Required: Perform Horizontal, Vertical (Income Statement only) and ratio analysis as indicated. Compute potential measures of Materiality as indicated and allocate the selected measure (sliding scale) among the assets (net) as indicated. Then prepare a memo that documents what you have done and the results of your procedures in good work-paper form. Highlight at least two items that will require audit attention.

Pea Blossom Company Working Trial Balance-Balance Sheet 12-31-10 Prepared by Approved by ======================================================================================================= Per Per Difference % change Audit Books 12/31/2009 12/31/2010 (10-09) (diff/09) ======================================================================================================= ASSETS: 101 Cash-Big City National Bank 339,340 435,375 105 Accounts receivable 124,021 242,550 106 Allowance for uncollectibles -10,485 -4,785 109 210 220 221 230 231 240 241 250 251 260 Inventory Land Buildings Accum. depn.- buildings Machinery and equipment Accum. depn.- mach.& equip. Automotive equipment Accum. depn.- auto. equip. Office furniture & fixtures Accum. depn.- off. furn.& fix. Goodwill Total assets LIABILITIES: 301 Accounts payable 305 Accrued interest 306 Dividends payable 307 Federal income tax payable 308 Notes payable Total liabilities OWNERS' EQUITY: 501 Common stock 505 Other contributed capital 601 Retained earnings Total owners' equity Total liabilities & owners' equity 777,152 82,250 676,263 -65,416 540,845 -160,866 99,425 -52,798 106,433 -37,581 0 2,418,583 571,683 82,250 676,263 -74,625 733,945 -187,736 119,925 -80,216 113,233 -43,073 25,000 2,609,789 223,161 10,625 15,725 422,997 125,000 797,508 195,870 9,167 37,000 438,625 200,000 880,662 425,000 85,979 490,096 1,621,075 2,418,583 525,000 95,979 708,148 1,729,127 2,609,789 Prepared by Approved by Pea Blossom Company Working Trial Balance-Income Statement Per Per Dollar Audit Books Change % change % of Sales 12/31/2009 12/31/2010 % 0f Sales (10-09) ($chg/09) REVENUE: 701 Sales 703 Sales returns & allowances Net sales EXPENSES: 801 Cost of goods sold Gross margin OPERATING EXPENSES: 820 Wage expense 821 Payroll tax expense 822 Depreciation expense 823 Rent expense 824 Office supplies expense 825 Small tools expense 826 Advertising expense 827 Insurance 828 Repairs and maintenance 829 Property tax 830 Utilities 831 Professional fees 832 Miscellaneous expense 833 Bad debts expense 834 Freight expense Total operating expenses Net income from operations OTHER INCOME (EXPENSE): 901 Interest expense 930 Gain(loss)sale of fixed assets Net other income Net income before taxes 940 Federal income tax Net income Ratios: Current Ratio A/R Turnover Net sales/A/R Days Receivables 365/A/R Turnover Inventory Turnover CoGS/Inv. Days Inventory 365/Inv. Turnover NI/ Total SE (ROE) NI/ Total Assets (ROA) A/P Turnover (COGS/ A/P) Days Purchases (365/A/P Turn) Liabilities to Total Assets (Debt to Assets) Times Interest Earned (Interest Coverage) (Pretax NI + Int Exp)/Int Exp 4,447,472 -26,530 4,420,942 4,829,598 -88,264 4,741,334 1,420,933 3,000,009 1,664,196 3,077,138 1,418,720 99,310 64,422 3,750 8,615 2,988 11,313 25,737 17,869 13,463 10,670 11,875 377 9,925 28,150 1,727,184 1,272,825 1,426,700 100,967 74,614 3,750 10,437 3,316 42,722 30,641 13,440 20,710 12,670 27,086 2,602 8,500 33,076 1,811,231 1,265,907 -27,500 18,638 -8,862 1,255,101 502,040 753,061 -14,480 -6,375 -20,855 1,224,197 489,679 734,518 2009 2010 Ind Ave 1.9 10.43 35 5.85 62.39 0.12 0.05 11.8 31 0.53 3 Prepared by Approved by =========================================================================================================== =========================================================================================================== use this 2010 CALCULATION OF MATERIALITY 5% NI 1% TA 1% Revs Allocated among assets Acct. Bal. (net) Portion Cash A/R net Inv. Land Bldg net Mach net Auto net Furn net GW Total 0 What's this called? Sliding Scale Materiality Total 0 0 0 0 0 0 0 0 0 0 Required: Perform Horizontal, Vertical (Income Stmt only) and ratio analysis as indicated. Compute potential measures of Materiality as indicated and allocate the selected measure (sliding scale) among the assets (net) as indicated. Then prepare a memo that documents what you have done and the results of your procedures in good workpaper form. Highlight at least two items that will require audit attention. nge =================================== ===================================