E G Delta Company Ltd. (000's) (000's) (000's) 2021 2020 2019 Net sales 25,850 26,985 27,450 Cost of goods sold 15,713 17,055 17,303 Gross profit 10, 137 9.930 10, 147 Expenses Note: Marketing and advertising 579 615 698 1 4 00 Administrative and Selling salaries 1,094 1,030 1,018 W N 10 Depreciation and amortization 930 1, 130 890 11 Distribution costs 608 590 573 un A 12 Rent and maintenance 750 825 818 13 Insurance expense 100 100 100 14 Administrative and general expenses 2,895 2,885 2,735 6 15 Total expenses 6,956 7, 175 6,832 16 17 Operating income 3, 181 2,755 3,315 18 19 Interest expense - mortgage (1,080) (1, 104) (1, 127) 20 Income before taxes 2, 101 1,651 2, 18 21 Income taxes 532) (422) (555) 22 Net earnings 1,569 1,229 1,633 23 24 25 2021 2020 2019 26 Assets (000's) (000's) (000's) 27 Current assets 28 Cash and cash equivalents 363 688 1,228 10 29 Trade receivables 3,542 2,662 2,627 11 30 Inventories 2,798 1,449 1,422 12 31 Prepaid expenses 365 413 393 32 Total current assets 7,068 5,212 5,670 33 34 Property, plant, and equipment - net 21,470 20,705 21,518 See # 3 35 Goodwill 750 450 450 8 36 Total assets 29.288 26,367 27,638 37 38 Liabilities 39 Current liabilities 40 Trade payables and accrued liabilities 1,826 2, 113 2, 197 13 41 Income taxes payable 15 23 118 42 Short-term note 1,550 1,610 1,679 43 Total current liabilities 3,391 3,746 3,994 44 45 Long-term debt - mortgage 11,530 11,830 12, 130 7 46 Total liabilities 14,921 15,576 16, 124 47 48 Shareholders' equity 49 Share capital 4,030 3,995 3,918 50 Retained earnings 10,337 6,796 7,596 51 Total shareholders' equity 14,367 10,791 11,514 52 Total liabilities and shareholders' equity 29,288 26,367 27,638 53 54Notes: In an effort to increase sales the company increased its advertising budget by 25% over 2020 actual of $300,000. Marketing costs remained constant at $315,000 2 The company has not hired or expects to hire any new employees in the near future. Four employees, earning average of $60,000 per year retired at the end of 2020.. future. Four employees earning an average of $60,000 retired in 2021. The company continues to invest in new equipment to avoid any business interuption. There have been no dispositions of equipment this year. Distribution costs are directly correlated to shipments which have declined by 10%. G UI A W The company continues to rent the same facility and employ the same maintenace crew. The landlord increased rent by 7.5% and the maintenance cost increased by 20% over the 2020 $200,000 contract. There are no significant changes and no areas of concern or risk The company's monthly mortgage payment amounts to $300,000 ($25,000 x 12) of principle each year. The accountant was wondering if the full amount should be reported as long-term. The company developed a new process that resulted in increased warehouse productivity and contributed to higher profits. Management decided to increase the value of the recorded goodwill to reflect this new added value to the company as a whole. Since management felt that if the company was sold today the sel There have been no significant changes to the insurance and membership expenses included in prepaid expenses. 10 Cash has decreased from year-to-year due to the increase in A/P payments and the lack of collections of A/R. 11 The company has not changed its 30-day credit terms with its customers. There has been changes in the credit department which has delayed the follow up of overdue accounts. 12 The company changed a major supplier at the end of 2020 because their product was causing major functionality issues with our product. In fact there have been significant complaints from some of our customers and two of them have actually confirmed they have contacted their lawyers and will be suing us for a total 13 The accountant decided not to record a shipment of product that was counted in inventory for $95,690, since the goods were received on the last day of the fiscal year, even though the invoice wasn't received until one week later but is reflected in the next year's A/P. The terms on the invoice stated FOB shipping point. Bank Covenant: To be in good standing, the bank wants the company to maintain a 1.25:1 current ratio. Materiality: The auditor set performance materiality at $150,000.Assignment 1: Using the Delta Company Ltd. financial statements on the next tab and additional information provided, apply appropriate analytical procedures to identify one or more significant risks of material misstatement that in total, equals or exceeds materiality. You can identify one, or more than one account that you believe contains a significant material error that would add up to or exceed the performance matiality amount set for this client. Provide your one-age WORD document containing the three required elements below; 1. The account(s) you have identified that contains the significant risk and why? 2. The analytical analysis procedures that lead you to conclude the account(s) contain a significant risk of error. Describe the analytical procedure(s) used, what results they provided and what conclusions you draw from the analysis. Provide the detail required to convince the reader. 3. The significant amount (5) of error(s) you believe the account(s) contains and how it compares to the performance materiality set for this audit. NOTE: Your working paper should not be longer than one-page in WORD