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Judy Beasley November 22, 2011 AC503-02 Textbook Assignments Comprehensive Questions Chapter 14 14-26 Analytical Procedures 1) A) Sales to Total Assets Sales / Average Total Assets 20X7 = \$21,200 / 15,700 20X8 = \$27,500 / 19,500 20X9 = \$35,200 / 23,000 1.35 1.41 1.53 B) Sales to Production Sales / Production in Units 20X7 = \$21,200 / 300,000 20X8 = \$27,500 / 400,000 20X9 = \$35,200 / 450,000 0.07 0.07 0.08 C) Revenue per Unit Sold Revenues / Inventory in Units 20X7 = \$21,200 / 21,000 20X8 = \$27,500 / 28,000 20X9 = \$35,200 / 32,000 1.01 0.98 1.1 D) Accounts Receivable growth to Sales Growth ((Accounts Receivable t / Accounts Receivable t-1) -1) / ((Sales t / Sales t-1) -1) 1. Accounts Receivable Growth 20X7 = N/A 20X8 = 400 / 4300 20X9 = 1600 / 5900 N/A 0.09 0.27 2. Sales Growth 20X7 = N/A 20X8 = 6300 / 27500 20X9 = 3500 / 23000 N/A 0.23 0.15 Accounts Receivable Growth to Sales Growth 20X7 = N/A 20X8 = 0.09 / 0.23 20X9 = 0.27 / 0.15 N/A 0.39 1.80 E) Uncollectable Accounts expense to Net credit Sales Uncollectable Accounts Expense / Net Sales 20X7 = \$105 / 21,200 20X8 = \$135 / 27,500 20X9 = \$175 / 35,200 0.005 0.005 0.005 F) Uncollectable Accounts Expense to Accounts Receivable Written Off Uncollectable Accounts Expense / Actual Accounts Receivable write offs 20X7 = \$105 / 100 20X8 = \$135 / 125 20X9 = \$175 / 165 1.05 1.08 1.06 G) Accounts Receivable turn days Average Accounts Receivable / Sales *365 1. Calculate the Average Sales per Day Credit Sales or Net Sales / 365 20X7 = 21,200 / 365 20X8 = 27,500 / 365 20X9 = 35,200 / 365 58.08 75.34 96.44 2. Calculate the Average Collection Period Accounts Receivable / Average Sales per day 20X7 = 3900 / 58.08 20X8 = 4300 / 75.34 20X9 = 5900 / 96.44 67.15 57.07 61.18 3. Accounts Receivable turnover The number of days a year / the average collection period 20X7 = 365 / 67.15 20X8 = 365 / 57.07 20X9 = 365 / 61.18 5.44 6.40 5.97 2a) The implications of the resulting ratios for the auditors audit strategy for year 20X9 are so the auditor will be able to assess the reasonableness of the different accounts. This is also so the auditor would have a sufficient understanding to be able to (1) identify the types of potential misstatements, (2) consider the factors that affect the risks of material misstatements, and (3) design the substantive test that need to be done. b) The specific audit objectives that are likely to be misstated would be the 20X9 Accounts Receivable Growth to Sales Growth it is larger than 1.08 that indicates that receivables are growing faster than sales, therefore larger ratios also indicate possible collection problems. Even with the turnover rate for Accounts Receivable in 20X8 may also indicate collection problems. ... View Full Document

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