________2016__________2015________2014
current ratio
C) based on the analytical procedures calculated in parts a andb, summarize your observation about pinnacle's business, includingyour assessment of the clients's business risk.
D) go to the pinnacle link on the textbookweb site(www.personhighered.com/arens) and open the pinnacle incomestatement, which is located in the pinnacle income statementworksheet of the pinnacle_financials excel file. use the incomestatement information to prepare a common-size income statement forall three years (see figure 8-4 pg. 233) for an example. use theinformation to identify accounts for which you believe there is aconcern about material misstatements. use a format to thefollowing:
account balance____________________estimate of $amount ofpotential misstatement
E) use the three divisional income statements in thepinnacle_financials excel file on the web site to prepare acommon-size income statement for each of the three divisions forall three years. each division's income statement is in separateworksheet excel file. use the information to identify accounts forwhich you believe there is a concern about material misstatements.use a format similar to the one in requirement D.
F) explain whether you believe the information is requirement Dor E provides the most useful data for evaluting the potential formisstatements. explain why.
G) analyze the account balances for accounts receivable,inventory, and short/current long-tern debt. describe anyobservation about those accounts and discuss additional informationyou want to consider duuring the current year audit.
H) based on your calculations, assess thelikelihood(high,medium,low) that pinnacle is likely to failfinancially in the next 12 months.
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