The purpose of the question is to identify five other areas that may require audit scrutiny.

2) Preliminary Analytical Procedures Use Excel formulas to calculate Southwest's ratios in the Review Southwest Appliances financial statements, ratios, and industrial data in the presented in the SW1 Financial Data Excel file. Use good Excel procedures with formulas and cell references. Do not type any numbers into the cells Identify five other areas that you believe need additional audit scrutiny and explain why. Document your results in the Preliminary Analytical Procedures section of the SW1 Risk Memo and Materiality Template Word. Link your risks to specific accounts. For example, if you feel that the firm's profitability is declining and that management might have an incentive to be more aggressive, note they could do so by affecting all the income statement accounts. I have included one risk comment as an example. Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Balance Sheets (Amounts in Dollars) 19X0 19X1 19X0% of 19X1 % 0 Assets Assets % Change Assets Current Assets Cash and cash equivalents Money market funds Accounts receivable Allowance for doubtful accounts Inventory Total Current Assets 22,045 31,510 301,713 -31,916 307,701 631,053 10.8671 16,000 395.755 -33,779 2.185 2123 29,901 -3.163 30.494 62.539 0.886 1.305 32.2821 -2.755 41.037 72.755 -50.705 49.222 31.169 -5.837 503.091 891,934 41.341 -9.091 Property and Equipment Plant Accumulated depreciation - plant Equipment Aceumulated depreciation - equipment Land Net Property and Equipment Total Assets 500,000 -220,000 120,000 -72,000 50,000 378.000 1,009,053 500,000 -240.000 120,000 -96,000 50,000 334.000 1.225,934 49.551 -21.803 11.892 -7.135 4.955 37.461 40.785 -19.577 9.788 -7.831 4.079 27.245 - 11.64 21.494 100 100 Liabilities and Stockholders' Equity 387,7571 17.436 Current Liabilities Accounts payable Payroll taxes payable Income taxes payable Dividends payable Toral Current Liabilities 145,031 8.524 30,235 14,197 197,987 14.373 0.845 2.996 4.125 3.203 412,521 31.631 1.422 0.336 0.261 33.65 167.361 104.552 -86.357 -77.439 108.358 1.407 19.621 Notes payable Total Long-term Liabilities 90.000 90,000 60,000 60,000 1.919 8.919 4.8941 4.894 29.731 9.91 Stockholders' Equity Capital stock Paid-in capital Retained earnings Total Stockholders' Equity Total Liabilities and Equity 300,000 100,000 321.066 721,066 1,009,053 300,000 100.000 353,413 753,413 1.225.934 31.819 71.46 24.471 8.157 28.828 61.456 100 10.075 4.486 21.494 100 Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Income Statements (Amounts in Dollars 19X0% of 19X1 % of 19X1 Sales 19X0 2.736,561 -2,171 -33,809 -27.565 2.666,816 Sales discounts Sales returns Bad debt expenses Net Sales 3,277.873 -9.207 -51,559 33.078 3,184.029 19,781 -9.987 -52.501 4.106 -1.235 -1.007 0.181 -1.573 -1.009 97.137 97,451 19,394 Cost of goods sold Gross margin 2.159,042 507,774 2.601.646 5N2.383 TN.N96 18.555 79.37 17.767 20.5 14.693 290,400 21,199 16.081 7.1-40 25.673 6,456 9.475 0.674 0.525 0.237 8.859 0.647 0.491 0.218 0.802 259,287 18.434 14,357 6,491 21,943 6,149 3,067 974 4,636 11,386 0.783 0.197 Salaries expense Payroll tax expense Fringe benefits Rent Utilities Insurance Supplies expense Postage expense Advertising expense Professional fees Miscellaneous Purchase discounts lost Interest expense Depreciation expense Total operating expenses Operating Inne 11.999 14.999 12.00% 9.998 16.999 4.993 19.009 17.0143 10.009 1.001 0.111 0.035 0.156 0.225 0.112 0.036 0.169 0.416 0.036 1.548 0.337 1.608 16,199 2.356 0.351 0.037 1.140 5.100 11.500 1.225 53.815 12,164 44.000 499543 N2.840 0.371 42,374 9,215 44,000 44.293 64,481 32.002 1-342 12. 