a. Refer to the financial statement data in Figure 8-9 for the current year and prior two years. Analyze the year-to-year change in account balance for at least five financial statement line items. Document the trend analysis in a format similar to the following: Account Balance % Change 20152016 % Change 20142015 Net sales b. Calculate at least five common ratios shown in Chapter 7 and document them in a format similar to the following: Ratio 2016 2015 2014 Current ratio c. Based on the analytical procedures calculated in parts a. and b., summarize your observations about Pinnacles business, including your assessment of the clients business risk. d. Go to the Pinnacle link on the textbook Web site (www.pearsonhighered.com/arens) and open the Pinnacle income statement, which is located in the Pinnacle Income Statement worksheet of the Pinnacle_Financials Excel file. Use the income statement information to prepare a common-size income statement for all three years. See Figure 8-4 for an example. Use the information to identify accounts for which you believe there is a concern about material misstatements. Use a format similar to the following: Account Balance Estimate of $ Amount of Potential Misstatement e. Use the three divisional income statements in the Pinnacle_Financials Excel file on the Web site to prepare a common-size income statement for each of the three divisions for all three years. Each divisions income statement is in a separate worksheet in the Excel file. Use the information to identify accounts for which you believe there is a concern about material misstatements. Use a format similar to the one in requirement d. f. Explain whether you believe the information in requirement d. or e. provides the most useful data for evaluating the potential for misstatements. Explain why. g. Analyze the account balances for accounts receivable, inventory, and short/current long-term debt. Describe any observations about those accounts and discuss additional information you want to consider during the current year audit. h. Based on your calculations, assess the likelihood (high, medium, or low) that Pinnacle is likely to fail financially in the next 12 months. I know that you need the financial statements, however, when I try to put them in, it tells me that the question is too long. What should I do?

FIGURE 8-9 Pinnacle Manufacturing Financial Statements Pinnacle Manufacturing Company Income Statement For the Year Ended December 31 2016 2015 2014 $ 150,737.628 109,284.780 41,452,848 37.177.738 4,275,1 10 $ 148,586,037 106,255,499 42,330,538 38.133.969 4.196.569 $ 144,686,413 101.988.165 42,698,248 37,241,108 5,457,140 Net sales Cost of goods sold Gross profit Operating expenses Income from operations Other revenues and gains Other expenses and losses Income before income tax Income tax Net income for the year Earnings per share 2.181.948 2.093,162 883.137 1,209,725 $1.21 2.299,217 1,897,352 858 941 1,038,411 $1.04 2397,953 3,059.187 1.341,536 1.717,651 $1.72 Pinnacle Manufacturing Company Balance Sheet As of December 31 2016 2015 2014 $ $ Assets Current assets Cash and cash equivalents Ner receivables Inventory Other current assets Total current assets Property, plant, and equipment Total assets $ 7,721,279 13,042,165 32,236,021 172.278 53.171.743 62.263,047 $ 115.434.790 7,324,846 8,619,857 25,537,198 143,206 41,625, 107 61.535 530 103)250.537 8,066,545 7,936,409 25,271,503 131,742 41,406,199 58.268 732 99.674.92 $ Liabilities Current liabilities Accounts payable Shortcurrent long-term debt Other current liabilities Total current liabilities Long-term debt Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Total stockholders' equity Total liabilities & stockholders' equity $ 12.969,636 15,375,819 2.067.643 30,413,148 24,420,099 54,833,238 $ 9,460,776 10,298,668 1.767,360 21,526,804 22.342.006 43.868,810 7,586,374 9,672.670 1.682.551 18,941,595 22.379.920 41.321.SIS 1,000,000 15,717,645 43.883.907 60,601,552 S115.434,790 1,000,000 15.717,645 42.674,182 59391,827 $ 103,260,67 1,000,000 15,717,645 41,635,771 58.353.416 S.99.674.93 Pinnacle Manufacturing Company Income Statement - All Divisions For the Year Ended December 31 2010 Dollar Value 2011 Dollar Value 150,918,731 181,103 109.284.780 41,452,848 148,764,555 178,518 106.255.499 42,330,538 2009 Dollar Value 144.860.245 173,832 101.988.165 42,698,248 Sales Sales Returns and Allowances Cost of Sales* Gross Profit OPERATING EXPENSES-Allocated Salaries-Management Salaries-Office Licensing and certification fees Security Insurance Medical benefits Advertising Business publications Property taxes Bad debts Depreciation expense Accounting fees Total operating expenses-Allocated OPERATING EXPENSES-Direct Salaries-Sales Wages Rental Wages-Mechanics Wages-Warehouse 2.2 266 315,169 190,650 550,603 93,197 23,721 162,512 6,989 22,585 841,699 5,336,783 273.956 10,099,130 2,387, 296,681 172,883 637,580 103,842 29,453 178,009 5,555 178,009 1,034,060 4,641,982 297.777 9,963,824 2.295,081 306,856 162,279 630,353 108,491 28,810 165,678 774 175,692 992,094 4,367,565 299.789 9,533,462 14.970.669 491,794 1,113,539 4,891,065 15,327,777 595,389 1,339,626 5,340,271 14,904,392 575,725 1,333,411 5,473,249 Garbage collection Payroll benefits Rent- Warehouse Telephone Utilities Postage Linen service Repairs and maintenance Cleaning service Legal service Fuel Travel and entertainment Pension expense Office supplies Miscellaneous Total operating expenses-Direct Total Operating Expenses Operating Income Other Expense-Interest Income Before Taxes Federal Income Taxes Net Income * Details of manufacturing expenses are not included in this schedule. 