The following information was taken from the accounting records for Aurora Manufacturing, Inc.:

Required

a. Calculate the following information and ratios for years 2, 3, 4, and 5:

1. Purchases.

2. Accounts payable turnover in days.

3. Cost of goods sold to average accounts payable.

4. Current ratio.

b. Describe the implications of the resulting ratios for the audit strategy in year 5. What specific audit objectives are likely to be misstated? How should the auditor respond in terms of potential audit procedures?

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Year 5 Year 4 Year 3 Year 2 Year 1 Unaudited Audited Audited Audited Audited $ 525,000 $ 390,000 $ 310,000 $ 225,000 $ 460,000 Inventory Current assets 600,000 1,350,000 1,175,000 950,000 750,000 Accounts payable 115,000 113,000 97,500 85,000 70,000 Current liabilities 320,000 545,000 535,000 440,000 380,000 Sales 2,050,000 1,750,000 1,400,000 2,700,000 1,200,000 Cost of goods sold 1,650,000 1,225,000 1,025,000 850,000 725,000 Industry Median Accounts payable turnover days 31 30 29 30 Cost of goods sold to average accounts payable 10.7 11.2 10.9 11.1 Current ratio 1.9 2.2 2.3 2.1