Houseco Balance Sheet Dollars (000% Omitted) Vertical Analysis Horizontal Analysis 12/31/206 12/31/XX7 12/3 1/X8 12/31/X6 12/31/X7 12/31/X8 [Audited) D(7-X61/06 (Audited) (Unaudited) (Audited) (Audited] (Unaudited) (Audited) (Unaudited) Assets Cash 63 514 8:85 14 1% 716% Accounts receivable 72% 14,402 27,801 51.076 30% 43% 43%% 93% 84% Inventories-RM 2.683 9.182 18.049 1414 15%% Inventories-WIP 242% 491 97 % 638 4.151 1% 14 30% 5514 Inventories FG 6,589 9.757 16,935 15%% 15% 14% 48% 74% Total Inventories 9,762 19.577 39,159 23% 30% 93%% 101% 100% Other current assets 708 1.449 3,015 2% 3% 105% Total current assets 108% 24.935 49.341 94,111 58% 76% Fixed assets (net) 18,267 15.900 24,029 24% 20%% (13%) Total assets 43.202 65.241 118, 140 100% 100% 100% 01% Liability and Equity Accounts payable 7.344 15,072 13,243 17%% 23% 105% Accrued liabilities 3.127 5.468 4,710 (1236) 8%% 4% 75% Current portion UT debt (14%) 2.707 900 1,250 6% 1% Income taxes payable (679%) 39% 1.554 2.619 3,782 69%% Total current liabilities 14,732 24,059 23,030 344% 37% 19% 63% Bank debt 19.841 (4%) 14,8:00 62,057 34% 30%% 34%% Deferred income taxes 213% 685 1.254 1,851 2% 2% Total llabilities 839% 50%% 30,217 45.154 86,958 70%% 69% 74% 49%% Common stock 93%% 7.775 7.775 7.903 18% 12%% 7% Retained earnings 5,210 12.312 23,269 2% 12% 19%% 20% Total liabilities and equity 136%% 40,202 65.241 100%% 89% 118,140 100% 100%% 51%% 81%Houseco Income Statement Dollars (0801 Omitted) Vertical Analyzh Horizontal Analysts 12/31/X6 123140 12/31/X8 12/31/X6 12010Q (Audited) 12/31/8 (Audited) (Unaudited) (Audited) DO-XEVXS [Audited) (Unaudited) (Audited) (Unaudited) Grow ski 78,428 133,504 183,767 103% 101% 70% Lear Returns and allowances 2.284 5,270 2.644 3% 1314 Net sales 76.144 128.234 181,123 100%% 100% 10016 Cost of goods sold 68% 45.213 70,756 94.934 55% 29.931 34% Grow margin 57.478 06, 189 454 921% Sell, adverthing, RAD expenses 20.105 43.600 64,285 26% 35% 1124 Income from operations 515% 14,878 21,904 13% 12% 514 47% Interest expense 1.930 1.584 3.189 Income before tam 101% 7.896 13.294 18,715 10% 10% 3,907 41% Income Live 6.189 7.761 63% Net Income 4,089 7.105 10.954 5% 25% EPS 54% 78 1.21 Ratios Current 1,7 2.1 4.1 1.0 1.2 2.3 Receivable turnover 5.3 63 47 Days' sales in ending receivables $7.1 76.6 Inventory turnover 3.2 Days' sales In ending Inventory 76.0 75.0 112.5 Interest expense Debt 0.11 0.08Houseco, an audit client of Jones, CPA, for the past five years, is a manufacturer of various household products. Approximately four years ago Houseco developed a better toaster than had been available and sales took off, especially during the most recent two years, 20X7 and 20X8. Currently, the company controls approximately 25 percent of the toaster market in the United States. In addition, the company manufactures other products, including vacuum cleaners, floor polishers, and electric fondue pots. Much of the increased sales performance is due to Donald Skaldon, who became the chief executive officer in 20X4. Donald and several other officers were able to accomplish a leveraged stock buyout in 20X6. This seems to have worked out very well since Donald suggests that his net worth grew from less than $300,000 to well over $5 million due to increases in the value of the common stock he holds in the company. He is also excited since the company's unaudited results show earnings per share of $1.21, one cent more than the most optimistic analysts had projected. He points out to Jones that sales are up over 38 percent compared to the previous year and net income has increased by 54 percent. All is well. Jones is beginning the risk assessment analytical procedures for the 20X8 audit to obtain information to help plan the nature (form/type), timing (when), and extent (how much) of other audit procedures. More specifically, he wants to identify areas that may represent specific risks relevant to this year's audit. Required: Use the balance sheet and income statement attached to identify TEN accounts/areas that may represent specific risks relevant to this year's audit. For each area, briefly note why you think it represents a risk. Mark the account/area with a number and then put your comments in a "Legend" at the top of each financial statement. Start with number 1 and identify at least TEN risk areas. Each risk area