B E ABC Electronics Project: Analytical Review Procedures It is January 2018 and you are a staff accomtant assigned to the 2017 audit of ABC Electronics ABC is a closely held corporation managed by the founder and principal shareholder. Adam B. Clark. Your firm has nudited ABC for the last five years. The audited financial statements for the years cuided December 31, 2016 and 2015 are presented below, with the client's audited financial statements for 2017 Additional Information: ABC manufactures and sells DVD players and travel alarm clocks. - All sales are on credit to department stores and electronics wholesaling companies. Credit terms are net 30 days ABC offers a one-year warranty covering manufacturing defects ABC uses a periodic inventory system and determines its year-end inventory by taking a physical count on December 31 You and your supervisor observed the count on December 31, 2017 and performed numerous test counts, but you have not performed further audit tests regarding inventory - The interest rate on all debt is percent. Anmal interest and principal payments are due each December Average Common Shares Outstanding in 10.000 for each year INCOME STATEMENTS / E F . B C INCOME STATEMENTS (S000's) Years onded December 31 Sales Cost of goods sold $ 2015 7.493 5.225 2.268 1.577 49 Selling and general expenses Depreciation expense Way expense Bad debt expense Legal fees Interest expense 2017 7.750 S 5.505 2.245 1.671 16 75 90 13 110 240 71 169$ 2016 7.713 S 5,381 2.332 1,622 55 65 85 55 90 12 135 350 104 246 127 364 109 255 Income tax expense Net Income S $ Dividends paid $ 125$ 125$ 100 The following schedule shows the sales revenue and components of costs of goods sold for each of ABC's two products SCHEDULES OF GROSS PROFIT (5000's) Years ended December 31 DVD Players 2017 2016 2015 B C E F H The following schedule shows the sales revenue and components of costs of goods sold for each of ABC's two products. 2017 2016 2015 4.880 S 4.932 $ 4,791 SCHEDULES OF GROSS PROFIT (S000's) Years ended December 31 DVD Players Sales Cost of goods sold: Mti Labor OH Variance Depreciation 1.835 1,074 664 1.781 1.043 662 1.895 1.103 689 3 50 3.740 5 70 68 Gross Profit 3.648 1,284 S 3.550 1,241 $ 1.140 $ $ 2.870 $ 2.781 $ 2.702 Travel alarm clocks Sales Cost of goods sold: Mti Labor OH Variance Depreciation 888 537 301 C2) 41 1.765 1.105 S 868 532 276 (3) 60 1.733 1,048 $ 840 SOS 270 2 58 1.675 1,027 Gross Profit $ Mati Gross Prolit 1. Note: The overhead standards shown above do not melude depreciation. When the finished goods are transferred to inventory, a factor for depreciation is added to the material-labor-overhead standard to determine the inventory carrying cost $ 2017 36 $ 795 (70) 2016 165 $ 674 (60) 2015 77 658 (60) BALANCE SHEETS (S000's) December 31 Cash Accounts receivable Allowance for Doubtful Aects Inventories Raw Materials Finished Goods: DVD players Travel alarms Prepaid expenses 322 304 286 738 710 863 105 390 374 4 Land Building and equipment Accumulated Depr. Total assets 8 2.359 450 1.865 (895) 3.779 $ 2 2.213 450 1,858 K790) 31731 S 1.049 450 1.831 (610) 3.720 $ $ S 787 S 16 694 Accounts payable Taxes payable Accrued interest Warranty liability Current portion of long-term debt 675 14 10 40 100 839 10 100 943 13 11 40 100 858 Long-term debt f Prepare a Horizontal (Trend) Analysis of the Balance Sheet and Income Statement for F B C E DVD players Travel alarms 863 405 710 374 8 4 Prepaid expenses G 738 390 2 2.213 450 1.858 (790) 3.731 $ 2.359 450 1.865 (895) 3.779 $ Land Building and equipment Accumulated Depr. Total assets 2.049 450 1.831 (610) 3,720 $ $ 787$ 16 675 14 694 13 Accounts payable Taxes payable Accrued interest Warranty liability Current portion of long-term debt 11 10 40 40 40 100 100 100 839 Long-term debt 943 1.300 2.243 550 986 1.536 3.779 $ 1,400 2.239 550 858 1,500 2.358 550 812 Paid-in-capital Retained earnings 942 1,492 Total liabilities and equity S 1.362 3.720 3.731 $ Required: The engagement partner has asked you to perform analytical procedures to identify notential risky and of Required: The engagement partner luns asked you to perform analytical procedures to identify potential risks and areas of audit focus in ABC Electronics's 2017 financial statements Perform the following analytical procedures on the financial statements and identify issues that you feel require special attention in the 2017 audit. 2.) Prepare Common Size Financial Statements (Vertical Analysis) for 2017 2016 and 2015. Identify fluctuations/trends you feel should be investigated and indicate the potential accounting and operating issues that should be investigated. M D E F G B 1 ABC Electronics 2. Financial Statement Trend Analysis 3 December 31, 2017 Dollars 2016 Percentages 2016 Casue/Trend to investigate Follow up Needed? 