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In the current year, you have completed the tests of the sales and collection area. The tests of controls and substantive tests of transactions for

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In the current year, you have completed the tests of the sales and collection area. The tests of controls and substantive tests of transactions for sales and sales returns and allowances were excellent, and extensive conrmations yielded no material misstatements. You have carefully reviewed the cutoff for sales and for sales returns and allowances and nd these to be excellent. All recorded bad debts appear reasonable, and a review of the aged trial balance indicates that conditions seem about the same as in past years. a. Evaluate the information in the case (see below) to provide assistance to management for improved operation of its business. Prepare the supporting analysis using an electronic spreadsheet program (instructor option). b. Do you agree that sales, accounts receivable, and allowance for doubtful accounts are probably correctly stated? Show calculations to support your conclusion. 12-3101I (Current Year} 12-31-08 12-31-05 12-31-04 Balance Sheet Cash $ 40,815 $ 30,453 $ 51,811 $ 48,201 Accounts resolvable 2,366,038 2,004,052 1,156,321 1,351,410 Allowance for doubtlul accounts (250,000) (240.000)- (220.000) (200.000) Inventory 2,111,833 2,585,820 2,146,380 1,850,050 Current assets 4,038,388 4,410,325 3,134,521 2,850,120 Fixed assets 3,160,531 3,144,500 3,408,030 3,132,133 Total assets $868801 1' $8,223,015 $1,233,451 $5,082,853 Current liabillties $2,253,422 $2,286,433 $1,051,830 $1,825,811 Long~term liabilities 4,1' 11,013 4,525,310 4,101,890 3,550,481 Owners' equity 1,134,422 1,412,112 1,080,022 808,561 Total liabllltles and owners' equity.I $8,608,011 $8,223,015 $1,233,451 $5,082,853 Income Statement Information Sales $6,140,852 $6,185,411 $5,313,152 $4,251 .831' Sales returns and allowances (201,831) {188,354} (158,381) (121,821) Sales discounts allowed {14,141} (63,855} (52,183] (42,451] Bad debts $48,830} {245,825} [216,151] [106,521] Net sales $6,200,835 $5,880,111 $4,881,051 $3,801,044 Gross margin $1,415,028 $1,380,011 $1,230,640 $1,082,543 Net Income after taxes 5': 335,168 $ 322.250 $ 283.361 $ 251.820 Aged Accounts Receivable 0 30 days $ 042,088 $ 881,232 $ 808.5 60 $ 614,014 31 60 days 102,142 601,308 581,420 401211 61 120 days 452,258 388,020 280.0 62 202,634 >120 days 110,852 148,583 105,361 81,551 Total $2,368,038 $2,004,052 $1,156,321 $1,351,410 Required

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