Analyzing the Impact of Errors This spreadsheet assignment is a continuation of the spreadsheet assignment given in Chapter 2. If you completed that spreadsheet, you have a head start on this one.

1. Refer back to the financial statement numbers for Handyman Company for 2009 [given in part (1) of the Cumulative Spreadsheet Project assignment in Chapter 2]. Using the balance sheet and income statement created with those numbers, create spreadsheet cell formulas to compute and display values for the following ratios:

a. Current assets divided by current liabilities (often called the current ratio)

b. Total liabilities divided by total assets (often called the debt ratio)

c. Sales divided by total assets (often called asset turnover)

d. Net income divided by total stockholders’ equity (often called return on equity)

The details of these ratios will be discussed in detail in subsequent chapters.

2. To observe the impact that errors and fraudulent transactions can have on the financial statements, determine what the ratios computed in (1) would have been if (1) each of the following transactions was recorded as described and (2) the transaction was recorded correctly. Treat each transaction independently, meaning that before determining the impact of each new transaction you should reset the financial statement values to their original amounts. Each of the hypothetical transactions is assumed to occur on the last day of the year.

a. Created receivables by creating fictitious sales of $140 all on account.

b. Purchased $80 of inventory on account but incorrectly increased the property, plant, and equipment account instead of increasing Inventory.

c. Borrowed $60 with a short-term payable. The liability was incorrectly recorded as Long-Term Debt.

d. An inventory purchase on account in the amount of $90 was not recorded until the next year.