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Begin by reading the Email from Darlene. 1,637 Then go to A-0 The Planning Audit Program. Note the highlighted rows #4 a and b and 8. These are the three workpapers you need to complete. 4.a asks you to Foot balances and ensure mathematical accuracy of the PBC trial balance. This is worksheet A-1. First total each column on A-1 and next mark your work with a tick mark (F) next to the totals. Probably in red, so you coworkers know what work you have done on the worksheet. Remember to initial the upper right-hand corner. Then go back to A-) and fill in row 4.a - The workpaper reference (PYTB), What is the assertion, your initials, any comments - did it foot? Any exceptions? If not, state Footed with no exceptions. 23 + 1. b. Trace the prior period balances(A-1) to the closing balances of the 10K (A-3 10K, you have this from last week in the additional files if the link in the worksheet A-3 is not working) Open the 10K, find the closing balances for 2019 and compare each line item, some items may be combined or netted in the 10K) For each item on A-1 in column G or F, note the A-3 (10-K). Then initial the top right corner. Go back to A-0 and complete row 4b. Next read A-4, A-6 and A-7 These workpapers have all been completed by your coworkers. ns Then complete A-5 Materiality - You should be able to find prior year net income on the 10K or you can calculate it. Calculate net revenue and subtract expenses to get net income, using the Trial balance for the current year and the prior year using a-1 and a-2. For 2019 the auditor notes a loss on legal settlement, this is a one-time loss and should be listed separately on line D15. In row 19 you multiply net income by 5% as it states on the worksheet. + Then calculate total assets for the current and prior year and enter that amount into row 23, for row 26 multiply total assets for each year by 1% Continue on to calculate total revenues for each year for row 29 and continue on to complete the worksheets. Filling in the justification section. Remember to initial your Q6 1 X fx D B D E F G H 1 J K L M N N o Date: 02 NOV 2020 14:37:42 +0000 From: "Darlene Wardlaw" Subject: More planning stuff for Apollo These emails are NOT workpapers. Rather they are useful communications for completing your case. They do not get a workpaper reference. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 We received the engagement letter from Apollo. So, we need to go ahead and wrap up the planning stuff. You already got started, so this should seem familiar. I have completed most of the audit resource documents (budget, etc.). But we need to check the client's trial balances (you'd be surprised how often they don't balance) and work up the materiality memo. When you populate it, use formulas from the TB instead of hardcoding in the numbers; that way, I can double-check it before I send it on to Arnold to review. If you could take care of that and look at any of the other items from the program that need attention, that would be great. 15 DW When you tie out the prior year balances to the 10-K, you'll have to combine some trial balance lines to get the summated numbers on the 10K. But you already knew that. 16 17 18 19 20 21 22 23 24 25 26 27 Windows Ink Works D E 1 1 2 3 B Apollo Shoes, Inc AUDIT PLAN-PLANNING FYE 12/31/2020 F A-0 You are responsible for completing all steps highlighted in green, Workpaper Reference TBA Related Assertion (5) 4 5 1 Complete client engagement acceptance form. Review correspondence files, prior year audit workpapers, permanent files, financial statements and auditor's reports NA Performed Comments by DW The PY 10K is included in the workpapers at A-3, the PY workpapers DW are not available per Apollo. See board of director meeting minutes for more information A-3 Trial balance obtained on 01/01/2021 DW from Samual Carboy, Apollo Controller DW Obtained by DW on 12/24/2020 6 2 A1 and A 2 7 7 8 A-3 9 Obtain 2019 audited trial balance and 2020 unaudited trial balance. 3 4 Obtain and review a copy of the prior year 10K Foot balances and ensure mathematical accuracy of a PBC trial balances. Trace prior period balances to the closing balance in the prior period's financial statements (10-K). Note: some amoumis on the financial statements are the bsion of multiple TB accounts. b Determine the extent of involvement, if any, of 5 consultants, specialists, or internal auditors. 