- recalculate the ratios for 12/31/X5. Refer to the Working Trial Balance to calculate the ratios. Show your work& insert the results below
Keystone Computers & Networks Inc
Analytical Review Ratios For the Period Ended December 31, 20X5
| | 12/31/X5 | 12/31/X4 | Industry |
| Current Ratio | | 1.215 | 1.300 |
| Days' Sales in Accounts Receivable, Computed with Average Accounts Receivable | | 33.2 | 37.000 |
| Allowance for Doubtful Accounts / Accounts Receivable | | 1.1% | ------ |
| Bad Debt Expense / Net Sales | | 0.2% | ------ |
| Total Liabilities to Net Worth | | 2.7 | 2.900 |
| Return on Total Assets | | 8.3% | 9.0% |
| Return on Net Worth | | 30.5% | 29.0% |
| Return on Net Sales | | 1.0% | 2.3% |
| Gross Profit / Net Sales | | 23.2% | 24.0% |
| Selling, Operating and Administrative Expense | | 21.4% | 23.9% |
| Times Interest Earned | | 4.1 | 5.5 |
- After completing part (a), review the ratios and identify below the financial statement accounts that should be investigated because the related ratios are not comparable to prior-year ratios, industry averages, or your knowledge of the company
- For each account identified in part (b), list potential reasons for the unexpected account balances and related ratios.
WL KEYSTONE COMPUTERS & NETWORKS, INC. Analytical Review Ratios For the Period Ended December 31, 20X5 Prepared by Reviewed by Ending 12/31/X5 Ratio Ending 12/31/X4 Industry 1.2 1.3 33.2 37.0 1.1 37.0 1 Current ratio Days' sales in accounts receivable, computed with average accounts receivable Allowance for doubtful accounts/accounts receivable Bad debt expenseet sales Total liabilitieset worth Return on total assets Return on net worth Return on net sales Gross profit net sales Seling, operating, and administrative expenseet sales Times interest earned 1.0% 0.3% 3.5 1.7% 7.5% 0.2% 22.1% 21.2% 1.7 1.1% 0.2% 2.7 8.3% 30.5% 1.0% 23.2% 21.4% 4.1 2.9 9.0% 29.0% 2.39 24.0% 23.9% 5.5 KEYSTONE COMPUTERS & NETWORKS, INC. Audit Strategy December 31, 20X5 Date Prepared by: Reviewed by Reviewed by Warren Love (Senior) Karen West (Manager) Charles Adams (Partner) August 14, 20X5 August 28, 20X5 September 5, 20X5 OVERALL AUDIT STRATEGY OBJECTIVES OF THE ENGAGEMENT Audit of the financial statements of Keystone Computers & Networks Inc. (KCN) for the year ended December 31, 20X5. Also, the company's debt agreement with Western Financial Services requires the company to furnish the lender a report by our firm on KCN's compliance with various restrictive debt covenants. BUSINESS AND INDUSTRY CONDITIONS KCN sells and installs computers and networking hardware and software to business cus- tomers and provides other information technology consulting servis KCY begun devalon KEYSTONE COMPUTERS & NETWORKS INC. Working Trial Balance For the Period Ended December 31, 20X5 Rel Account Name Account 6000.10 6010.10 6020.10 6030.10 7020.10 7070.10 7070.50 7075.10 7080.10 7080.30 7090.10 7090.30 7090.50 7100.10 7140.10 7200.19 7260.30 7320.10 7410.10 7600.10 7650.10 7700.10 7800.10 7900.10 7900.70 9000.00 Sales of computers Software licenses Service revenue Consulting revenue Cost of sales Salaries--sales Payroll benefits-sales Advertising and promotion Travel and entertainment Miscellaneous expenses-sales Salaries--operations Salaries-administrative Payroll benefits administrative Rent Utilities surance Legit and accounting dense Supo Donaciation and amortization software development Miscellaneous expenses-administrative Interest expense Current income taxes Deterred income taxes P&L Summary Prior Period Balance 12/31/X4 (44.890,788) (248.900) (4,567,888) (46,751.990) 74.122.435 3,167.889 913,456 1,200,786 609.788 334,890 4,878.900 4.234.234 1.812.344 797.800 210,495 356,890 457.577 234,500 556,345 334,565 289,100 234.556 421,344 256,765 45,632 989.275 0 Unadjusted Trial Balance Dr (Cr) (42.345.675) (236.700) (4,325,777) (45,677.899) 72,134.566 2.765,677 857.368 1.567.889 445,600 278,656 4,544,860 3,945,670 1,734,565 721,345 234,839 378,677 485,767 256,678 478.900 367.867 345,645 245,456 476,899 80,100 9,150 olo (229,877) 229.877 0 Account # 1000.10 1000.20 1000.30 1000.40 1050.10 1050.40 1050.90 1100.10 1300.10 2050.10 2050.30 2050.80 2050.90 2100.00 2200.00 3050.10 3100.00 3200.10 3300.30 3400.50 4400.10 5050.10 5100.10 5700.10 5900.00 KEYSTONE COMPUTERS & NETWORKS INC. Working Trial Balance For the Period Ended December 31, 20x5 Prior Period Unadjusted Account Name Balance 12/31/X4 Trial Balance Dr (Cr) Cash-General Account 42.754 66,034 Cash-Special Account 9,960 10,150 Cash in Register 1,200 1.200 Petty Cash 50 50 Accounts receivable-trade 8,534,524 10.235,457 Accounts receivable-officers 57,643 84,670 Allowance for bad debts (96.000) (104.000) Inventories 1,234,589 1,375,835 Prepaid expenses 156.900 176,456 Furniture and fixtures 300,980 344,900 Office