- Preliminary Analytical Procedures. Dunder-Mifflin Inc. wanted to expand its manu- facturing and sales facilities. The company applied for a loan from First Bank. presenting the prior-year audited financial statements and the forecast for the current year shown in Exhibit 4.56.1. (Dunder-Mifflin Inc.'s fiscal year-end is December 31.) The bank was impressed with the business prospects and granted a $1.750,000 loan at 8 percent interest to finance working capital and the new facilities that were placed in service July 1 of the current year. Because Dunder-Mifflin Inc. planned to issue stock for permanent financing. the bank made the loan due on December 31 of the following year. Interest is payable each calendar quarter on October 1 of the current year and January 1. April 1, July 1. October 1 of the following year. The auditors' interviews with Dunder-Mifflin Inc. management near the end of the cur- rent year produced the following information: The facilities did not cost as much as previ- ously anticipated. However, sales were slow and the company granted more liberal return privilege terms than in the prior year. Officers wanted to generate significant income to impress First Bank and to preserve the company dividend ($120,000 paid in the prior year). Tania Stell Prior Year (audited) Current Year (unaudited) Forecast $9.000.000 6,296,000 2,704,000 2,044,000 300,000 360,000 60,000 120,000 180,000 $9.900.000 6.926,000 2.974,000 2,000,000 334.000 640,000 110,000 212,000 318,000 59,720,000 7,000,000 2.720.000 2.003.000 334,000 383,000 75.000 123.200 184,800 Revenue and Expense: Sales (net Cost of goods sold Gross margin General expense Depreciation Operating income Interest expense Income taxes (40) Net Income Assets: Cash Accounts receivable Allowance for doubtful accounts Inventory Total current assets Fixed assets Accumulated depreciation Total assets Liabilities and Equity: Accounts payable Bank loans, 8% Accrued interest Accruals and other Total current liabilities Long-term debt, 10% Total liabilities Capital stock Retained earnings Total liabilities and equity 600,000 500,000 (40,000) 1,500,000 2,560,000 3,000,000 (1,500,000) $4,060,000 880,000 600,000 (48,000) 1,500,000 2,932,000 4.700,000 (1.834.000 55 798,000 690.800 900.000 (90,000 1.350.000 2850 800 4,500,000 (1.834.000 $5,516.800 $ 450,000 0 60,000 50,000 $ 560,000 600,000 $1,160,000 2,000,000 900,000 $4,060,000 $ 450,000 1.750,000 40.000 60.000 $2,300,000 400.000 $2,700,000 2,000,000 1,098,000 $5,798,000 $ 330,000 1.750.000 40.000 37,000 52, 152,000 400.000 52.552.000 2.000.000 954 800 55,516.900 The production managers had targeted inventory levels for a 4.0 turnover ratio and we largely successful even though prices of materials and supplies had risen about 2 percent relative to sales dollar volume. The new facilities were depreciated using a 25-year life from the date of opening Dunder-Mifflin Inc. has now produced the current-year financial statements (Exhibit 4561 Current Year column) for the auditors' work on the current audit. Required: Perform preliminary analytical procedures on the current-year unaudited financial state ments for the purpose of identifying accounts that could contain errors or frauds. Use your knowledge of Dunder-Mifflin Inc. and the forecast in Exhibit 4.56.1. Calculate comparative and common-size financial statements as well as relevant ratios. (Assume that the market value of the equity for the company is $3 million.) Once your calculations are complete identify the accounts that could be misstated