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unny was assigned as one of the external auditors of Melon Corporation. While in the process of obtaining an understanding of lelon, Sunny performed analytical

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unny was assigned as one of the external auditors of Melon Corporation. While in the process of obtaining an understanding of lelon, Sunny performed analytical procedures to identify unusual fluctuations when compared to expectations. For the year being udited, Sunny was made aware that Melon had invested in a significant number of new machines by taking out a ten-year bank loan. as expected that the new machines will generate profit for the company starting next year. Which of the following assessments by unny indicates an unusual fluctuation considering the investment made by Melon for the year being audited? Operating profit margin was constant as compared with the previous year. This should not be the case as operating profit is expected to increase. Debt to equity ratio of Melon Corporation decreased as compared with the previous year. This is expected as net income will decrease as a result of higher interest expense. Return on assets ratio by Melon Corporation increased as compared to the previous year. This is unusual as income is only expected to increase in the following year. Times interest earned decreased as compared with the previous year. This is the opposite of what is expected as interest expense should increase as a result of the loan

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