Complete the following based on the information presented for Cloud 9 in the appendix to this text and the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters.

1. Using analytical procedures and the information provided in the appendix, perform an analysis of Cloud 9s financial position and its business risks. Discuss the ratios indicating a significant or an unexpected fluctuation.

2. Which specific areas do you believe should receive special emphasis during your audit? Consider your discussion of the analytical procedures results as well as your preliminary estimate of materiality. Prepare a memorandum to Suzie Pickering outlining potential problem areas (that is, where possible material misstatements in the financial statements exist) and any other special concerns.

More information about Cloud 9:

Cloud 9 set a goal to increase revenue by 3% for the 2025 fiscal year. One of the critical success factors for the company to achieve this 3% increase is to grow its share of the U.S. footwear market. However, with the new store opening and the subsequent increase in costs, as well as the costs related to the sponsorship deals, the management team is projecting a decline in earnings for the year.

In addition, to build customer loyalty and promote sales in the retail store, Cloud 9 introduced a loyalty program whereby customers earn one point for every $10 that they spend. Customers can then redeem points by going online to receive coupons that can be exchanged for merchandise in the store. On August 1, 2025, the company took out an additional loan of $7 million with Windsor Bank to help fund the store costs and to purchase additional delivery trucks and vans. This loan is repayable over five years. The companys other debt relates to loans issued more than five years ago from various lending institutions.

All inventory is purchased in U.S. dollars, which the company acquires under forward exchange contracts. The company provides a 12-month warranty on all footwear. Historical claims have been 0.2% of total sales.

The most recent financial statements for Cloud 9 are as follows. (Note that these financial statements are also available in Excel format in Wiley Course Resources.)

I know it might be hard and thank you for helping!!

