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without explanation but calculations Horizontal Analytical Procedures Baumholder & Barbar, CPAs, audited the consolidated financial statements of Aladdin Company ( a nonissuer ) for the

without explanation but calculations Horizontal Analytical Procedures
Baumholder & Barbar, CPAs, audited the consolidated financial statements of Aladdin Company (a nonissuer) for the year ended December 31, Year 1, and expressed a qualified opinion.
Baumholder & Barbar also audited Aladdin's financial statements for the year ended December 31, Year 2, and is worried they may have to express a modified opinion as Aladdin appears to be having a major problem keeping its bills paid and its inventory sold. The following consolidated financial statements were presented on a comparative basis with those of the prior year.
Aladdin, Co.
Comparative Balance Sheets
December 31, Year 2 and Year 1
Year 2 Year 1
Assets
Current assets
Cash and cash equivalents $100,000 $750,000
Receivables 200,000400,000
Inventory 100,000100,000
Prepaids 25,000100,000
Total current assets 425,0001,350,000
Property, plant, and equipment - net 200,000200,000
Other assets 100,000350,000
Total assets $725,000 $1,900,000
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $150,000 $100,000
Current portion of long-term debt 200,000400,000
Total current liabilities 350,000500,000
Long-term debt 100,0001,000,000
Total liabilities 450,0001,500,000
Stockholders' equity
Common stock 50,00050,000
Retained earnings 225,000350,000
Total stockholders' equity 275,000400,000
Total liabilities and stockholders' equity $725,000 $1,900,000
Cost of goods sold for Year 1 and Year 2 is $600,000 and $175,000, respectively. Average inventory for Year 1 is $125,000.
Part 1:
You are the assistant on the engagement. The engagement supervisor is worried that Aladdin is not a going concern and has asked you to calculate the following ratios. He has also asked you to analyze the ratios.
In the table below, calculate the following ratios using the information above. Round to the nearest decimal place (e.g.,2.5,10.0).
Year 1 Year 2 Industry
Standard
Acid-Test Ratio 5.0
Current Ratio 6.5
Inventory Turnover 10.0
Debt-to-Equity Ratio 0.5
Equity Ratio 0.7
A horizontal analysis involves a review of the clients ratios and trends over time. Specifically, the auditor is looking at change over time. In the table below, select the correct answer for each question.
Question Answer
1. The horizontal analysis of the acid-test ratio would most likely tell you what?
2. The horizontal analysis of the current ratio would most likely tell you what?
3. The horizontal analysis of the inventory turnover ratio would most likely tell you what?
4. The horizontal analysis of the debt-to-equity ratio would most likely tell you what?
5. The horizontal analysis of the equity ratio would most likely tell you what?

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