2017 2015 2012 2015 5 6 7 8 9 10 12 13 14 B E ABC Electronics Project: Analytical Review Procedures It is January 2018 and you are a staff accomtant assigned to the 2017 audit of ABC Electronics ABC is a closely held corporation managed by the founder and principal shareholder. Adam B. Clark. Your firm has nudited ABC for the last five years. The audited financial statements for the years cuided December 31, 2016 and 2015 are presented below, with the client's audited financial statements for 2017 Additional Information: ABC manufactures and sells DVD players and travel alarm clocks. - All sales are on credit to department stores and electronics wholesaling companies. Credit terms are net 30 days ABC offers a one-year warranty covering manufacturing defects ABC uses a periodic inventory system and determines its year-end inventory by taking a physical count on December 31 You and your supervisor observed the count on December 31, 2017 and performed numerous test counts, but you have not performed further audit tests regarding inventory - The interest rate on all debt is percent. Anmal interest and principal payments are due each December Average Common Shares Outstanding in 10.000 for each year INCOME STATEMENTS / E F . B C INCOME STATEMENTS (S000's) Years onded December 31 Sales Cost of goods sold $ 2015 7.493 5.225 2.268 1.577 49 Selling and general expenses Depreciation expense Way expense Bad debt expense Legal fees Interest expense 2017 7.750 S 5.505 2.245 1.671 16 75 90 13 110 240 71 169$ 2016 7.713 S 5,381 2.332 1,622 55 65 85 55 90 12 135 350 104 246 127 364 109 255 Income tax expense Net Income S $ Dividends paid $ 125$ 125$ 100 The following schedule shows the sales revenue and components of costs of goods sold for each of ABC's two products SCHEDULES OF GROSS PROFIT (5000's) Years ended December 31 DVD Players 2017 2016 2015 B C E F H The following schedule shows the sales revenue and components of costs of goods sold for each of ABC's two products. 2017 2016 2015 4.880 S 4.932 $ 4,791 SCHEDULES OF GROSS PROFIT (S000's) Years ended December 31 DVD Players Sales Cost of goods sold: Mti Labor OH Variance Depreciation 1.835 1,074 664 1.781 1.043 662 1.895 1.103 689 3 50 3.740 5 70 68 Gross Profit 3.648 1,284 S 3.550 1,241 $ 1.140 $ $ 2.870 $ 2.781 $ 2.702 Travel alarm clocks Sales Cost of goods sold: Mti Labor OH Variance Depreciation 888 537 301 C2) 41 1.765 1.105 S 868 532 276 (3) 60 1.733 1,048 $ 840 SOS 270 2 58 1.675 1,027 Gross Profit $ Mati Gross Prolit 1. Note: The overhead standards shown above do not melude depreciation. When the finished goods are transferred to inventory, a factor for depreciation is added to the material-labor-overhead standard to determine the inventory carrying cost $ 2017 36 $ 795 (70) 2016 165 $ 674 (60) 2015 77 658 (60) BALANCE SHEETS (S000's) December 31 Cash Accounts receivable Allowance for Doubtful Aects Inventories Raw Materials Finished Goods: DVD players Travel alarms Prepaid expenses 322 304 286 738 710 863 105 390 374 4 Land Building and equipment Accumulated Depr. Total assets 8 2.359 450 1.865 (895) 3.779 $ 2 2.213 450 1,858 K790) 31731 S 1.049 450 1.831 (610) 3.720 $ $ S 787 S 16 694 Accounts payable Taxes payable Accrued interest Warranty liability Current portion of long-term debt 675 14 10 40 100 839 10 100 943 13 11 40 100 858 Long-term debt f Prepare a Horizontal (Trend) Analysis of the Balance Sheet and Income Statement for F B C E DVD players Travel alarms 863 405 710 374 8 4 Prepaid expenses G 738 390 2 2.213 450 1.858 (790) 3.731 $ 2.359 450 1.865 (895) 3.779 $ Land Building and equipment Accumulated Depr. Total assets 2.049 450 1.831 (610) 3,720 $ $ 787$ 16 675 14 694 13 Accounts payable Taxes payable Accrued interest Warranty liability Current portion of long-term debt 11 10 40 40 40 100 100 100 839 Long-term debt 943 1.300 2.243 550 986 1.536 3.779 $ 1,400 2.239 550 858 1,500 2.358 550 812 Paid-in-capital Retained earnings 942 1,492 Total liabilities and equity S 1.362 3.720 3.731 $ Required: The engagement partner has asked you to perform analytical procedures to identify notential risky and of Required: The engagement partner luns asked you to perform analytical procedures to identify potential risks and areas of audit focus in ABC Electronics's 2017 financial statements Perform the following analytical procedures on the financial statements and identify issues that you feel require special attention in the 2017 audit. 2.) Prepare Common Size Financial Statements (Vertical Analysis) for 2017 2016 and 2015. Identify fluctuations/trends you feel should be investigated and indicate the potential accounting and operating issues that should be investigated. M D E F G B 1 ABC Electronics 2. Financial Statement Trend Analysis 3 December 31, 2017 Dollars 2016 Percentages 2016 Casue/Trend to investigate Follow up Needed? 2017 2015 2012 2015 5 6 7 8 9 10 12 13 14