21.) List three potential problems on the financial statements
that an auditor should inquire further about. Do not simply list three accounts;
provide a one-sentence explanation of why you suspect error or earnings management
(20 points).
		2019	2018	2017
REVENUE AND EXPENSE:
Sales (net)		3,580,000	3,611,000	3,589,000
Cost of goods sold		(1,790,000)	(2,347,150)	(2,332,850)
Gross margin		1,790,000	1,263,850	1,256,150
General expense		(175,000)	(164,000)	(166,000)
Depreciation		(770,000)	(450,000)	(450,000)
Operating income		845,000	649,850	640,150
Interest expense		(322,000)	(302,000)	(300,400)
Income taxes (40%)		(209,200)	(139,140)	(135,900)
Net income		313,800	208,710	203,850
ASSETS:
Cash		338,000	291,000	302,400
Accounts receivable		625,000	517,000	504,000
Allowance doubtful accounts		(6,250)	(10,340)	(10,080)
Inventory		418,000	355,000	361,000
Total current assets		1,069,780	1,152,660	1,157,320
Fixed assets		7,283,480	6,455,000	6,455,000
Accum. depreciation		(2,580,000)	(2,130,000)	(1,680,000)
Total assets		5,773,260	5,477,660	5,932,320
LIABILITIES AND EQUITY:
Accounts payable		124,000	131,000	109,000
Bank loans, 8%		525,000	525,000	505,000
Accrued interest		17,600	15,000	15,400
Total current liabilities		666,600	671,000	629,400
Long-term debt, 10%		2,600,000	2,600,000	2,600,000
Total liabilities		3,266,600	3,271,000	3,229,400
Capital stock		1,317,950	917,950	1,622,920
Retained earnings		1,188,710	1,288,710	1,080,000
Total liabilities and equity		5,773,260	5,477,660	5,932,320
*-During FY2019, Balmer paid $100,000 in cash dividends.
*-Balmer bought back stock totaling $704,970 in 2018 and issued stock
totaling $400,000 in 2019
*- Debt was outstanding for entire year.