Prepare common-sized financial statements for Leslie Fay for the period 1987–1991. For that same period, compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial statement items do you believe should have been of particular interest to BDO Seidman during that firm’s 1991 audit of Leslie Fay? Explain.

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EXHIBIT 2 THE LESLIE FAY COMPANIES 1991 INDUSTRY NORMS FOR KEY FINANCIAL RATIOS Liquidity: Current Ratio Quick Ratio 1.8 .9 Solvency: Debt to Assets Times Interest Earned Long-term Debt to Equity .53 4.2 14 Activity: Inventory Turnover Age of Inventory Accounts Receivable Turnover Age of Accounts Receivable Total Asset Turnover 53.7 days 8.0 45.5 days Profitability: Gross Margin Profit Margin on Sales Return on Total Assets Return on Equity 31.5% 2.2% 6.0% 14.0%