Solomon is a highly successful, closely held Boston, Massachusetts, company that manufactures and assembles automobile specialty parts

Question:

Solomon is a highly successful, closely held Boston, Massachusetts, company that manufactures and assembles automobile specialty parts that are sold in auto parts stores in the East. Sales and profits have expanded rapidly in the past few years, and the prospects for future years are every bit as encouraging. In fact, the Solomon brothers are currently considering either selling out to a large company or going public to obtain additional capital.
The company originated in 1984 when Frank Solomon decided to manufacture tooled parts. In 1999, the company changed over to the auto parts business. Fortunately, it has never been necessary to expand the facilities, but space problems have recently become severe and expanded facilities will be necessary. Land and building costs in Boston are currently extremely inflated.
Management has always relied on you for help in its problems because the treasurer is sales-oriented and has little background in the controllership function. Salaries of all officers have been fairly modest in order to reinvest earnings in future growth. In fact, the company is oriented toward long-run wealth of the brothers more than toward short-run profit. The brothers have all of their personal wealth invested in the firm.
A major reason for the success of Solomon has been the small but excellent sales force.
The sales policy is to sell to small auto shops at high prices. This policy is responsible for fairly high credit losses, but the profit margin is high and the results have been highly successful. The firm has every intention of continuing this policy in the future.
Your firm has been auditing Solomon since 1994, and you have been on the job for the past 3 years. The client has excellent internal controls and has always been cooperative. In recent years, the client has attempted to keep net income at a high level because of borrowing needs and future sellout possibilities. Overall, the client has always been pleasant to deal with and willing to help in any way possible. There have never been any major audit adjustments, and an unqualified opinion has always been issued.
In the current year, you have completed the tests of the sales and collection area. The tests of controls and substantive tests of transactions for sales and sales returns and allowances were excellent, and extensive confirmations yielded no material misstatements. You have carefully reviewed the cutoff for sales and for sales returns and allowances and find these to be excellent. All recorded bad debts appear reasonable, and a review of the aged trial balance indicates that conditions seem about the same as in past years.

Required
a. Evaluate the information in the case (see below) to provide assistance to management for improved operation of its business. Prepare the supporting analysis using an electronic spreadsheet program (instructor option).
b. Do you agree that sales, accounts receivable, and allowance for doubtful accounts are probably correctly stated? Show calculations to support yourconclusion.