equipment 789,654 974,676 Leasehold improvements 98,900 91,230 Accumulated depreciation (2.50.987) [404,560) Software development cost 178.000 1,000,000 800,000 Intangible assets Accounts payable-trade (1.349,839) 11.429,033) Capital lease obligations-current (43,200) (45,675) Accrued liabilities (178.900) (203,450) 142.300) Unearned service revenue Line of credit 16,612,550) 18,632,105) Capital lease obligations-noncurrent (456,700) (423,680) (200.000) (200,000) Capital stock (423.500) (423,500) Paid-in capital 11.626,203) 12.615.478) Retained earnings 415,000 Dividends 989,275 229.877 1989.275) (229,877) 0 0 WL KEYSTONE COMPUTERS & NETWORKS, INC. Analytical Review Ratios For the Period Ended December 31, 20X5 Prepared by Reviewed by Ending 12/31/X5 Ratio Ending 12/31/X4 Industry 1.2 1.3 33.2 37.0 1.1 37.0 1 Current ratio Days' sales in accounts receivable, computed with average accounts receivable Allowance for doubtful accounts/accounts receivable Bad debt expenseet sales Total liabilitieset worth Return on total assets Return on net worth Return on net sales Gross profit net sales Seling, operating, and administrative expenseet sales Times interest earned 1.0% 0.3% 3.5 1.7% 7.5% 0.2% 22.1% 21.2% 1.7 1.1% 0.2% 2.7 8.3% 30.5% 1.0% 23.2% 21.4% 4.1 2.9 9.0% 29.0% 2.39 24.0% 23.9% 5.5 KEYSTONE COMPUTERS & NETWORKS, INC. Audit Strategy December 31, 20X5 Date Prepared by: Reviewed by Reviewed by Warren Love (Senior) Karen West (Manager) Charles Adams (Partner) August 14, 20X5 August 28, 20X5 September 5, 20X5 OVERALL AUDIT STRATEGY OBJECTIVES OF THE ENGAGEMENT Audit of the financial statements of Keystone Computers & Networks Inc. (KCN) for the year ended December 31, 20X5. Also, the company's debt agreement with Western Financial Services requires the company to furnish the lender a report by our firm on KCN's compliance with various restrictive debt covenants. BUSINESS AND INDUSTRY CONDITIONS KCN sells and installs computers and networking hardware and software to business cus- tomers and provides other information technology consulting servis KCY begun devalon KEYSTONE COMPUTERS & NETWORKS INC. Working Trial Balance For the Period Ended December 31, 20X5 Rel Account Name Account 6000.10 6010.10 6020.10 6030.10 7020.10 7070.10 7070.50 7075.10 7080.10 7080.30 7090.10 7090.30 7090.50 7100.10 7140.10 7200.19 7260.30 7320.10 7410.10 7600.10 7650.10 7700.10 7800.10 7900.10 7900.70 9000.00 Sales of computers Software licenses Service revenue Consulting revenue Cost of sales Salaries--sales Payroll benefits-sales Advertising and promotion Travel and entertainment Miscellaneous expenses-sales Salaries--operations Salaries-administrative Payroll benefits administrative Rent Utilities surance Legit and accounting dense Supo Donaciation and amortization software development Miscellaneous expenses-administrative Interest expense Current income taxes Deterred income taxes P&L Summary Prior Period Balance 12/31/X4 (44.890,788) (248.900) (4,567,888) (46,751.990) 74.122.435 3,167.889 913,456 1,200,786 609.788 334,890 4,878.900 4.234.234 1.812.344 797.800 210,495 356,890 457.577 234,500 556,345 334,565 289,100 234.556 421,344 256,765 45,632 989.275 0 Unadjusted Trial Balance Dr (Cr) (42.345.675) (236.700) (4,325,777) (45,677.899) 72,134.566 2.765,677 857.368 1.567.889 445,600 278,656 4,544,860 3,945,670 1,734,565 721,345 234,839 378,677 485,767 256,678 478.900 367.867 345,645 245,456 476,899 80,100 9,150 olo (229,877) 229.877 0 Account # 1000.10 1000.20 1000.30 1000.40 1050.10 1050.40 1050.90 1100.10 1300.10 2050.10 2050.30 2050.80 2050.90 2100.00 2200.00 3050.10 3100.00 3200.10 3300.30 3400.50 4400.10 5050.10 5100.10 5700.10 5900.00 KEYSTONE COMPUTERS & NETWORKS INC. Working Trial Balance For the Period Ended December 31, 20x5 Prior Period Unadjusted Account Name Balance 12/31/X4 Trial Balance Dr (Cr) Cash-General Account 42.754 66,034 Cash-Special Account 9,960 10,150 Cash in Register 1,200 1.200 Petty Cash 50 50 Accounts receivable-trade 8,534,524 10.235,457 Accounts receivable-officers 57,643 84,670 Allowance for bad debts (96.000) (104.000) Inventories 1,234,589 1,375,835 Prepaid expenses 156.900 176,456 Furniture and fixtures 300,980 344,900 Office equipment 789,654 974,676 Leasehold improvements 98,900 91,230 Accumulated depreciation (2.50.987) [404,560) Software development cost 178.000 1,000,000 800,000 Intangible assets Accounts payable-trade (1.349,839) 11.429,033) Capital lease obligations-current (43,200) (45,675) Accrued liabilities (178.900) (203,450) 142.300) Unearned service revenue Line of credit 16,612,550) 18,632,105) Capital lease obligations-noncurrent (456,700) (423,680) (200.000) (200,000) Capital stock (423.500) (423,500) Paid-in capital 11.626,203) 12.615.478) Retained earnings 415,000 Dividends 989,275 229.877 1989.275) (229,877) 0 0
