1 6 C-4. A partially completed analytical ratios working paper for Keystone Computers & Networks, Incis. presented on page 239. a. Complete the working paper by computing the financial ratios for 20X5. b. After completing part (a), review the ratios and identify financial statement account should be investigated because the related ratios are not comparable to prior-year industry averages, or your knowledge of the company. c. For each account identified in part (b), list potential reasons for the unexpected balances and related ratios. unexpected account Audit Planning. Understanding the client, Assessing Risks, and Responding 239 KEYSTONE COMPUTERS & NETWORKS, INC. Analytical Review Ratios For the Period Ended December 31, 20X5 WL Prepared by Reviewed by Ending 12/31/X5 Industry Ending 12/31/X4 1.2 33.2 37.0 Ratio Current ratio Days' sales in accounts receivable, computed with average accounts receivable Allowance for doubtful accounts/accounts receivable Bad debt expenseet sales Total liabilitieset worth Return on total assets Return on net worth Return on net sales Gross profitet sales Selling, operating, and administrative expenseet sales Times interest earned 2.9 1.1% 0.2% 2.7 8.3% 30.5% 1.0% 23.2% 21.4% 9.0% 29.0% 2.3% 24.0% 23.9% 5.5 4.1 KEYSTONE COMPUTERS & NETWORKS, INC. Audit Strategy December 31, 20X5 Date 1 6 C-4. A partially completed analytical ratios working paper for Keystone Computers & Networks, Incis. presented on page 239. a. Complete the working paper by computing the financial ratios for 20X5. b. After completing part (a), review the ratios and identify financial statement account should be investigated because the related ratios are not comparable to prior-year industry averages, or your knowledge of the company. c. For each account identified in part (b), list potential reasons for the unexpected balances and related ratios. unexpected account Audit Planning. Understanding the client, Assessing Risks, and Responding 239 KEYSTONE COMPUTERS & NETWORKS, INC. Analytical Review Ratios For the Period Ended December 31, 20X5 WL Prepared by Reviewed by Ending 12/31/X5 Industry Ending 12/31/X4 1.2 33.2 37.0 Ratio Current ratio Days' sales in accounts receivable, computed with average accounts receivable Allowance for doubtful accounts/accounts receivable Bad debt expenseet sales Total liabilitieset worth Return on total assets Return on net worth Return on net sales Gross profitet sales Selling, operating, and administrative expenseet sales Times interest earned 2.9 1.1% 0.2% 2.7 8.3% 30.5% 1.0% 23.2% 21.4% 9.0% 29.0% 2.3% 24.0% 23.9% 5.5 4.1 KEYSTONE COMPUTERS & NETWORKS, INC. Audit Strategy December 31, 20X5 Date