10 NA DW 11 If the work of another is being used in the engagement, determine that it is used in accordance with professional standards. Some reliance on internal audit will be necessary Apollo Director of Internal Audit Karina Ramirez will be assisting on the audit, per my (DW) review of her qualifications and the organizational structure of Apollo I have concluded that she is both objective and competent Notes on A 3 NA DW 12 a Review the minutes of the board of directors and committee meetings for the year and any new agreements, leases, contracts, or other important documents. Obtain copies of the minutes or agreements for the current or permanent workpaper files Highlight matters relevant to the related audit area or for which disclosure will be 13 6 required in the financial statement or notes. TC DW Signed copy of engagement letter received from the client on November 20, 2020. DW Rough draft completed, new senior to track and expand time tracking Staff determined as of 12/01/2020 DW NA Electronically signed by all firm employees and filed on firm intranet as of December 31, 2020 Obtain an engagement letter from the client A-4 14 7 15 & Complete Materiality Memo A-5 Complete a time budget by audit area. 16 9 A-6 Determine staffing assignments based on consideration of audit risks, and discuss the preliminary audit plan and key dates, ie inventory A-7 observation, mailing of confirmations, etc. with the 17 10 audit staff . Complete independence forms for all firm employees. NA 18 11 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Emails A-O Planning Audit Program ... A-11... + HE Q O : A 2:28 PM 5/14/2022 F G H J K K L M N O 10-k Q Prepared by: DW/TC Reviewed by: AA This WP includes several documents considered critical to the audit planning process. The following items could be noted by the student to be of significance to the audit: Information Relevant to 2020 Audit Audit Action Recommended B D D E 2 Apollo Shoes, Inc 3 2019 10-K and assorted documents 4 31-Dec-20 5 6 7 8 Apollo 2019 10-K See additional materials 9 10 11 12 13 14 15 Apollo CEO Letter to 16 Shareholders See additional materials 17 18 19 20 21 22 23 Apollo Organization Chart See additional materials 24 25 26 27 28 29 30 Board of Directors and Audit 31 Committee Meeting Minutes 32 See additional materials 33 34 35 36 37 38 39 Email from CAE and info See additional materials 40 about new computer system January 06, 2020 Larry Lancaster, Chairman, President, and CEO is a new hire. - Investigate Larry's background? Sales expected to increase 10% - Note for analytic review of expenses COGS and exp. to remain constant - Note for analytic review of expenses Authorized purchase of $1.3 million in equipment. - Vouch to supporting documentation, trace to PP&E workpapers. ST credit refinanced, rolled into LT N/P - Note for liabilities work; ensure proper accounting and disclosure. Officers' salary increase 10% - Note for payroll analytic procedures Cost of Superbowl ad rose 10% ($1 million). - Note for review of expenses June 30, 2020 SONRANNNNN - Damages from "Nor'easter" cost $50,000.- Should be treated as repair, rather than capital addition Company raised prices 10% to meet expectations - Examine reasons for not meeting goals Stopped R&D on Phoneshoe. - Implications for intangible assets? Postage and telephone expense saved through e-mails - Note for analytic procedures involving expenses. Write-off A/R for $23,810.13. - Was that the only write-off? Advanced $1.25 million to Larry Lancaster's secretary (personal) - Related party transaction should be disclosed in footnotes. 