69 15.24 2.527 28.472 Interest revenue Incwe before income taxes 22,864 87,345 28.50 111,420 0.836 3.192 0.872 3.399 27.563 Income taxes Ner Income 25.114 62,231 37.508 73,912 0.918 2.274 1.144 2.255 49.351 18.77 Beginning retained earnings Net Income Dividends Ending retained earnings 271.728 62.231 12,893 321,066 321.066 73.012 41,565 353,413. Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Statement of Cash Flows (Amounts in Dollars) 1980 1980 19X1 1981 19X0% of Net Sales 198 esta en el 19X1 % of Sales % Change Operating cash flows Net income Depreciation Allowance for doubtful accounts 2.255 62,231 44,000 1,423 73,912 44,000 1,863 2.14 1.342 18.77% 0.00% 30.92% 0.00% 0.053 0.057 Changes in working capital (Increase) in accounts receivable (Increase) in inventory Increase in accounts payable Increase in payroll taxes payable (Decrease) in income taxes payable (Decrease) in dividends payable Cash flow from operations -45,256.95 -123,017 198,455 1.278.6 -30,235 -12.588 34,059.65 -94,042 -195,390 242,726 8,912 -26,110 -10.994 44,877 -1.697 -4.613 7.442 0.048 - 1.134 -0.472 1.277 -2.869 -5.961 7.405 0.272 -0.797 -0.335 1.369 -107.80% -58.83% 22.31% 597.01% 13.64% 0.00% 31.76% Investing cash flows Money market funds Investing cash flows -12.450 -12,450 15,510 15,510 -0.467 -0.467 0.473 0.473 224.58% 224.58% -30,000 - 1.125 Financing cash flows Repayment of notes payable Dividends Financing cash flows -30,000 -41,565 -71,565 -0.915 -1.268 -2.183 0.00% 0.00% -138.55% -30,000 -1.125 Net cash flow Beginning cash Ending cash -8,390.35 30,435 22,044.65 -11,178 22,045. 10,867 Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Ratios (Amounts in Dollars) 1980 1981 Profitability Gross Prote Margin Profit Margin Return on Assets Return on Equity Liquidity and Activity Current Ratio Quick Ratio Inventory Turnover in days Receivable Turnover in Days Pavables Turnover in Days Gross Operating Cycle Net Operating Cycle Solvency Debt te equity Times Interest Earned Balance Sheets Income Statements Cash Flow Ratios Industrial Data Wholesale Heating and AC Industry Comparative Common-sized Balance Sheet | 12/3/10 % of Assets 121/3IXI % of Assets 4.5 CASH AND EQUIVALENTS ACCOUNTS RECEIVABLE (NET) INVENTORY OTHER CURRENT TOTAL CURRENT ASSETS 40 LS 14 81.5 17.5 FIXED ASSETS (NET) INTANGIBLES (NET) TOTAL NON CURRENT ASSETS TOTAL ASSETS 18.5 100 28.5 13.5 ACCOUNTS PAYABLE SHORT TERM LOANS PAYABLE INCOME TAXES PAYABLE OTHER CURRENT TOTAL CURRENT LIABILITIES 2 45.4 8.9 LONG-TERM DEBT NET WORTH TOTAL LIAB AND NET WORTH 45.7 100 43.5 100 Comparative Common-sized Income Statement 100 100 NET SALES COST OF GOODS SOLD GROSS MARGIN 793 21 20.5 16.5 TOTAL EXPENSES NET INCOME 35 Comparative Ratios Profitability Gross Profit Margin Profit Margin Retum on Assets Return on Equity 21.0% 4.5% 6.2% 13.6% 20.5% 3.5% 5.9% 13.6% 1.8 Current Ratio Quick