You are the audit senior on the audit of EasyLife Pty Limited, a large manufacturer of shoes. EasyLife Pty Limited’s main market lies with 18 to 25 year olds.

This is the first year in which your firm has performed the audit. As part of the planning work, you have performed analytical procedures on an annualised basis and compared the results to industry averages and last year’s audited financial information. The results are given below:

		Industry average		EasyLife Pty Limited
	Ratio	20X7	20X6	20X7	20X6
1	Current ratio	2.84	3.27	1.89	2.24
2	Receivables turnover ratio	4.9	4.6	6.3	7.0
3	Inventory turnover ratio	3.7	3.8	5.0	5.5
4	Return on total assets	7%	5%	13%	11%
5	Net profit ratio	0.06	0.06	0.04	0.04
6	Gross margin	0.20	0.26	0.20	0.18

Required:

Explain the general meaning of each of the above ratios, discuss the conclusions that you can draw about EasyLife financial position and identify potential audit risks to be investigated further.

Accounting for Leases On January 3, 2020, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $12,000 with the first payment due December 31,2020. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Prepare the journal entries that Hanna Corporation would make on January 3 and December 31, 2020, to record this lease assuming. i. the lease is reported as an operating lease. ii. the lease is reported as a finance lease. b. Post the journal entries of part a to the appropriate T-accounts. c. Show how the entries posted in part b would affect the financial statements using the financial statement effects template. Note: Round answers to the nearest dollar. Use rounded answers for subsequent computations. Journal entries T-accounts Financial statement effects template Note: Use negative signs with your answers, when appropriate. i. the lease is reported as an operating lease. Transactions Operating leasecommences. Lease payment. Record leaseexpense andchanges to assetand liability. (12,000) ii. the lease is reported as a finance lease. Transactions Finance leasecommences. Amortization ofleased asset. Made annualpayment.. Cash Asset 0 0 0 Cash Asset 0 0 Balance Sheet Noncash Contra Assets Assets 0 0 0 0 0 0 Balance Sheet Noncash Contra Assets Assets 57,198 0 0 Liabilities 0 0 0 0 9,533 0 Contributed Capital 0 0 0 Contributed Liabilities. Capital 57,198 0 (7,996) Earned Capital 0 0 0 0 0 0 Revenues Earned Capital 0 0 0 0 0 0 Income Statement Expenses 0 0 0 Income Statement Revenues Expenses 0 0 0 Net Income ooo 0 0 0 0 9,533 4,004 Net Income 0 (9,533) (4,004)