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Top Chef Inc. is a consumer lifestyle brand. The company's core product is helping customers create a meal experience. Each meal experience comes with original recipes and seasonal ingredients delivered directly to customers. Gordon, CPA, is assigned to perform analytical procedures as part of the Year 3 audit of Top Chef Inc. Gordon decided a greater than or equal to 10 percent change from the prior year is considered significant and requires additional follow-up.

PART I

Use the information in the exhibits to calculate the given ratios for Year 3 and Year 2. Enter the amount in the associated cells. Round all numbers to two decimal places. The information in the Analytics Definitions exhibit must be used for all financial ratio calculations. Based on your calculations, determine if the year-to-year change for each ratio is significant by clicking in the associated cell and selecting "Yes" or "No" as appropriate.

	A	B	C	D
1	Ratio	Year 3	Year 2	Is the Year-to-Year Change Significant?
2	Current ratio
3	Return on assets

PART II

Gordon determined the year-to-year change in return on equity is significant. Use the information in the exhibits to determine the most appropriate explanation for Gordon to document as part of his analytical procedures.

Return on equity has increased significantly from the prior year. The primary cause is due to a $15.8M (or 12.9%) increase in total assets from Year 2 to Year 3.Return on equity has increased significantly from the prior year. The primary cause is due to an approximate $2M (or 5%) increase in total liabilities from Year 2 to Year 3.Return on equity has decreased significantly from the prior year. The primary cause for the decline is due to a $14.9M (or 15.6%) decrease in sales from Year 2 to Year 3. Return on equity has decreased significantly from the prior year. The primary cause is due to an approximate $2M (or 5%) increase in total liabilities from Year 2 to Year 3. Return on equity has decreased significantly from the prior year. The primary cause is due to a $15.8M (or 12.9%) increase in total assets from Year 2 to Year 3.

PART III

Regarding analytical procedures performed on return on equity, what follow-up procedures (if any) does Gordon need to perform?

N/A. There are no follow-up procedures required. Gordon needs to obtain corroborating evidence for the increase in liabilities from Year 2 to Year 3. Gordon needs to discuss with the controller why the industry index does not support the company's declining sales trend from Year 2 to Year 3.Gordon needs to obtain corroborating evidence for the increase in cash and cash equivalents from Year 2 to Year 3. Gordon needs to discuss with the controller why the industry index does not support the company's increase in total liabilities from Year 2 to Year 3.

Top Chef Inc. and Subsidiary

For the Years Ended December 31, Years 13

Income Statement Year 3 Year 2 Year 1 Sales 80,700,000 95,600,000 79,450,000Cost of goods sold 41,000,000 42,500,000 37,100,000Gross profit on sales 39,700,000 53,100,000 42,350,000 Expenses:

Selling expenses

14,900,000 15,000,000 14,500,000

General and administrative

6,015,000 5,000,000 4,800,000

Interest expense

1,120,000 1,200,000 850,000

Total expenses

22,035,000 21,200,000 20,150,000Income before taxes 17,665,000 31,900,000 22,200,000Provision for income taxes 7,300,000 7,500,000 6,500,000Net income 10,365,000 24,400,000 15,700,000

Top Chef Inc. and Subsidiary

As of December 31, Years 13

Balance Sheet Year 3 Year 2 Year 1Assets Current assets:

Cash and cash equivalents

54,280,00042,500,00040,650,000

Receivablesnet

12,000,00010,000,0008,750,000

Inventory

12,000,00010,000,0008,750,000

Other current assets

7,000,000 5,000,000 6,600,000

Total current assets

85,280,00067,500,00064,750,000 PP&Enet23,000,00025,000,00024,000,000Other assets 30,000,000 30,000,000 30,000,000

Total assets

138,280,000122,500,000118,750,000 Liabilities and Stockholders' Equity Current liabilities:

Accounts payable

23,000,00020,000,00022,000,000

Current portion of long-term debt

1,000,0001,000,0001,000,000

Other current liabilities

965,000 1,000,000 900,000

Total current liabilities

24,965,00022,000,00023,900,000

Long-term debt

13,000,00014,000,0007,850,000

Total liabilities

37,965,00036,000,00031,750,000 Stockholders' equity:

Common stock

100,000100,000100,000

Additional paid-in capital

9,900,0009,900,0009,900,000

Retained earnings

90,315,000 76,500,000 77,000,000

Total stockholders' equity

100,315,000 86,500,000 87,000,000Total liabilities and stockholders' equity138,280,000122,500,000118,750,000

Industry: Food Delivery

	Company	Industry	Sector	S&P 500
Growth Rates (%)
Revenue (MRQ) vs. Qtr 1 Year Ago	-18.00%	13.16%	28.50%	15.58%
Revenue (TTM) vs. TTM 1 Year Ago	-15.59%	11.83%	18.25%	17.90%
Revenue 3 Year Growth	1.55%	18.85%	16.94%	8.97%