You are a new staff accountant with a large regional CPA firm, particiapiong in your first audit. You recall your auditing class that CPAs often to test the reasonableness of accounting numbers provided by the client. Since ratios reflect the relationships among various account balances, if it is assumed that prior relationship still hold, prior year's ratios can be used to estimate what current balances should approximated. However, You never actually performed this kind of analysis until now. The CPA in charge of the audit of Covington Pike Corporation brings you the list of ratios shown belown and tell you these reflect the relationship maintained by the Covington Pike in recent years.

Profit marin on sales=5% Return on assets= 7.5% Gross profit margin=40% inventory turnover ratio =6 times receivables turnover ratio= 25 Acid-test ratio= 2 to 1 return on shareholders' equity=10% Debt ti equity ratio= 1/3 Times interest earned ratio =12 times

Jotted in the margin are the following notes: Net income $15,000 Only one short-term note ($5,000); all other current liabilities are traded accounts

Property, Plant, and equipment are the only noncurrent assets. Bonds payable are the only noncurrent liabilities. The effective interest rate on short=term notes and bonds is 8%. No investment securities. Cash balance totals $15,000.

Required: You are requested to approximate the current year's balance in the form of a balance sheet and income statemen, to the extent the information allows. Accompany those fincancial statements with teh calculations you use to estimate each amount reported.