1% interest Authorized $1 million for purchase of computer systems. - Verify purchase. Authorized $44,403,000 draw on LOC. - Verify the accounting for the liability. January 6, 2021 Anderson, Olds, and Watershed hired (fee $750,000)X-1 - Fee should be included in Professional Expenses Approved cash dividend ($860,000) (disbursed 03/01/21 for SH of record 12/31/20) - Dividend should be accrued. Reported a $12 million negligence suit - Contact client attorneys, possible contingent liability. Machinery purchased in early 2017 not operational - Check on status. Approved bonuses for 12/31/20 - $450,000 bonuses should be accrued at 12/31/20 Company approved $3,300,000 contribution to EBP - Note for footnotes. No Superbowl ad this year - Note for analytic procedures G H H A C D D 2 2 Preclosing Trial Balance A-2 3 31-Dec-20 4 5 Account ID Account Description Debit Amt Credit Amt 6 6 10100 Cash on Hand $2 275 23 7 10200 Regular Checking Account $557,125.92 8 10300 Payroll Checking Account 9 9 10400 Savings Account $3,645,599.15 10 11000 Accounts Receivable $51,515 259 98 11 11400 Other Receivables $1,250,000.00 12 11500 Allowance for Doubtful Accounts $1,239,009.75 13 12000 Inventory $67.724,527 50 14 12300 Reserve for Inventory Obsolescence 5846,000.00 15 14100 Prepaid Insurance $3.424.213.78 15 14200 Prepaid Rent 17 14300 Office Supplies $8,540.00 $ 18 14400 Notes Receivable-Current 19 14700 Other Current Assets 20 15000 Land $117.000.00 21 15100 Buildings and Land Improvements $674,313.92 22 15200 Machinery, Equipment, Office Fur $2,929,097.13 23 17000 Accum. Depreciation $610,000.00 24 19000 Investments 51 998,780 39 25 19900 Other Noncurrent Assets $53,840.59 26 20000 Accounts Payable $1.922,095.91 27 23100 Sales Tax Payable 28 23200 Wages Payable 29 23300 FICA Employee Withholding $8.439.65 30 23350 Medicare Withholding $11.414.99 31 23400 Federal Payroll Taxes Payable S118,086.12 32 23500 FUTA Tax Payable 33 23600 State Payroll Taxes Payable $55.106.86 34 23700 SUTA Tax Payable 35 23800 FICA Employer Withholding 58,439 65 36 23900 Medicare Employer Withholding $11.414.99 37 24100 Line of Credit $44,403.000.00 38 24200 Current Portion Long-Term Debt 39 24700 Other Current Liabilities 40 27000 Notes Payable-Noncurrent $12,000,000.00 41 39003 Common Stock $8,105,000.00 42 39004 Paid in Capital $7,423,000.00 43 39005 Retained Eamings $6,590,483.64 44 40000 Sales $242.713.452.88 45 41000 Sales Returns $11,100,220.89 46 42000 Warranty Expense $1,158,128 47 47 45000 Income from Investments $1,426,089.31 48 46000 Interest Income $131,881.46 49 47000 Miscellaneous Income S2,166,000.00 50 50010 Cost of Goods Sold $130.196,645 26 51 57500 Freight $4,240,263.09 52 60000 Advertising Expense $1.036,854.01 53 61000 Auto Expenses $210,502 80 54 62000 Research and Development $528.870.44 55 64000 Depreciation Expense $446,000.00 56 64500 Warehouse Salaries $4,720.715.56 57 65000 Property Tax Expense $99,332.45 58 66000 Legal and Professional Expense $4.913,224.45 59 67000 Bad Debt Expense 50 68000 Insurance Expense $36,106 92 61 70000 Maintenance Expense $35,502.87 62 70100 Utilities $137,332.18 53 70110 Phone $52,599.02 64 70120 Postal $77.803.61 65 71000 Miscellaneous Office Expense $24.891.82 66 72000 Payroll Tax Exp $1,577,811.85 57 73000 Pension/Profit-Sharing Plan Ex $3,630,375.80 68 78600 Controllers' Clearning Account $330,375 80 69 74000 Rent or Lease Expense $1,206,574.00 70 77500 Administrative Wages Expense $16,197.225.43 71 78000 Interest Expense $2,591,736.50 72 78500 Income Tax Expense - Federal 58 900,000.00 73 78510 Income Tax Expense - State $3,100,000.00 74 $330,119,291.01 $330,119,291.01 Single Column format $2 275 23 $557,125.92 $0.00 $3,645,599.15 $51,515 259 98 $1,250,000.00 (51 239,009.75) $67,724,527.50 (5846,000.00) $3.424.213.78 $0.00 $8,540,00 S0.00 $0.00 $117.000.00 S674,313.92 $2.929,097.13 (5610.000,00) $1,998,780 39 $53,840.59 (51.922,095.91) S0.00 $0.00 (58,439,65) ($11.414.99) ($118,086.12) $0.00 (555,106.86) $0.00 (58.439.65) ($11,414.99) (S44,403,000.00) $0.00 $0.00 (S12,000,000.00) (58.105.000.00) (57,423,000.00) (56,590,48364) (5242,713,452.88) $11,100.220.89 $1,158,128.47 ($1.426,089.31) ($131.881.46) (52.166,000.00) $130 196 645 26 $4.240.263.09 $1,036,854.01 $210,502.80 $528.870.44 $446,000.00 $4.720,715.56 $99 332.45 $4.913,224.45 S0.00 $36,106.92 $35,502.87 $137.332.18 $52,599.02 $77,803 61 $24,891.82 $1.577.811.85 $3,630,375.80 ($330,375.80) $1,206.574.00 $16.197.225.43 $2,591,736.50 $8,900,000.00 $3.100,000.00 A-2 PBC ry A-2 PBC A B D G . J K L 1 A-4 F Signed Engagement Letter Apollo Shoes, Inc. 12/31/2020 2 3 4 5 October 26, 2020 Mr. Larry Lancaster, Chairman Apollo Shoes, Inc. Shoetown, ME 6 7 8 Dear Mr. Lancaster: 9 10 11 12 13 14 15 16 17 18 19 This will confirm our understanding of the arrangements for auditing Apollo Shoes, Inc. financial