Analytical Procedures
You have been assigned to the 2015 audit of Perkins Corp. Youmet with the controller of the company who provided you with the2015 operatung results shown below. Your supervisor has asked youto perform the preliminary analytic review. The supervisor hasasked you to use the audited data from the prior four year (shownbelow) as part of your reveiw. The supervisor has also provided youwith a few ratios that she would like you to look at.
Required:
A. Prepare a horizontal AND a vertical analysis using the 5 yearsof financial data provided. (HINT: Another term for horizantalanalysis is "trend" analysis. Vertical analysis is also referred toas "common size" analysis.) You do not need to prepare thisanalysis for the two balance sheet account shown.
B. Determine the ratios that were requested by your supervisor foreach year (below).
C. MOST IMPORTANT: Identidy five account, ratios, or trends thatmight concern you as the auditor of the 2015 statements. Remember,you're looking for unusual relationships or significantchanges that might identify an area that will need moretesting.
Operating Results 2011 2012 2013 2014 2015 Revenues 1,750,000 1,872,500 2,033,575 1,883,361 2,034,029 Cost of goods sold (1,050,00) (1,217,125) (1,362,431) (1,205,351) (1,261,098) Gross Profit 700,000 655,375 641,144 678,010 772,931 Salaries expense 350,000 360,500 367,710 360,356 374,770 Advertising expense 91,000 87,500 35,000 40,250 122,500 Facilities expense 85,000 86,700 88,868 87,090 91,445 Payroll tax expense 38,500 37,853 42,287 42,882 29,982 R & M expense 28,000 29,120 30,139 31,345
21,001 Depreciation expense 14,500 14,500 13,775 13,637 10,910 Interest expense 8,300 8,317 8,135 8,053 7,973 Legal fees expense 3,500 4,200 3,800 5,600 14,562 (618,800) (628,590) (589,713) (589,214) (673,142) Operation Income 81,200 26,786 51,431 88,796 99,789 Selected accounts from balance sheet Average pp&e 145,000 131,818 172,188 123,975 181,830 Average Debt 166,000 161,118 135,581 129,895 130,704
Selected ratios: (do for each year)
A) Depreciation as a % of PP&E
B) R&M as a % of PP&E
C) Interest as a % of Debt
D) Payroll taxes as a % of Salaries
Analytical Procedures
You have been assigned to the 2015 audit of Perkins Corp. Youmet with the controller of the company who provided you with the2015 operatung results shown below. Your supervisor has asked youto perform the preliminary analytic review. The supervisor hasasked you to use the audited data from the prior four year (shownbelow) as part of your reveiw. The supervisor has also provided youwith a few ratios that she would like you to look at.
Required:
A. Prepare a horizontal AND a vertical analysis using the 5 yearsof financial data provided. (HINT: Another term for horizantalanalysis is "trend" analysis. Vertical analysis is also referred toas "common size" analysis.) You do not need to prepare thisanalysis for the two balance sheet account shown.
B. Determine the ratios that were requested by your supervisor foreach year (below).
C. MOST IMPORTANT: Identidy five account, ratios, or trends thatmight concern you as the auditor of the 2015 statements. Remember,you're looking for unusual relationships or significantchanges that might identify an area that will need moretesting.
| Operating Results | |||||
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Revenues | 1,750,000 | 1,872,500 | 2,033,575 | 1,883,361 | 2,034,029 |
| Cost of goods sold | (1,050,00) | (1,217,125) | (1,362,431) | (1,205,351) | (1,261,098) |
| Gross Profit | 700,000 | 655,375 | 641,144 | 678,010 | 772,931 |
| Salaries expense | 350,000 | 360,500 | 367,710 | 360,356 | 374,770 |
| Advertising expense | 91,000 | 87,500 | 35,000 | 40,250 | 122,500 |
| Facilities expense | 85,000 | 86,700 | 88,868 | 87,090 | 91,445 |
| Payroll tax expense | 38,500 | 37,853 | 42,287 | 42,882 | 29,982 |
| R & M expense | 28,000 | 29,120 | 30,139 | 31,345 | 21,001 |
| Depreciation expense | 14,500 | 14,500 | 13,775 | 13,637 | 10,910 |
| Interest expense | 8,300 | 8,317 | 8,135 | 8,053 | 7,973 |
| Legal fees expense | 3,500 | 4,200 | 3,800 | 5,600 | 14,562 |
| (618,800) | (628,590) | (589,713) | (589,214) | (673,142) | |
| Operation Income | 81,200 | 26,786 | 51,431 | 88,796 | 99,789 |
| Selected accounts from balance sheet | |||||
| Average pp&e | 145,000 | 131,818 | 172,188 | 123,975 | 181,830 |
| Average Debt | 166,000 | 161,118 | 135,581 | 129,895 | 130,704 |
Selected ratios: (do for each year)
A) Depreciation as a % of PP&E
B) R&M as a % of PP&E
C) Interest as a % of Debt
D) Payroll taxes as a % of Salaries
