9 36 Objectives 9 2 9 3 9 6 9 7 9 8 Pamela Albright is the manager of the audit

9 36 objectives 9 2 9 3 9 6 9 7 9 8 pamela albright

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9-36 (Objectives 9-2, 9-3, 9-6, 9-7, 9-8) Pamela Albright is the manager of the audit of Stanton Enterprises, a public company that manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2011 audit and is considering an appropriate amount for planning materiality, what tolerable misstatement should be allocated to the financial statement accounts, and the appropriate inherent risks. Summary financial
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284 FIGURE 9-8 Stanton Enterprises Summary Financial Statements Balance Sheet Preliminary 12-31-11 Audited 12-31-10 133,981 2,224,921 (215,000) 3,888,400 24,700 6,057,002 9,922,534 (3,775,911) 6,146,623 345,000 $12,548,625 $ Inventories 4,520,902 Cash
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Trade accounts receivable Allowance for uncollectible accounts 243,689 3,544,009 $ Prepaid expenses Total current assets Property, plant, and equipment: At cost Less accumulated depreciation Total prop., plant, and equipment 29,500 8,218,100 12,945,255 (4,382,990) 8,562,265 (120,000) Goodwill 1,200,000
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Total assets Accounts payable Bank loan payable Accrued liabilities Federal income taxes payable Current portion of long-term debt Total current liabilities Long-term debt Stockholders’ equity: Common stock Additional paid-in capital Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity $17,980,365 $ $17,980,365 2,141,552 150,000 723,600
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1,200,000 240,000 4,455,152 960,000 1,250,000 2,469,921 8,845,292 12,565,213 $ $12,548,625 2,526,789 — 598,020 1,759,000 240,000 5,123,809 1,200,000 1,000,000 1,333,801 3,891,015 6,224,816 Combined Statement of Income and Retained Earnings Sales Cost of goods sold
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Gross profit Selling, general, and administrative expenses Pension cost Interest expense Total operating expenses Income before taxes Income tax expense Net income Beginning retained earnings Dividends declared Ending retained earnings Preliminary 12-31-11 $ 43,994,931 24,197,212 19,797,719 10,592,221 1,117,845 83,376 11,793,442
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8,004,277 1,800,000 6,204,277 3,891,015 10,095,292 (1,250,000) $ 8,845,292 Audited 12-31-10 $32,258,015 19,032,229 13,225,786 8,900,432 865,030 104,220 9,869,682 3,356,104 1,141,000 2,215,104 2,675,911 4,891,015 (1,000,000) $ 3,891,015 statement information is shown in Figure 9-8. Additional relevant planning information is summarized next. Stanton has been a client for 4 years, and Albright’s firm has always had a good rela- tionship with the company. Management and the accounting people have always been cooperative, honest, and positive about the audit and financial reporting. No material misstatements were found in the prior year’s audit. Albright’s firm has monitored the relationship carefully, because
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when the audit was obtained, Leonard Stanton, the CEO, had the reputation of being a “high- flyer” and had been through bankruptcy at an earlier time in his career. Chapter 9 / MATERIALITY AND RISK 285 FIGURE 9-9 Stanton runs the company in an autocratic way, primarily because of a somewhat controlling personality. He believes that it is his job to make all the tough decisions. He delegates responsibility to others but is not always willing to delegate a commen- surate amount of authority. The industry in which Stanton participates has been in a favorable cycle the past few years and that trend is continuing in the current year. Industry profits are reasonably favorable, and there are no competitive or other apparent threats on the horizon.
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