statements for 2020. We will audit the balance sheet at December 31, 2020, and the related statements of income, retained earnings, and cash flows for the year ending that date. Our audit will be made in accordance with the Standards of the Public Company Accounting Oversight Board and will include such tests of the accounting records and such other auditing procedures as we consider necessary. Our audit will be based on samples of recorded transactions. We will plan the audit to detect material errors and frauds that may affect your financial statements. Our work, however, is subject to the unavoidable risk that errors, frauds, and illegal acts, will not be detected. We expect to obtain reasonable, but not absolute, assurance that major misstatements do not exist in the financial statements. Our findings regarding your system of internal control, including information about significant deficiencies and material weaknesses, will be reported to the audit committee of your board of directors in a separate letter at the close of the audit. At your request, but pending approval by your Board of Directors, we will prepare all required federal tax returns and the state franchise tax returns. We will provide your staff with a list of schedules needed by our staff during the audit. The delivery dates have been discussed and mutually agreed upon. We understand that your staff will prepare all the schedules in the package, all the financial statements and notes thereto, and the Form 10-K for our review. The scope of our services does not include preparation of any of these financial statements. Ms. Darlene Wardlaw will be the manager in charge of all work performed for you. She will inform you immediately if we encounter any circumstances that could significantly affect our fee estimate of $750,000 discussed with you on October 17, 2020. She is aware of the due date for the audit report, March 15, 2021. You should feel free to call on her at any time. If the specifications above are in accordance with your understand of the terms of our engagement, kindly sign below and return the duplicate copy to us. We look forward to serving you as independent public accountants. 20 21 22 23 24 25 26 27 28 29 Accepted by /s/Larry Lancaster Date 11/02/2020 B E G H ENGAGEMENT MATERIALITY (Required for all engagements) F Prepared by Reviewed by 2 3 4 5 CLIENT 6 PERIOD ENDED 7 Apollo Shoes December 31, 2020 This completed form must be provided to the engagement quality control reviewer in the planning stage of every audit. Please complete all the cells highlighted in yellow. 8 8 9 9 10 11 PLANNING MATERIALITY CALCULATION Only the current year net income loss) (or other measure) is sigraficantly different from the entaly's historical results would 2-year averaging to obtain nomalized net income (loss) (or other measure) be appropriate 12 Current Year Prior Year 13 PROFIT ORIENTED ENTITIES 14 Net income (loss) Plus (mimas) unusual, non-recuning revenues and 15 expenses, and extraordinary items 16 ADJUSTED NET INCOME (LOSS) 17 18 Adjusted net income (loss) multiplied by: 19 596 20 21 0 0 Current Year 190 0 0 23 TOTAL ASSETS 24 25 Total assets multiplied by: 26 27 28 29 TOTAL REVENUES 30 Plus (mimas) unusual, non-recurring revenues 31 ADJUSTED REVENUES Current Year 28= BENG992288%87%8328m2=%35 33 Total adjusted revenues multiplied by 34 196 35 36 37 JUSTIFICATION OF PLANNING MATERIALITY 38 1. Financial data source (ie, actual, budget. Year end the balance, actual data obtained from client. 39 projection) 40 2. Basis (i.e. normalized ner income, revenue, Adjusted net income 41 total assets, other): 42 Justification: USE THIS BOX TO DOCUMENT AND JUSTIFY WHICH BASIS YOUVE 43 SELECTED 44 45 46 Standard 5% used. 47 3. Percentage of financial data source used: 48 49 50 4. Amount selected (planning materiality) 51 Being that Apollo is a new chest and we were not provided with materiality amounts from the predecessor auditor, we assume that planning materiality is 5% of net income from 2019. 52 5. Prior year's final materiality 53 6. Performance materiality/Tolerable 54 misstatement (750% of planning materiality) 55 7. Listing scope (amount threshold for suggested adjustments) (using 5% to 10% of planning materiality based on expected level of adjustments is usually appropriate) 56 57 500 0 Begin by reading the Email from Darlene. 