ADDITIONAL INFO (DO NOT NEED TO ANSWER):

Q2-1 Q2-iii For the Income Statement prepare a HORIZONTAL Analysis (Do not perform this for the Cells colored black). (Use the cells in the table below to perform the anlaytic.)** **PLEASE USE THE EXCEL FUNTIONALITY TO PERFORM THE ANALYSIS. (DO NOT USE A CALCULATOR AND THEN TYPE YOUR ANSWER INTO THE CELLS) Analyze the change in the accounts indicated below in yellow. Think about what could be causing this change? What concerns does this raise for you? Perform your analysis in the yellow cells below. See Revenue as an example of what a solution should look like. What phase of the audit would this analytic (Horizontal Analysis) most likely be performed? (Planning, substantive, completion- Pick 1) Briefly Explan why (1 sentence). (EX: Substantive- because it would be useful for the auditor to detect a material misstatement as this analytic is very detailed and provides very reliable evidence). ANSWER: Q2-iv ANSWER: Technologies Inc. INCOME STATEMENT Two Years Ended December 31, 20X8 and 20X7 (in thousands) 20X7 $Change Technology Income $99,147 $84,000 $15,147 Device Sale Income (Net of Sales Returns $4,000 $3,4001 and Discounts) Dividend and Interst Income $71 $171 20X8 % Change 18.0% Analysis of Change Revenue went up approx. 29%-we would probably want to look at the Other Revenue $4 $4 REVENUE $103,222 $87.575 EXPENSES Cost of Good Sold 1,8331 1,500 (Hint: compare the change in COGS to the change in revenue to see if they are increasing at approximately the same %) Fees to Parent for rent, staff, etc. 1200 1100 Legal, professional, audit, and regulatory fees 207 Salary Expense 1,014 830 (Hint: Review the Notes to the FS to see if there was anything that might cause an increase or decrease in costs for lawyers or government fines) (Hint: compare the change to the change in revenue to see if they are increasing at approximately the same %) (Hint: compare the change in Interest Expense to the change in Long Term Debt to see if they are changing in issuing new debt or retiring old debt.) (Use in Information in the Q1 tab but you probably need to calculate the horizontal change for Long Term Debt) Interest Expense 16 ol Interest Expense 16 (Hint: compare the change in Interest Expense to the change in Long Term Debt to see if they are changing in issuing new debt or retiring old debt.) (Use in Information in the Q1 tab but you probably need to calculate the horizontal change for Long Term Debt) (Hint: compare the change in Depreciation Expense to the change in PP&E or Goodwill to see if they are changing at approximately the same %) (Use in Information in the Q1 tab but you probably need to calculate the horizontal change for PP&E) Depreciation and amortization 70 65.6 4,405 60 3.491 Other expenses TOTAL EXPENSES Net income before taxes $98,817 $84,084 20X8 20X7 % of Assets 20x8 % of Assets 20x7 Change Analysis of Change Assets Current assets Cash and cash equivalents $3,741 $3,019 Accounts receivables 1,119 900 1% 16% Accounts Receivable are a larger percentage of total Assets. This could be indicative of the company giving out credit more -15% loosely, or customers paying back the company more slowly. This could represent a big risk to the audit and would require additional analysis. Hint: consider the change in sales to determine if the change is reasonable. 100 150 Inventory Total current assets 4,960 4,069 Property Plan & Equipment (PP&E), net 711 741 Hint: Unless something significant occurred this % should probably stay the same year over year. 90.000 634 Goodwill Investments Other assets Total assets Liabilities and shareholders' equity Current liabilities Notes payable 0 633 1051 $5,548 175 $96,480 $140 $130 Accounts payable $181 $1,089 Hint: Consider this in relation to the change in inventory- generaly accounts payable are for inventory purchases. Hint: Compare to the Long-term Debt to see if there is any correlation, also consider looking at changes in PP&E. Long Term Debt 2000 0 Total liabilities 2.320 1.219 Shareholders' equity Common stock Retained earnings Total shareholders' equity Total liabilities plus shareholders' equity 91,131 3,029 94,160 $96,480 2,329 2,000 4,329 $5,548