Ratio Solvency Debt to equity 2) Preliminary Analytical Procedures Use Excel formulas to calculate Southwest's ratios in the Review Southwest Appliances financial statements, ratios, and industrial data in the presented in the SW1 Financial Data Excel file. Use good Excel procedures with formulas and cell references. Do not type any numbers into the cells Identify five other areas that you believe need additional audit scrutiny and explain why. Document your results in the Preliminary Analytical Procedures section of the SW1 Risk Memo and Materiality Template Word. Link your risks to specific accounts. For example, if you feel that the firm's profitability is declining and that management might have an incentive to be more aggressive, note they could do so by affecting all the income statement accounts. I have included one risk comment as an example. Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Balance Sheets (Amounts in Dollars) 19X0 19X1 19X0% of 19X1 % 0 Assets Assets % Change Assets Current Assets Cash and cash equivalents Money market funds Accounts receivable Allowance for doubtful accounts Inventory Total Current Assets 22,045 31,510 301,713 -31,916 307,701 631,053 10.8671 16,000 395.755 -33,779 2.185 2123 29,901 -3.163 30.494 62.539 0.886 1.305 32.2821 -2.755 41.037 72.755 -50.705 49.222 31.169 -5.837 503.091 891,934 41.341 -9.091 Property and Equipment Plant Accumulated depreciation - plant Equipment Aceumulated depreciation - equipment Land Net Property and Equipment Total Assets 500,000 -220,000 120,000 -72,000 50,000 378.000 1,009,053 500,000 -240.000 120,000 -96,000 50,000 334.000 1.225,934 49.551 -21.803 11.892 -7.135 4.955 37.461 40.785 -19.577 9.788 -7.831 4.079 27.245 - 11.64 21.494 100 100 Liabilities and Stockholders' Equity 387,7571 17.436 Current Liabilities Accounts payable Payroll taxes payable Income taxes payable Dividends payable Toral Current Liabilities 145,031 8.524 30,235 14,197 197,987 14.373 0.845 2.996 4.125 3.203 412,521 31.631 1.422 0.336 0.261 33.65 167.361 104.552 -86.357 -77.439 108.358 1.407 19.621 Notes payable Total Long-term Liabilities 90.000 90,000 60,000 60,000 1.919 8.919 4.8941 4.894 29.731 9.91 Stockholders' Equity Capital stock Paid-in capital Retained earnings Total Stockholders' Equity Total Liabilities and Equity 300,000 100,000 321.066 721,066 1,009,053 300,000 100.000 353,413 753,413 1.225.934 31.819 71.46 24.471 8.157 28.828 61.456 100 10.075 4.486 21.494 100 Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Income Statements (Amounts in Dollars 19X0% of 19X1 % of 19X1 Sales 19X0 2.736,561 -2,171 -33,809 -27.565 2.666,816 Sales discounts Sales returns Bad debt expenses Net Sales 3,277.873 -9.207 -51,559 33.078 3,184.029 19,781 -9.987 -52.501 4.106 -1.235 -1.007 0.181 -1.573 -1.009 97.137 97,451 19,394 Cost of goods sold Gross margin 2.159,042 507,774 2.601.646 5N2.383 TN.N96 18.555 79.37 17.767 20.5 14.693 290,400 21,199 16.081 7.1-40 25.673 6,456 9.475 0.674 0.525 0.237 8.859 0.647 0.491 0.218 0.802 259,287 18.434 14,357 6,491 21,943 6,149 3,067 974 4,636 11,386 0.783 0.197 Salaries expense Payroll tax expense Fringe benefits Rent Utilities Insurance Supplies expense Postage expense Advertising expense Professional fees Miscellaneous Purchase discounts lost Interest expense Depreciation expense Total operating expenses Operating Inne 11.999 14.999 12.00% 9.998 16.999 4.993 19.009 17.0143 10.009 1.001 0.111 0.035 0.156 0.225 0.112 0.036 0.169 0.416 0.036 1.548 0.337 1.608 16,199 2.356 0.351 0.037 1.140 5.100 11.500 1.225 53.815 12,164 44.000 499543 N2.840 0.371 42,374 9,215 44,000 44.293 64,481 32.002 1-342 12. 