1,637 Then go to A-0 The Planning Audit Program. Note the highlighted rows #4 a and b and 8. These are the three workpapers you need to complete. 4.a asks you to Foot balances and ensure mathematical accuracy of the PBC trial balance. This is worksheet A-1. First total each column on A-1 and next mark your work with a tick mark (F) next to the totals. Probably in red, so you coworkers know what work you have done on the worksheet. Remember to initial the upper right-hand corner. Then go back to A-) and fill in row 4.a - The workpaper reference (PYTB), What is the assertion, your initials, any comments - did it foot? Any exceptions? If not, state Footed with no exceptions. 23 + 1. b. Trace the prior period balances(A-1) to the closing balances of the 10K (A-3 10K, you have this from last week in the additional files if the link in the worksheet A-3 is not working) Open the 10K, find the closing balances for 2019 and compare each line item, some items may be combined or netted in the 10K) For each item on A-1 in column G or F, note the A-3 (10-K). Then initial the top right corner. Go back to A-0 and complete row 4b. Next read A-4, A-6 and A-7 These workpapers have all been completed by your coworkers. ns Then complete A-5 Materiality - You should be able to find prior year net income on the 10K or you can calculate it. Calculate net revenue and subtract expenses to get net income, using the Trial balance for the current year and the prior year using a-1 and a-2. For 2019 the auditor notes a loss on legal settlement, this is a one-time loss and should be listed separately on line D15. In row 19 you multiply net income by 5% as it states on the worksheet. + Then calculate total assets for the current and prior year and enter that amount into row 23, for row 26 multiply total assets for each year by 1% Continue on to calculate total revenues for each year for row 29 and continue on to complete the worksheets. Filling in the justification section. Remember to initial your Q6 1 X fx D B D E F G H 1 J K L M N N o Date: 02 NOV 2020 14:37:42 +0000 From: "Darlene Wardlaw" Subject: More planning stuff for Apollo These emails are NOT workpapers. Rather they are useful communications for completing your case. They do not get a workpaper reference. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 We received the engagement letter from Apollo. So, we need to go ahead and wrap up the planning stuff. You already got started, so this should seem familiar. I have completed most of the audit resource documents (budget, etc.). But we need to check the client's trial balances (you'd be surprised how often they don't balance) and work up the materiality memo. When you populate it, use formulas from the TB instead of hardcoding in the numbers; that way, I can double-check it before I send it on to Arnold to review. If you could take care of that and look at any of the other items from the program that need attention, that would be great. 15 DW When you tie out the prior year balances to the 10-K, you'll have to combine some trial balance lines to get the summated numbers on the 10K. But you already knew that. 16 17 18 19 20 21 22 23 24 25 26 27 Windows Ink Works D E 1 1 2 3 B Apollo Shoes, Inc AUDIT PLAN-PLANNING FYE 12/31/2020 F A-0 You are responsible for completing all steps highlighted in green, Workpaper Reference TBA Related Assertion (5) 4 5 1 Complete client engagement acceptance form. Review correspondence files, prior year audit workpapers, permanent files, financial statements and auditor's reports NA Performed Comments by DW The PY 10K is included in the workpapers at A-3, the PY workpapers DW are not available per Apollo. See board of director meeting minutes for more information A-3 Trial balance obtained on 01/01/2021 DW from Samual Carboy, Apollo Controller DW Obtained by DW on 12/24/2020 6 2 A1 and A 2 7 7 8 A-3 9 Obtain 2019 audited trial balance and 2020 unaudited trial balance. 3 4 Obtain and review a copy of the prior year 10K Foot balances and ensure mathematical accuracy of a PBC trial balances. Trace prior period balances to the closing balance in the prior period's financial statements (10-K). Note: some amoumis on the financial statements are the bsion of multiple TB accounts. b Determine the extent of involvement, if any, of 5 consultants, specialists, or internal auditors. 