Choose 1 of following 2 scenarios Scenario A: As part of the analytical procedures of Chu Dau Products, Inc., you perform calculations of the following ratios: Industry Mahogany Averages Products Ratio 2011 2010 2011 2010 1. Current ratio 3.30 3.80 2.20 2. Days to collect receivables 87.00 93.00 67.00 60.00 3. Days to sell inventory 126.00 121.00 93.00 89.00 4. Purchases divided by accounts payable 11.70 11.60 8.50 8.60 5. Inventory divided by current assets 56 51 .48 6. Operating income divided by tangible assets .08 .06 Operating income divided by net sales .06 .04 B. Gross profit percent 21 .27 21 .19 9. Earnings per share $14.27 $13.91 $2.09 $1.93 2.60 .49 .14 .12 04 Require: Require: For each of the preceding ratios: a. State whether there is a need to investigate the results further and, if so, the reason for further investigation. b. State the approach you would use in the investigation. c. Explain how the operations of Chu Dau appear to differ from those of the industry. Scenerio 2: Following are the auditor's calculations of several key ratios for CrainStar Products. The primary purpose of this information is to understand the client's business and assess the risk of financial failure, but any other relevant conclusions are also desirable. Ratio 2011 2010 2009 2008 2007 1. Current ratio 2.08 2.26 2.51 2.43 2.50 2. Quick ratio 3. Times interest earned 4. Accounts receivable turnover 5. Days to collect receivables 66.36 67.59 6. Inventory turnover 7. Days to sell inventory 198.37 136.19 109.28 8. Net sales divided by tangible assets 9. Profit margin 10. Return on assets 11. Return on equity .10 .10 12. Earnings per share 54.30 $4.26 $4.49 $4.26 $4.14 1.34 3.20 5.50 1.82 4.10 4.10 89.02 2.68 1.76 5.30 5.40 1.84 3.34 .97 3.50 4.20 86.90 2.03 179.80 .68 .13 .09 .05 1.64 7.10 5.60 65.18 3.36 108.63 .67 .14 09 .11 .64 .14 .09 .06 .73 .16 .12 .69 .15 .10 Require: a. What major conclusions can be drawn from this information about the company's future? b. What additional information would be helpful in your assessment of this company's financial condition? c. Based on the preceding ratios, which aspects of the company do you believe should receive special emphasis in the audit