This file is used with Problem 6C-4, and contains the three worksheet tabs listed below.Simply click on the tab you wish to view.

1."Working Trial Balance" contains the KCN Working Trial Balance for the year

ended December 31, 20X5(unadjusted) and 20X4 (adjusted).

2."Financial Statements" contains comparative KCN Financial Statements which are

the results of the adjusted working trial balance amounts for 20X5 and 20X4.

3."Ratios" contains the Financial Statement Ratios calculated from KCN Financial

Statements, both for 20X5 and for 20X4.

Required:

a.Recalculate the 12/31/X5 and 12/31/X4 ratios using Excel on the Ratios schedule.

b.Identify financial statement accounts that should be investigated because the

related ratios are not what one would expect as compared to the prior-year ratios,

industry averages, or your knowledge of th company.

c.For each account identified in part b., list potential reasons for the unexpected

account balances and relatedratios.

KEYSTONE COMPUTERS & NETWORKS, INC. Prep'd by Working Trial Balance Date 1/10/X6 For the Year Ended December 31, 20X5 20X4 20X5 Adjustments 20X5 Acct. No. Account Name Adjusted Unadjusted Ref # Dr. Cr Adjusted 1000.10 Cash-First National Bank 2,754 6,034 6,034 1000.20 Cash-Special Account 9,960 0.150 0, 150 1000.30 Cash in register 1,200 1,200 1,200 1000.40 Petty Cash 50 50 50 1050.10 Accounts receivable-trade 8,534,524 10,235,457 10,235,457 1050.40 Accounts receivable-officers 57,643 84,670 84,670 1050.90 Allowance for bad debts (96,000) 104,000) 104,000) 1100.10 Inventories 1,234,589 ,375,835 375,835 1300.10 Prepaid expense 156,900 176,456 76,456 2050.10 Furniture & fixtures 300,980 344,900 344,900 2050.30 Equipment 789,654 74.676 74.676 2050.80 Leasehold improvements 98,900 91,230 91,230 2050.90 Accumulated depreciation 250,987) 404,560) 404,560) 2100.00 Software development cost 178,000 78,000 2200.00 Intangible assets ,000,000 300,000 800,000 3050.10 Accounts payable-trade 1,349,839 (1,429,033) (1,429,033) 3100.00 Capital lease oblig.-current (43,200 (45.675) (45.675) 3200.10 Accrued liabilities (178,900) (203,450) 203,450) 3300.30 Uneamed service revenue (42,300) 42,300) 3400.50 Line of credit 6,612,550) 8,632,105) (8,632,105) 4400.10 Capital lease oblig.-noncurr. 456,700) 423,680) (423,680) 5050.10 Capital stock (200,000) 200,000) (200,000) 5100.10 Paid-in capital (423,500) 423,500) (423,500) 5700.10 Retained (1,626,203) (2,615,478 (2,615,478) 5900.00 Dividends 415,000 415,000 Totals 989,275 229,877 229,877 6000.10 Sales of computers (44,890,788) 42,345,675) (42,345,675) 6010.10 Software licenses (248,900) 236,700) (236,700) 6020.10 Service revenue (4,567,888) (4,325,777) (4,325,777) 6030.10 Consulting revenue 46,751,990 45,677,899 45,677,899 7020.10 Cost of sales-prod. & serv. 74,122,435 72.134,566 72,134.566 7070.10 Salaries-sales 3,167,889 2,765,677 2,765.677 7070.50 Payroll benefits-sales 13,456 857,368 857,368 7075.10 Advertising & promotion ,200,786 ,567.889 1,567.889 7080.10 Travel & entertainment 609,788 445,600 445,600 7080.30 Miscellaneous exp. -sales 334,890 278,656 278,656 7090.10 Operating