27,649 2.657,889 802,855 32,402 262,393 89,763 17,282 166,985 89,800 396,016 286,547 103,389 228,555 149,828 300.188 27.078.608 37,177,738 4,275,110 2.181.948 2,093,162 883.437 1.209.725 29,771 2.937,730 764,346 45,173 267,005 133,518 12,350 168,405 81,589 190,540 341,192 103,842 237,350 148,340 105.931 28.170.145 38,133,969 4.196,569 2.299.217 1,897,352 858.941 1.038.411 37.969 2.894,300 758,345 57,867 274,365 151,278 16,083 178,213 78,088 152,238 279,512 100,479 127,011 171,109 144.012 27.707.646 37,241,108 5,457,140 2.397.953 3,059,187 1.341.536 1.717,651 FIGURE 8-9 Pinnacle Manufacturing Financial Statements Pinnacle Manufacturing Company Income Statement For the Year Ended December 31 2016 2015 2014 $ 150,737.628 109,284.780 41,452,848 37.177.738 4,275,1 10 $ 148,586,037 106,255,499 42,330,538 38.133.969 4.196.569 $ 144,686,413 101.988.165 42,698,248 37,241,108 5,457,140 Net sales Cost of goods sold Gross profit Operating expenses Income from operations Other revenues and gains Other expenses and losses Income before income tax Income tax Net income for the year Earnings per share 2.181.948 2.093,162 883.137 1,209,725 $1.21 2.299,217 1,897,352 858 941 1,038,411 $1.04 2397,953 3,059.187 1.341,536 1.717,651 $1.72 Pinnacle Manufacturing Company Balance Sheet As of December 31 2016 2015 2014 $ $ Assets Current assets Cash and cash equivalents Ner receivables Inventory Other current assets Total current assets Property, plant, and equipment Total assets $ 7,721,279 13,042,165 32,236,021 172.278 53.171.743 62.263,047 $ 115.434.790 7,324,846 8,619,857 25,537,198 143,206 41,625, 107 61.535 530 103)250.537 8,066,545 7,936,409 25,271,503 131,742 41,406,199 58.268 732 99.674.92 $ Liabilities Current liabilities Accounts payable Shortcurrent long-term debt Other current liabilities Total current liabilities Long-term debt Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Total stockholders' equity Total liabilities & stockholders' equity $ 12.969,636 15,375,819 2.067.643 30,413,148 24,420,099 54,833,238 $ 9,460,776 10,298,668 1.767,360 21,526,804 22.342.006 43.868,810 7,586,374 9,672.670 1.682.551 18,941,595 22.379.920 41.321.SIS 1,000,000 15,717,645 43.883.907 60,601,552 S115.434,790 1,000,000 15.717,645 42.674,182 59391,827 $ 103,260,67 1,000,000 15,717,645 41,635,771 58.353.416 S.99.674.93 Pinnacle Manufacturing Company Income Statement - All Divisions For the Year Ended December 31 2010 Dollar Value 2011 Dollar Value 150,918,731 181,103 109.284.780 41,452,848 148,764,555 178,518 106.255.499 42,330,538 2009 Dollar Value 144.860.245 173,832 101.988.165 42,698,248 Sales Sales Returns and Allowances Cost of Sales* Gross Profit OPERATING EXPENSES-Allocated Salaries-Management Salaries-Office Licensing and certification fees Security Insurance Medical benefits Advertising Business publications Property taxes Bad debts Depreciation expense Accounting fees Total operating expenses-Allocated OPERATING EXPENSES-Direct Salaries-Sales Wages Rental Wages-Mechanics Wages-Warehouse 2.2 266 315,169 190,650 550,603 93,197 23,721 162,512 6,989 22,585 841,699 5,336,783 273.956 10,099,130 2,387, 296,681 172,883 637,580 103,842 29,453 178,009 5,555 178,009 1,034,060 4,641,982 297.777 9,963,824 2.295,081 306,856 162,279 630,353 108,491 28,810 165,678 774 175,692 992,094 4,367,565 299.789 9,533,462 14.970.669 491,794 1,113,539 4,891,065 15,327,777 595,389 1,339,626 5,340,271 14,904,392 575,725 1,333,411 5,473,249 Garbage collection Payroll benefits Rent- Warehouse Telephone Utilities Postage Linen service Repairs and maintenance Cleaning service Legal service Fuel Travel and entertainment Pension expense Office supplies Miscellaneous Total operating expenses-Direct Total Operating Expenses Operating Income Other Expense-Interest Income Before Taxes Federal Income Taxes Net Income * Details of manufacturing expenses are not included in this schedule. 27,649 2.657,889 802,855 32,402 262,393 89,763 17,282 166,985 89,800 396,016 286,547 103,389 228,555 149,828 300.188 27.078.608 37,177,738 4,275,110 2.181.948 2,093,162 883.437 1.209.725 29,771 2.937,730 764,346 45,173 267,005 133,518 12,350 168,405 81,589 190,540 341,192 103,842 237,350 148,340 105.931 28.170.145 38,133,969 4.196,569 2.299.217 1,897,352 858.941 1.038.411 37.969 2.894,300 758,345 57,867 274,365 151,278 16,083 178,213 78,088 152,238 279,512 100,479 127,011 171,109 144.012 27.707.646 37,241,108 5,457,140 2.397.953 3,059,187 1.341.536 1.717,651