Cloud 9 Consolidated Statement of Income For the year ended January 31, 2025 $364,953,846 For the year ended January 31, 2024 $345,965,385 Revenues Costs and expenses: Cost of sales Selling and administrative Interest expense Other (income)/expense, net Total costs and expenses Income before income taxes Income taxes Net income $222,496,154 104,450,000 1,257,692 1,311,539 $207,838,462 100,246,154 1,730,769 796,154 329,515,385 35,438,461 12,757,692 $ 22,680,769 310,611,539 35,353,846 13,080,769 $ 22,273,077 Cloud 9 Consolidated Balance Sheet January 31, 2025 January 31, 2024 $11,692,308 62,361,538 54,773,077 14,460,577 3,357,692 $ 9,780,769 60,361,539 55,615,385 14,852,885 3,288,461 5,250,000 7,276,923 $151,895,192 62,261,539 3,820,192 5,853,846 $223,830,769 $151,175,962 60,900,000 3,950,961 9,238,462 $225,265,385 Assets Liabilities and Stockholders' Equity Current assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $2,773,077 and $2,515,385 Inventory Investments (derivatives) Deferred income taxes Prepaid expenses and other current assets Total current assets Property plant, and equipment, net Identifiable intangible assets and goodwill, net Deferred income taxes and other assets Total assets Liabilities and Stockholders' Equity Current liabilties: Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Stockholders' equity: Common stock at par value Capital in excess of par value Unearned stock compensation Accumulated other comprehensive income Retaining earnings Total stockholders' equity Total liabilities and stockholders' equity $ 1,926,923 35,546,154 $207,692 28,896,154 20,615,385 18,157,692 842,308 20,915,385 23,336,581 582,650 $ 68,719,231 $ 82,307,693 18,088,462 16,765,384 3,942,308 4,253,846 107,692 17,669,231 (380,769) (5,850,000) 122,857,692 107,692 14,192,308 (450,000) (4.273,077) 111,038,461 134,403,846 $223,830,769 120,615,384 $225,265,385 Cash provided by operations Cash used by investing activities Cash used by financing activities- Effect of exchange rate changes on cash Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Cloud 9 Condensed Cash Flow Statement For the year ended January 31, 2025 $ 25,250,000 (13,165,385) (13,457,692) 3,284,616 1,911,539 9,780,769 $ 11,692,308 January 31, 2024 $ 26,907,692 (16,923,077) (9,696,154) 1,873,077 2,161,538 7,619,231 $9,780,769 -Includes dividends paid of $4,988,462 in 2025 and $5,119,231 in 2024. Cloud 9 Trial Balance October 31, 2025 October 31, 2024 Debit Credit Debit Credit $ 13,446,154 70,485,625 $ 6,123,884 64,867,910 $ 704,856 $ 648,679 55,100,000 13,419,231 2,857,692 9,265,385 103,803,846 57,900,000 13,805,769 3,584,615 6,446,154 97,576,923 39,761,538 35,207,692 3,723,007 3.851.923 9,557,692 8,410,849 300,125 Cash and cash equivalents Accounts receivable Allowance for doubtful accounts Inventory Investments (derivatives) Deferred income taxes (current) Prepaid expenses and other current assets Property plant, and equipment Accumulated depreciation Identifiable intangible assets and goodwill Accumulated amortization Deferred income taxes and other assets (noncurrent) Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Long-term debt Deferred income taxes and other liabilities (noncurrent) Common stock at par value Capital stock in excess of par value Unearned stock compensation Accumulated other comprehensive income Beginning retained earnings Dividends Repurchases of common stock Revenue Cost of sales Selling and administrative Interest expense Other expense Income tax expense Totals 2,115,385 21,376,923 14,986,457 25,803,846 2,211,539 23,661,538 4,915,384 111,538 19,415,385 34,823,077 22,561,538 24,150,000 3,726,923 17,119,106 4,330,769 107,692 16,484,615 253,846 5,011,538 480,769 4,746,154 122,857,692 98,150,473 3,299,423 3,866,838 4,627,381 2,939,393 277,338,461 269,442,308 163,003,846 78,246,154 1,773,077 169,346,154 79,092,308 1,438,461 453,846 9,511,538 $555,260,542 757,692 9,238,462 $527,052,997 $555,260,542 $527,052,997 Cloud 9 Consolidated Statement of Income For the year ended January 31, 2025 $364,953,846 For the year ended January 31, 2024 $345,965,385 Revenues Costs and expenses: Cost of sales Selling and administrative Interest expense Other (income)/expense, net Total costs and expenses Income before income taxes Income taxes Net income $222,496,154 104,450,000 1,257,692 1,311,539 $207,838,462 100,246,154 1,730,769 796,154 329,515,385 35,438,461 12,757,692 $ 22,680,769 310,611,539 35,353,846 13,080,769 $ 22,273,077 Cloud 9 Consolidated Balance Sheet January 31, 2025 January 31, 2024 $11,692,308 62,361,538 54,773,077 14,460,577 3,357,692 $ 9,780,769 60,361,539 55,615,385 14,852,885 3,288,461 5,250,000 7,276,923 $151,895,192 62,261,539 3,820,192 5,853,846 $223,830,769 $151,175,962 60,900,000 3,950,961 9,238,462 $225,265,385 Assets Liabilities and Stockholders' Equity Current assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $2,773,077 and $2,515,385 Inventory Investments (derivatives) Deferred income taxes Prepaid expenses and other current assets Total current assets Property plant, and equipment, net Identifiable intangible assets and goodwill, net Deferred income taxes and other assets Total assets Liabilities and Stockholders' Equity Current liabilties: Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Stockholders' equity: Common stock at par value Capital in excess of par value Unearned stock compensation Accumulated other comprehensive income Retaining earnings Total stockholders' equity Total liabilities and stockholders' equity $ 1,926,923 35,546,154 $207,692 28,896,154 20,615,385 18,157,692 842,308 20,915,385 23,336,581 582,650 $ 68,719,231 $ 82,307,693 18,088,462 16,765,384 3,942,308 4,253,846 107,692 17,669,231 (380,769) (5,850,000) 122,857,692 107,692 14,192,308 (450,000) (4.273,077) 111,038,461 134,403,846 $223,830,769 120,615,384 $225,265,385 Cash provided by operations Cash used by investing activities Cash used by financing activities- Effect of exchange rate changes on cash Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Cloud 9 Condensed Cash Flow Statement For the year ended January 31, 2025 $ 25,250,000 (13,165,385) (13,457,692) 3,284,616 1,911,539 9,780,769 $ 11,692,308 January 31, 2024 $ 26,907,692 (16,923,077) (9,696,154) 1,873,077 2,161,538 7,619,231 $9,780,769 -Includes dividends paid of $4,988,462 in 2025 and $5,119,231 in 2024. Cloud 9 Trial Balance October 31, 2025 October 31, 2024 Debit Credit Debit Credit $ 13,446,154 70,485,625 $ 6,123,884 64,867,910 $ 704,856 $ 648,679 55,100,000 13,419,231 2,857,692 9,265,385 103,803,846 57,900,000 13,805,769 3,584,615 6,446,154 97,576,923 39,761,538 35,207,692 3,723,007 3.851.923 9,557,692 8,410,849 300,125 Cash and cash equivalents Accounts receivable Allowance for doubtful accounts Inventory Investments (derivatives) Deferred income taxes (current) Prepaid expenses and other current assets Property plant, and equipment Accumulated depreciation Identifiable intangible assets and goodwill Accumulated amortization Deferred income taxes and other assets (noncurrent) Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Long-term debt Deferred income taxes and other liabilities (noncurrent) Common stock at par value Capital stock in excess of par value Unearned stock compensation Accumulated other comprehensive income Beginning retained earnings Dividends Repurchases of common stock Revenue Cost of sales Selling and administrative Interest expense Other expense Income tax expense Totals 2,115,385 21,376,923 14,986,457 25,803,846 2,211,539 23,661,538 4,915,384 111,538 19,415,385 34,823,077 22,561,538 24,150,000 3,726,923 17,119,106 4,330,769 107,692 16,484,615 253,846 5,011,538 480,769 4,746,154 122,857,692 98,150,473 3,299,423 3,866,838 4,627,381 2,939,393 277,338,461 269,442,308 163,003,846 78,246,154 1,773,077 169,346,154 79,092,308 1,438,461 453,846 9,511,538 $555,260,542 757,692 9,238,462 $527,052,997 $555,260,542 $527,052,997