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 related ratios. KEYSTONE COMPUTERS & NETWORKS, INC. Analytical Procedures Ratios For the Years Ended December 31, Current ratio Days sales in average accounts receivable Allowance for doubtful accounts / accounts receivable Bad debt expenses/net sales Total liabilities to net worth Return on total assets Return on net worth Return on net sales Gross profit/net sales Selling, operating and admin expense / net sales Times interest earned 20X5 Ref. No. Prepared by Date 20X4 Plan-1 WL 1/10/X6 Industry 1.3 37.0 2.9 9.0% 29.0% 2.3% 24.0% 23.9% 5.5 T KEYSTONE COMPUTERS & NETWORKS, INC. Working Trial Balance For the Year Ended December 31, 20X5 20X4 Acct. No. Account Name Adjusted 1000.10 Cash-First National Bank 1000.20 Cash-Special Account 1000.30 Cash in register 1000.40 Petty Cash 1050.10 Accounts receivable-trade 1050.40 Accounts receivable-officers 1050.90 Allowance for bad debts 1100.10 Inventories 1300.10 Prepaid expenses 2050.10 Furniture & fixtures 2050.30 Equipment 2050.80 Leasehold improvements 2050.90 Accumulated depreciation 2100.00 Software development cost 2200.00 Intangible assets 3050.10 Accounts payable-trade 3100.00 Capital lease oblig.-current 3200.10 Accrued liabilities 3300.30 Unearned service revenue 3400.50 Line of credit 4400.10 Capital lease oblig.-noncurr. 5050.10 Capital stock 5100.10 Paid-in capital 5700.10 Retained earnings 5900.00 Dividends Totals 42,754 9,960 1,200 50 8,534,524 57,643 (96,000) 1,234,589 156,900 300,980 789,654 98,900 (250,987) 1,000,000 (1,349,839) (43,200) (178,900) (6,612,550) (456,700) (200,000) (423,500) (1,626,203) 989,275 20X5 Unadjusted 66,034 10,150 1,200 50 10,235,457 84,670 (104,000) 1,375,835 176,456 344,900 974,676 91,230 (404,560) 178,000 800,000 (1,429,033) (45,675) (203,450) (42,300) (8,632,105) (423,680) (200,000) (423,500) (2,615,478) 415,000 229,877 Ref # Prep'd b Date Adjustments Dr. Cr. WL 1/10/X6 20X5 Adjusted 66,034 10,150 1,200 50 10,235,457 84,670 (104,000) 1,375,835 176,456 344,900 974,676 91,230 (404,560) 178,000 800,000 (1,429,033) (45,675) (203,450) (42,300) (8,632,105) (423,680) (200,000) (423,500) (2,615,478) 415,000 229,877 6000.10 Sales of computers 6010.10 Software licenses 6020.10 Service revenue 6030.10 Consulting revenue 7020.10 Cost of sales-prod. & serv. 7070.10 Salaries-sales 7070.50 Payroll benefits-sales 7075.10 Advertising & promotion 7080.10 Travel & entertainment 7080.30 Miscellaneous exp. -sales 7090.10 Operating salaries 7090.30 Administrative salaries 7090.50 Payroll benefits-admin. 7100.10 Rent 7140.10 Utilities 7200.10 Insurance 7260.30 Legal and accounting 7320.10 Bad debt expense 7410.10 Supplies 7600.10 Depreciation and amort. 7650.10 Software development 7700.10 Miscellaneous exp.-admin. 7800.10 Interest expense 7900.10 Current income taxes 7900.70 Deferred income taxes 9000.00 P&L Summary Total Balance Sheet Total Income Statement Out-of-balance (44,890,788) (248,900) (4,567,888) (46,751,990) 74,122,435 3,167,889 913,456 1,200,786 609,788 334,890 4,878,900 4,234,234 1,812,344 797,800 210,495 356,890 457,577 234,500 556,345 334,565 289,100 234,556 421,344 256,765 45,632 989,275 989,275 (989,275) 0 (42,345,675) (236,700) (4,325,777) (45,677,899) 72,134,566 2,765,677 857,368 1,567,889 445,600 278,656 4,544,860 3,945,670 1,734,565 721,345 234,839 378,677 485,767 256,678 478,900 367,867 345,645 245,456 476,899 80,100 9,150 229,877 (229,877) 0 (42,345,675) (236,700) (4,325,777) (45,677,899) 72,134,566 2,765,677 857,368 1,567,889 445,600 278,656 4,544,860 3,945,670 1,734,565 721,345 234,839 378,677 485,767 256,678 478,900 367,867 345,645 245,456 476,899 80,100 9,150 0 (229,877) 229,877 0