For the above problem, identify three items you would follow up on. Do not simply list three accounts. Provide a one-sentence explanation for why you suspect error or earnings management for each.

Sales (net) 1 21.) List three potential problems on the financial statements 2 that an auditor should inquire further about. Do not simply list three accounts; 3 provide a one-sentence explanation of why you suspect error or earnings management 4 (20 points) 5 2019 2018 2017 6 REVENUE AND EXPENSE: 7 3,580,000 3,611,000 3,589,000 8 Cost of goods sold (1,790,000) (2,347,150) (2,332,850) 9 Gross margin 1,790,000 1,263,850 1,256,150 10 Salary expense (175,000) (164,000) (166,000) 11 Depreciation (770,000) (450,000) (450,000) 12 Operating income 845,000 649,850 640,150 13 Interest expense (322,000) (302,000) (300,400) 14 Income taxes (40%) (209,200) (139,140) (135,900) 15 Net income 313,800 208,710 203,850 16 17 ASSETS: 18 Cash 338,000 291,000 302,400 19 Accounts receivable 625,000 517,000 504,000 20 Allowance doubtful accounts (6,250) (10,340) (10,080) 21 Inventory 418,000 355,000 361,000 22 Total current assets 1,069,780 1,152,660 1,157,320 23 Fixed assets 7,283,480 6,455,000 6,455,000 24 Accum. depreciation (2,580,000) (2,130,000) (1,680,000) 25 Total assets 5,773,260 5,477,660 5,932,320 26 27 LIABILITIES AND EQUITY: 28 Accounts payable 124,000 131,000 109,000 29 Bank loans, 8% 525,000 525,000 505,000 30 Accrued interest 17,600 15,000 15,400 31 Total current liabilities 666,600 671,000 629,400 32 Long-term debt, 10% 2,600,000 2,600,000 2,600,000 33 Total liabilities 3,266,600 3,271,000 3,229,400 34 Capital stock 1,317,950 917,950 1,622,920 35 Retained earnings 1,188,710 1,288,710 1,080,000 36 Total liabilities and equity 5,773,260 5,477,660 5,932,320 37 38 *-During FY2019, Balmer paid $100,000 in cash dividends. 39 *-Balmer bought back stock totaling $704,970 in 2018 and issued stock 10 totaling $400,000 in 2019 1 *- Debt was outstanding for entire year. Sheet1 Sheet2 Sheet3 +