tde The folowing are sales, cost of sales,and nventory data for Arthur Prodcts Supply Company, a wholesale disinibutor of ceaning supples, Dollar amcunts are in millions. (Cick the icon to view the sales, cost of sales, and inventory data) Requirements a. Calculate the following ratios (1) Gross margin as a percentage of sales (2) Inventory turnover b. List several logical causes of the changes in the two ratios c nsme han 80,000 s consideed muaarposes or 216. Do any of no tuatnshe cooled caos nic pesab meia misstatement? ratios indicate a possible matenial d. What should the auditor do to determine the actual cause of the changes? Requirement a. Calculate the following ratios: (1) Gross margin as a percentage of sales (2) Inventory turnover Begin by selecting the formulas needed to calculate each ratio (1) (2) Inventory turnover Calculate each ratio for each of the four years. Gross margin as a % of sales [ . Round the gross margin as a percentage of sales to the nearest tenth of a percent X X%, and round the inventory turnover to one decimal place, X X) 2016 2015 2014 2013 Gross margin as a % of sales Inventory turnover Choose from any list or enter any number in the input fields and then continue to the next question Requirement b. List several logical causes of the changes in the two ratios Begin by selecting the possible logical causes for the change in the gross margin as a percentage of sales. (Select the 5 choices that apply) A. Inventory cutoff was improper, causing sales to be recorded without the corresponding entry to cost of sales. B. Inventory cutoff was improper, causing cost of goods sold to be recorded without the corresponding entry to sales. C. Selling prices were lowered without a corresponding decrease in cost of sales D. An improper journal entry was recorded which adjusted the gross margin upward E. The product mix of the company changed. More high markup tems were sold than in previous years F. An improper journal entry was recorded which adjusted the gross margin downward G. Seling prices were raised without a correspondng increase in cost of sales. D H. The method of accounting for inventory was changed, causing a higher anding inventory (more expenses absobed into inventory) and lower cost of sals Chonse from any list or enter any number in the input fields and then continue to the next question G. Selling prices were raised without a corresponding increase in cost of sales H. The method of accounting for inventory was changed, causing a higher ending inventory (more expenses absorbed into inventory) and lower cost of sales l. The method o accounting or r ventory was changed, causing a ower ending inventory fewer expenses absorbed r to men ory and gher cost of sales. J. The product mix of the company changed. More low-markup items were sold than in previous years Now select the possible logical causes for the change in the inventory tumover, (Select the 3 choices that apply) A. The company is depleting its inventory supply in anticipation of reduced sales in the future B. The company is depleting its inventony supply in anticipation of increased sales in the future The company's inventory contains obsolete or unsalable merchandise, which is affecting the trover rase. The increased seling prices, which caused the gross margin percent to ncrease, reduced demand for the product and decreased the ne tory turnover. The company is building its inventory supply in antcipation of increased sales in the future C. D. E. Requirement c. Assume that $1,800,000 is considered material for audit planning purposes for 2016. Do any of the fluctuations in the computed ratios indicate a possible material misstatement? Begin by calculating the potential misstatement in gross margin and ending inventory based on the fluctuations in the ratos as calculated in part a Start by determ ning the potential misstatement of gross margin for 2016 Round the change in gross margin percentage to the nearest to th percent XX% Round the potential misstatement to the nearest tenth of a million, XX.) Change in gross margin % Potential misstaten from 2015 to 2016X 2016 salesof gross margin million million Now calculate the potential misstatement of 2016 ending inventory by completing the calculation below (Round any interim calculations and your final answer to one decimal place, XX.) Potential misstatement of 2016 Ending inventory as curenty reported2016 Cost of goods sold2015 nventory trnoverngry Do any of the fluctuations in the computed ratios indicate a possible material misstatement? 2016 Ending inventory estimated using 2015 snventory furnover million millionD Requirement d. What should the auditor do to determine the actual cause of the changes? A. The auditor need not take any additional act on as the potent al misstatement form the fluctuations n the ratios do not indicate a matenal financial misstatement Choose from any list or enter any number in the input helds and then continue to the next question. Requirement d. What should the auditor do to determine the actual cause of the changes? O A. The auditor need not take any addtional action as the potential misstatement form the fluctuations in the ratios do not indicate a material financial O B. The auditor should considering issuing a qualfied opinion in the audit report of the 2016 financial statements C. The auditor should discuss the two changes with the client O D. None of the above Choose from any list or enter any number in the input fields and then continue to the next question and obtain a reasonable explanation for them He or she should then perform a rop ale procedures to verify the validity of the explanation The following are sales, cost of sales, and in ventory data for Athur Products Supply Company, a wholesale distributor of cleaning supplies. Dol nillions. EEB (Click the icon to view the sales, cost of sales, and inventory data) Requirements a. Calculate the following ratios (1) Gross margin as a percentage of salg (2) Inventory turnover b. List several logical causes of the change c. Assume that S1800,000 is considered Data Table omputed ratios indicate misstatement? What should the auditor do to determine d. 20162015 014 2013 million llion s 922 s 86.1 s 781 s 696 illon Sales 670 656 596535 98 92 8.0 68 12.2 Do any of the fuctuations in the computed ra Cost of sales Beginning inventory Ending inventory 9.8 9.2 8.0 Requirement d. What should the auditor do O A. The auditor need not take any additio O B. The auditor should considering issuin O C. The audtor should dcuss the twchgeh the cient and obtain a reasonable explanation for them. He or she should then perform appro ot indicate a material finan Print Done misstatement procedures to verify the validity of the explanation. D. None of the above