10 NA DW 11 If the work of another is being used in the engagement, determine that it is used in accordance with professional standards. Some reliance on internal audit will be necessary Apollo Director of Internal Audit Karina Ramirez will be assisting on the audit, per my (DW) review of her qualifications and the organizational structure of Apollo I have concluded that she is both objective and competent Notes on A 3 NA DW 12 a Review the minutes of the board of directors and committee meetings for the year and any new agreements, leases, contracts, or other important documents. Obtain copies of the minutes or agreements for the current or permanent workpaper files Highlight matters relevant to the related audit area or for which disclosure will be 13 6 required in the financial statement or notes. TC DW Signed copy of engagement letter received from the client on November 20, 2020. DW Rough draft completed, new senior to track and expand time tracking Staff determined as of 12/01/2020 DW NA Electronically signed by all firm employees and filed on firm intranet as of December 31, 2020 Obtain an engagement letter from the client A-4 14 7 15 & Complete Materiality Memo A-5 Complete a time budget by audit area. 16 9 A-6 Determine staffing assignments based on consideration of audit risks, and discuss the preliminary audit plan and key dates, ie inventory A-7 observation, mailing of confirmations, etc. with the 17 10 audit staff . Complete independence forms for all firm employees. NA 18 11 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Emails A-O Planning Audit Program ... A-11... + HE Q O : A 2:28 PM 5/14/2022 F G H J K K L M N O 10-k Q Prepared by: DW/TC Reviewed by: AA This WP includes several documents considered critical to the audit planning process. The following items could be noted by the student to be of significance to the audit: Information Relevant to 2020 Audit Audit Action Recommended B D D E 2 Apollo Shoes, Inc 3 2019 10-K and assorted documents 4 31-Dec-20 5 6 7 8 Apollo 2019 10-K See additional materials 9 10 11 12 13 14 15 Apollo CEO Letter to 16 Shareholders See additional materials 17 18 19 20 21 22 23 Apollo Organization Chart See additional materials 24 25 26 27 28 29 30 Board of Directors and Audit 31 Committee Meeting Minutes 32 See additional materials 33 34 35 36 37 38 39 Email from CAE and info See additional materials 40 about new computer system January 06, 2020 Larry Lancaster, Chairman, President, and CEO is a new hire. - Investigate Larry's background? Sales expected to increase 10% - Note for analytic review of expenses COGS and exp. to remain constant - Note for analytic review of expenses Authorized purchase of $1.3 million in equipment. - Vouch to supporting documentation, trace to PP&E workpapers. ST credit refinanced, rolled into LT N/P - Note for liabilities work; ensure proper accounting and disclosure. Officers' salary increase 10% - Note for payroll analytic procedures Cost of Superbowl ad rose 10% ($1 million). - Note for review of expenses June 30, 2020 SONRANNNNN - Damages from "Nor'easter" cost $50,000.- Should be treated as repair, rather than capital addition Company raised prices 10% to meet expectations - Examine reasons for not meeting goals Stopped R&D on Phoneshoe. - Implications for intangible assets? Postage and telephone expense saved through e-mails - Note for analytic procedures involving expenses. Write-off A/R for $23,810.13. - Was that the only write-off? Advanced $1.25 million to Larry Lancaster's secretary (personal) - Related party transaction should be disclosed in footnotes. 