69 15.24 2.527 28.472 Interest revenue Incwe before income taxes 22,864 87,345 28.50 111,420 0.836 3.192 0.872 3.399 27.563 Income taxes Ner Income 25.114 62,231 37.508 73,912 0.918 2.274 1.144 2.255 49.351 18.77 Beginning retained earnings Net Income Dividends Ending retained earnings 271.728 62.231 12,893 321,066 321.066 73.012 41,565 353,413. Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Statement of Cash Flows (Amounts in Dollars) 1980 1980 19X1 1981 19X0% of Net Sales 198 esta en el 19X1 % of Sales % Change Operating cash flows Net income Depreciation Allowance for doubtful accounts 2.255 62,231 44,000 1,423 73,912 44,000 1,863 2.14 1.342 18.77% 0.00% 30.92% 0.00% 0.053 0.057 Changes in working capital (Increase) in accounts receivable (Increase) in inventory Increase in accounts payable Increase in payroll taxes payable (Decrease) in income taxes payable (Decrease) in dividends payable Cash flow from operations -45,256.95 -123,017 198,455 1.278.6 -30,235 -12.588 34,059.65 -94,042 -195,390 242,726 8,912 -26,110 -10.994 44,877 -1.697 -4.613 7.442 0.048 - 1.134 -0.472 1.277 -2.869 -5.961 7.405 0.272 -0.797 -0.335 1.369 -107.80% -58.83% 22.31% 597.01% 13.64% 0.00% 31.76% Investing cash flows Money market funds Investing cash flows -12.450 -12,450 15,510 15,510 -0.467 -0.467 0.473 0.473 224.58% 224.58% -30,000 - 1.125 Financing cash flows Repayment of notes payable Dividends Financing cash flows -30,000 -41,565 -71,565 -0.915 -1.268 -2.183 0.00% 0.00% -138.55% -30,000 -1.125 Net cash flow Beginning cash Ending cash -8,390.35 30,435 22,044.65 -11,178 22,045. 10,867 Balance Sheets Income Statements Cash Flow Ratios Industrial Data Southwest Appliances, Inc. Ratios (Amounts in Dollars) 1980 1981 Profitability Gross Prote Margin Profit Margin Return on Assets Return on Equity Liquidity and Activity Current Ratio Quick Ratio Inventory Turnover in days Receivable Turnover in Days Pavables Turnover in Days Gross Operating Cycle Net Operating Cycle Solvency Debt te equity Times Interest Earned Balance Sheets Income Statements Cash Flow Ratios Industrial Data Wholesale Heating and AC Industry Comparative Common-sized Balance Sheet | 12/3/10 % of Assets 121/3IXI % of Assets 4.5 CASH AND EQUIVALENTS ACCOUNTS RECEIVABLE (NET) INVENTORY OTHER CURRENT TOTAL CURRENT ASSETS 40 LS 14 81.5 17.5 FIXED ASSETS (NET) INTANGIBLES (NET) TOTAL NON CURRENT ASSETS TOTAL ASSETS 18.5 100 28.5 13.5 ACCOUNTS PAYABLE SHORT TERM LOANS PAYABLE INCOME TAXES PAYABLE OTHER CURRENT TOTAL CURRENT LIABILITIES 2 45.4 8.9 LONG-TERM DEBT NET WORTH TOTAL LIAB AND NET WORTH 45.7 100 43.5 100 Comparative Common-sized Income Statement 100 100 NET SALES COST OF GOODS SOLD GROSS MARGIN 793 21 20.5 16.5 TOTAL EXPENSES NET INCOME 35 Comparative Ratios Profitability Gross Profit Margin Profit Margin Retum on Assets Return on Equity 21.0% 4.5% 6.2% 13.6% 20.5% 3.5% 5.9% 13.6% 1.8 Current Ratio Quick Ratio Solvency Debt to equity