Instructions: Read the footnotes included in the financial statements for H & B Bakery, then ansewr the following questions.

*The exact requirement of this question, is to read the statements below on the statement analysis and answer the questions that follow.

Note 1 Description of business

H & B Bakery is a retailer of fresh bakery products. The primary are served is Colorado Springs.

Note 2 Summary of significant accounting policies

Estimates. Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary form the estimates that were used.

Cash. Cash includes demand deposits held at a financial institution. At times, the amount held on deposit may exceed federally insured limits.

Accounts Receivable. Accounts receivable uses the allowance method and is shown net of an allowance for doubtful accounts of $15,000.00 on December 31, 20xy and 20xx. The company actively monitors its receivable balances and generally requires no collateral. In certain instances, the company requires a partial or full-advance deposit from customers prior delivery.

Inventory: Inventories are valued using the first-in first-out (FIFO) method.

Depreciation. Depreciation of property and equipment are computed using accelerated methods during the estimated useful lives of the assets as follows:

Furniture and fixtures 5 to 10 years

Machinery and equipment 5 years

Leasehold improvements 10 years

Automobiles and trucks 5 years

Income Taxes. By unanimous consent of the shareholders, the company has elected to be treated as a partnership and therefor no company taxes are paid.

Note 3 Inventory

Inventory consists of raw materials and finished products only.

Note 4 Notes payable-bank

Note payable- bank consists of a revolving credit note payable to Colorado Springs Bank. The note is secured by substantially all assets of the company and the personal guarantees of the partners. Interest is due monthly at prime plus 1.75 percent (7.25 percent on Dec 31, 20xy). The maximum borrowing under the agreement is the lesser of $50,000 or availability under a borrowing base, as defined. The note agreement expires April 30, 20xy. The outstanding balances on December 31, 20xy and 20 xx, were $20,000 and $5,000, respectively.

Note 5 Long term debt

Long term debt consists of a note payable to Colorado Springs Bank secured by equipment. The outstanding balances on December 31, 20xy, and 20xx, were $25,000 and $50,000, respectively.

Note 6 Profit sharing plan

Effective January 1, 19xx, the company adopted a profit sharing plan covering substantially all employees. Contributions to the plan are at the discretion of management. In 20xy the company contributed $23,000 to the plan.

A. What question do you have based on the footnotes?

B. What questions do you have relative to the Commericla Lending Decision Tree?

C. What general questions should you ask about the account or accounting firm?