1% interest Authorized $1 million for purchase of computer systems. - Verify purchase. Authorized $44,403,000 draw on LOC. - Verify the accounting for the liability. January 6, 2021 Anderson, Olds, and Watershed hired (fee $750,000)X-1 - Fee should be included in Professional Expenses Approved cash dividend ($860,000) (disbursed 03/01/21 for SH of record 12/31/20) - Dividend should be accrued. Reported a $12 million negligence suit - Contact client attorneys, possible contingent liability. Machinery purchased in early 2017 not operational - Check on status. Approved bonuses for 12/31/20 - $450,000 bonuses should be accrued at 12/31/20 Company approved $3,300,000 contribution to EBP - Note for footnotes. No Superbowl ad this year - Note for analytic procedures G H H A C D D 2 2 Preclosing Trial Balance A-2 3 31-Dec-20 4 5 Account ID Account Description Debit Amt Credit Amt 6 6 10100 Cash on Hand $2 275 23 7 10200 Regular Checking Account $557,125.92 8 10300 Payroll Checking Account 9 9 10400 Savings Account $3,645,599.15 10 11000 Accounts Receivable $51,515 259 98 11 11400 Other Receivables $1,250,000.00 12 11500 Allowance for Doubtful Accounts $1,239,009.75 13 12000 Inventory $67.724,527 50 14 12300 Reserve for Inventory Obsolescence 5846,000.00 15 14100 Prepaid Insurance $3.424.213.78 15 14200 Prepaid Rent 17 14300 Office Supplies $8,540.00 $ 18 14400 Notes Receivable-Current 19 14700 Other Current Assets 20 15000 Land $117.000.00 21 15100 Buildings and Land Improvements $674,313.92 22 15200 Machinery, Equipment, Office Fur $2,929,097.13 23 17000 Accum. Depreciation $610,000.00 24 19000 Investments 51 998,780 39 25 19900 Other Noncurrent Assets $53,840.59 26 20000 Accounts Payable $1.922,095.91 27 23100 Sales Tax Payable 28 23200 Wages Payable 29 23300 FICA Employee Withholding $8.439.65 30 23350 Medicare Withholding $11.414.99 31 23400 Federal Payroll Taxes Payable S118,086.12 32 23500 FUTA Tax Payable 33 23600 State Payroll Taxes Payable $55.106.86 34 23700 SUTA Tax Payable 35 23800 FICA Employer Withholding 58,439 65 36 23900 Medicare Employer Withholding $11.414.99 37 24100 Line of Credit $44,403.000.00 38 24200 Current Portion Long-Term Debt 39 24700 Other Current Liabilities 40 27000 Notes Payable-Noncurrent $12,000,000.00 41 39003 Common Stock $8,105,000.00 42 39004 Paid in Capital $7,423,000.00 43 39005 Retained Eamings $6,590,483.64 44 40000 Sales $242.713.452.88 45 41000 Sales Returns $11,100,220.89 46 42000 Warranty Expense $1,158,128 47 47 45000 Income from Investments $1,426,089.31 48 46000 Interest Income $131,881.46 49 47000 Miscellaneous Income S2,166,000.00 50 50010 Cost of Goods Sold $130.196,645 26 51 57500 Freight $4,240,263.09 52 60000 Advertising Expense $1.036,854.01 53 61000 Auto Expenses $210,502 80 54 62000 Research and Development $528.870.44 55 64000 Depreciation Expense $446,000.00 56 64500 Warehouse Salaries $4,720.715.56 57 65000 Property Tax Expense $99,332.45 58 66000 Legal and Professional Expense $4.913,224.45 59 67000 Bad Debt Expense 50 68000 Insurance Expense $36,106 92 61 70000 Maintenance Expense $35,502.87 62 70100 Utilities $137,332.18 53 70110 Phone $52,599.02 64 70120 Postal $77.803.61 65 71000 Miscellaneous Office Expense $24.891.82 66 72000 Payroll Tax Exp $1,577,811.85 57 73000 Pension/Profit-Sharing Plan Ex $3,630,375.80 68 78600 Controllers' Clearning Account $330,375 80 69 74000 Rent or Lease Expense $1,206,574.00 70 77500 Administrative Wages Expense $16,197.225.43 71 78000 Interest Expense $2,591,736.50 72 78500 Income Tax Expense - Federal 58 900,000.00 73 78510 Income Tax Expense - State $3,100,000.00 74 $330,119,291.01 $330,119,291.01 Single Column format $2 275 23 $557,125.92 $0.00 $3,645,599.15 $51,515 259 98 $1,250,000.00 (51 239,009.75) $67,724,527.50 (5846,000.00) $3.424.213.78 $0.00 $8,540,00 S0.00 $0.00 $117.000.00 S674,313.92 $2.929,097.13 (5610.000,00) $1,998,780 39 $53,840.59 (51.922,095.91) S0.00 $0.00 (58,439,65) ($11.414.99) ($118,086.12) $0.00 (555,106.86) $0.00 (58.439.65) ($11,414.99) (S44,403,000.00) $0.00 $0.00 (S12,000,000.00) (58.105.000.00) (57,423,000.00) (56,590,48364) (5242,713,452.88) $11,100.220.89 $1,158,128.47 ($1.426,089.31) ($131.881.46) (52.166,000.00) $130 196 645 26 $4.240.263.09 $1,036,854.01 $210,502.80 $528.870.44 $446,000.00 $4.720,715.56 $99 332.45 $4.913,224.45 S0.00 $36,106.92 $35,502.87 $137.332.18 $52,599.02 $77,803 61 $24,891.82 $1.577.811.85 $3,630,375.80 ($330,375.80) $1,206.574.00 $16.197.225.43 $2,591,736.50 $8,900,000.00 $3.100,000.00 A-2 PBC ry A-2 PBC A B D G . J K L 1 A-4 F Signed Engagement Letter Apollo Shoes, Inc. 12/31/2020 2 3 4 5 October 26, 2020 Mr. Larry Lancaster, Chairman Apollo Shoes, Inc. Shoetown, ME 6 7 8 Dear Mr. Lancaster: 9 10 11 12 13 14 15 16 17 18 19 This will confirm our understanding of the arrangements for auditing Apollo Shoes, Inc. financial statements for 2020. We