salaries 1,878,900 1.544,860 4.544,860 7090.30 Administrative salaries ,234,234 3,945,670 3,945.670 7090.50 Payroll benefits-admin 812,344 734,565 1,734,565 7100.10 Rent 797,800 721,345 721,345 7140.10 Utilities 210,495 234,839 234,839 7200.10 Insurance 356,890 378.677 378,677 7260.30 Legal and accounting 457,577 485,767 185,767 7320.10 Bad debt expense 234,500 256,678 256.678 7410.10 Supplies 556,345 478,900 478,900 7600.10 Depreciation and amort 334,565 367,867 367,867 7650.10 Software development 289,100 345,645 345.645 7700.10 Miscellaneous exp.-admin 234,556 245,456 245,456 7800.10 Interest expense 421,344 476,899 476,899 7900.10 Current income taxes 256,765 80,100 80,100 7900.70 Deferred income taxes 45,632 ,150 9,150 9000.00 P & L Summary 989,275 Total Balance Sheet 989,275 229,877 229,877) Total Income Statement (989,275) (229,877) 229,877 Out-of-balance 0 0 0KEYSTONE COMPUTERS & NETWORKS, INC. Balance Sheet December 31, Increase Assets 20X5 20X4 Decrease Current assets Cash $ 67,234 0.5% 53,964 0.5% 24.6% Trade receivables 10,235,457 74.1% 8,534,524 71.8% 19.9% Allowance for doubtful accounts (104,000) -0.8% (96,000) -0.8% 8.3% Receivables-officers 84.670 0.6% 57,643 0.5% 46.9% Inventory 1,375,835 10.0% 1.234,589 10.4% 11.4% Prepaid expenses 176,456 1.3% 56,900 1.3% 12.5% Total current assets 11,835,652 85.6% 9,941,620 83.7% 19.1% Equipment and leasehold improvements Equipment and furniture 1,319,576 9.5% 1,090,634 9.29 21.0% Leasehold improvements 91,230 0.7% 98,900 0.8% -7.8% 1,410,806 10.2% , 189,534 10.0% 18.6% Less: accumulated depreciation (404,560) 2.9% (250,987) 2.1% 61.2% ,006,246 7.3% 938,547 7.9% 7.2% Intangible assets (net of amort.) 978,000 7.1% 1,000,000 8.4% .2.2% 13,819,898 100.0% 11,880, 167 100.0% 16.3% Liabilities and Stockholders' Equity Current Liabilities Line of credit 8,632, 105 62.5% 6,612,550 55.7% 30.5% Accounts payable 1,429,033 10.3% 1,349,839 11.4% 5.9% Current maturities of capital lease obligations 45,675 0.3% 43,200 0.4% 5.7% Unearned service revenue 42,300 0.3% 0.0% Accrued expenses 203,450 1.5% 178,900 1.5% 13.7% Total current liabilities $ 10,352,563 74.9% 8, 184,489 68.9% 26.5% Capital Lease Obligations 469,355 3.4% 499,900 4.2% -6.1% Less current maturities (45,675) -0.3% (43,200) 0.4% 5.7% Total Liabilities $ 10,776,243 78.0% 8,641, 189 72.7% 24.7% Stockholders' equity Common stock 200,000 1.4% 200,000 1.7% 0.0% Additional paid-in capital 423,500 3.1% 423,500 3.6% 0.0% Retained earnings 2,430,355 17.6% 2,615,478 22.0% -7.1% 3,053,855 22.1% 3,238,978 27.3% -5.7% 3,830,098 100.1% 11,880,167 100.0% 16.4%Ref. No. Plan-1 KEYSTONE COMPUTERS & NETWORKS, INC. Prepared by Analytical Procedures Ratios Date 1/10/X6 For the Years Ended December 31, 20X5 20X4 Industry Current ratio 1.1 1.2 1.3 Days sales in average accounts receivable 37.0 Allowance for doubtful accounts / accounts receivable Bad debt expenseset sales Total liabilities to net worth 2.9 Return on total assets 9.0% Return on net worth 29.0% Return on net sales 2.3% Gross profitet sales 24.0% Selling, operating and admin expense / net sales 23.9% Times interest earned 5.5