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Week 2 Assignment 1 - week 2 Assignmenfir:1 Integrating...

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Unformatted text preview: week 2 Assignmenfir :1. Integrating Case 5-23 P. 2076 You are a new staff accountant with a large regional CPA firm, participating in your first audit. You recall from your auditing class that CPAs often use ratios to test the reasonableness of accounting numbers provided by the client. Since ratios reflect the relationships among various account balances, if it is assumed that prior relation- ships still hold, prior years’ ratios can be used to estimate what current balances should approximate. However, you never actually performed this kind of analysis until now. The CPA in charge of the audit of Covington Pike Corporation brings you the list of ratios shown below and tells you these reflect the relationships maintained by Covington Pike in recent years. 1- I5, 050 gSWOfit margin on sales = 5% 3' . 5 Return on assets = 7.5% = #6? Tfiofl Ve-Y‘QM +o+ql ass-e-l-‘S J Gross profit margin = 40% . 0: {Inventory turnover ratio = 6 times C Gels / Average. m “Mi-on, Mm XReceivables turnover ratio=25 M-er" Sale}; / AVCF A12 CW) J Acid-testratio=.9 a Quick QSS {xi—5 /CLUFFW natal-114165 j/Current ratio = 2 to 1 = Corner“. 0.6343- 5 I CLUYYW “419‘ “11325 Return on shareholders’ equity = 10% = “64' Imam / Average—C Shareholder): 8C7 - Debttoequitvratm 1/3 12ml waistline: I'Slrnr-choldcr’s e‘iUHY Timesinterestearned ratio=12times ”.4— I E W +In+eres+ Ex +TOI¥CS Interest ex. Jotted in the margins are the following notes: \/ Net income $15,000 I 0 Only one short—term note ($5,000); all other current liabilities are trade accounts I Property, plant, and equipment are the only noncurrent assets 0 Bonds payable are the only noncurrent liabilities ’ o The effective interest rate on short—term notes and bonds is 8% r o No investment securities 3 l n :L'n V _.___ 395 l . Cash balance totals $15,000 {NC 50% (0 Required: IHV. QVEYQQL : Balm 1“". I“ Emil/“Z You are requested to approximate the current year's balances in the form of a balance sheet and | income statement, to the extent the information allows. Accompany those financial statements with the” ‘63 | calculations you use to estimate each amount reported. 0,69 N‘H’I xfl‘e '5 l e. \ sown-fists“ W; W «m9 WM A“ has ‘ rrevd‘ “a LUW'WII. ' ‘5" , SW . (:0 C 5k '1, stake—10' \ \ O (VJ-i Sim-1r jam 1an n+5 T lflmfi _ I2: gnaM‘rrfi rtwmblfiwur '3 a . C1 . g | “inventories, w . OLC' d +es’r farlFIO OLMY wrrw mass-+3 ”Wt tomat- l ‘ . LP ’63 . To-l—al cu VT-EMJ Cassatt-5'. ON“ curl-wt halo: Tl ‘ .u . a . 2 . X» 4 . . 9 Profit margin on sales Return on assets Gross prfot margin Inventory turnover ratio Receivable turnover ratio Acid—test ratio Current ratio Return on Shareholders Equity no . Debt to equity ratio time interst earned ratio W Average days in Inventory ?{0{ H Current maria 15,000 300,000 15,000 200,000 COGS (Begin Inventory + End lnventory)/2 300,000 12,000 Quick assets Current Liabilities Current assets Current Liabilities 15,000 150,000 Total Liabilities Shareholder's Equity 15,000 + Interest Expense + Taxes Interest Expense , CW 365 6 ., '5 — acid—Her mcfio ' C7 1/20 3/40 2/5 6 times 25 9/10 2 to 1 . 5 1/10 1/3 12 times 60.833 ,1 x @ Jinx/airflow 1' Current liabilities . C ( vd'ljoibifaj 0V ~91 t 0639‘?- \§q\o\\ifies + _3J‘GC\’.\r\old€r 50103 W 300 5 2+ Saw as q 9650* "Nmow {ox—Ho W33£5 (heal [4 end v /9_. 09,0 )ronfifer who: we? Sale) :: 500320 a W '9: (a (10615 f {r— ' ._ , noi‘ .an +omov£ (who... m. 1100;?er (wair’lV-t'éafi In“ ’2 _:Qbi[ +333 + 57707775717916.7763 £90775, “0001574153 -;hD‘/’§6%F€C:W~i F5075" R h) 5" 15.)?" 113’! .7 qumm- QSSc-fS’ (cashdrfilafr m0 quber Adm Q33€l$ - Gummy-g! a55£+3 CSQ [66 - C cw ex) - 06 :3 -— 1 n+<ires+ ex - + nfifr 1m 0N Opexofl 0’33 874 , ...
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