will audit the balance sheet at December 31, 2020, and the related statements of income, retained earnings, and cash flows for the year ending that date. Our audit will be made in accordance with the Standards of the Public Company Accounting Oversight Board and will include such tests of the accounting records and such other auditing procedures as we consider necessary. Our audit will be based on samples of recorded transactions. We will plan the audit to detect material errors and frauds that may affect your financial statements. Our work, however, is subject to the unavoidable risk that errors, frauds, and illegal acts, will not be detected. We expect to obtain reasonable, but not absolute, assurance that major misstatements do not exist in the financial statements. Our findings regarding your system of internal control, including information about significant deficiencies and material weaknesses, will be reported to the audit committee of your board of directors in a separate letter at the close of the audit. At your request, but pending approval by your Board of Directors, we will prepare all required federal tax returns and the state franchise tax returns. We will provide your staff with a list of schedules needed by our staff during the audit. The delivery dates have been discussed and mutually agreed upon. We understand that your staff will prepare all the schedules in the package, all the financial statements and notes thereto, and the Form 10-K for our review. The scope of our services does not include preparation of any of these financial statements. Ms. Darlene Wardlaw will be the manager in charge of all work performed for you. She will inform you immediately if we encounter any circumstances that could significantly affect our fee estimate of $750,000 discussed with you on October 17, 2020. She is aware of the due date for the audit report, March 15, 2021. You should feel free to call on her at any time. If the specifications above are in accordance with your understand of the terms of our engagement, kindly sign below and return the duplicate copy to us. We look forward to serving you as independent public accountants. 20 21 22 23 24 25 26 27 28 29 Accepted by /s/Larry Lancaster Date 11/02/2020 B E G H ENGAGEMENT MATERIALITY (Required for all engagements) F Prepared by Reviewed by 2 3 4 5 CLIENT 6 PERIOD ENDED 7 Apollo Shoes December 31, 2020 This completed form must be provided to the engagement quality control reviewer in the planning stage of every audit. Please complete all the cells highlighted in yellow. 8 8 9 9 10 11 PLANNING MATERIALITY CALCULATION Only the current year net income loss) (or other measure) is sigraficantly different from the entaly's historical results would 2-year averaging to obtain nomalized net income (loss) (or other measure) be appropriate 12 Current Year Prior Year 13 PROFIT ORIENTED ENTITIES 14 Net income (loss) Plus (mimas) unusual, non-recuning revenues and 15 expenses, and extraordinary items 16 ADJUSTED NET INCOME (LOSS) 17 18 Adjusted net income (loss) multiplied by: 19 596 20 21 0 0 Current Year 190 0 0 23 TOTAL ASSETS 24 25 Total assets multiplied by: 26 27 28 29 TOTAL REVENUES 30 Plus (mimas) unusual, non-recurring revenues 31 ADJUSTED REVENUES Current Year 28= BENG992288%87%8328m2=%35 33 Total adjusted revenues multiplied by 34 196 35 36 37 JUSTIFICATION OF PLANNING MATERIALITY 38 1. Financial data source (ie, actual, budget. Year end the balance, actual data obtained from client. 39 projection) 40 2. Basis (i.e. normalized ner income, revenue, Adjusted net income 41 total assets, other): 42 Justification: USE THIS BOX TO DOCUMENT AND JUSTIFY WHICH BASIS YOUVE 43 SELECTED 44 45 46 Standard 5% used. 47 3. Percentage of financial data source used: 48 49 50 4. Amount selected (planning materiality) 51 Being that Apollo is a new chest and we were not provided with materiality amounts from the predecessor auditor, we assume that planning materiality is 5% of net income from 2019. 52 5. Prior year's final materiality 53 6. Performance materiality/Tolerable 54 misstatement (750% of planning materiality) 55 7. Listing scope (amount threshold for suggested adjustments) (using 5% to 10% of planning materiality based on expected level of adjustments is usually appropriate) 56 57 500 0