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6-30 (Objective 6-8) The following are various managementassertions (a. through m.) related to sales and accountsreceivable.

Management Assertion

  1. Receivables are appropriately classified as to trade and otherreceivables in the financial statements and are clearlydescribed.

  2. Sales transactions have been recorded in the proper period.

  3. Accounts receivable are recorded at the correct amounts.

  4. Sales transactions have been recorded in the appropriateaccounts.

  5. All required disclosures about sales and receivables have beenmade.

  6. All accounts receivable have been recorded.

  7. Disclosures related to receivables are at the correctamounts.

  8. Sales transactions have been recorded at the correctamounts.

  9. Recorded accounts receivable exist.

  10. Disclosures related to sales and receivables relate to theentity.

  11. Recorded sales transactions have occurred.

  12. There are no liens or other restrictions on accountsreceivable.

  13. All sales transactions have been recorded.

Please answer these questions only.

  1. Explain the differences among management assertions aboutclasses of transactions and events, management assertions aboutaccount balances, and management assertions about presentation anddisclosure.

  2. For each assertion, indicate whether it is an assertion aboutclasses of transactions and events, an assertion about accountbalances, or an assertion about presentation and disclosure.

  3. Indicate the name of the assertion made by management.

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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You have been assigned to the first audit of the Chicago Company
for the year ending March 31, 2013. Accounts receivable were confirmed on December 31,
2012, and at that date the receivables consisted of approximately 200 accounts with
balances totaling $956,750. Fifty of these accounts with balances totaling $650,725 were
selected for confirmation. All but 10 of the confirmation requests have been returned; 24
were returned without any exceptions, 6 had minor differences that have been cleared
satisfactorily, and 10 confirmations had the following information and comments:


1. We are sorry, but we cannot answer your request for confirmation of our account
as the PDQ Company uses an accounts payable voucher system and can only
confirm individual invoices.
2. The balance of $1,050 was paid on December 28, 2012.
3. The balance of $7,750 was paid on January 5, 2013.
4. The balance of $2,975 was paid on December 13, 2012.
5. We do not owe you anything at December 31, 2012, as the goods, represented by
your invoice dated December 30, 2012, number 25050, in the amount of $11,550,
were received on January 5, 2013, on FOB destination terms.
6. An advance payment of $2,500 made by us in November 2012 should cover the two
invoices totaling $1,350 shown on the statement attached.
7. This confirmation was returned as undeliverable by the post office.
8. We are contesting the propriety of this $12,525 charge. We think the charge is
excessive.
9. We do not owe this balance as our agreement with the company allows us to return
any unsold goods without penalty. Amount okay. As the goods have been shipped
to us on consignment, we will remit payment upon selling the goods.
10. Your credit memo dated December 5, 2012, in the amount of $440 cancels the
balance above.


a. Indicate which of these confirmation responses likely represent timing differences.
b. Which of the ten confirmation responses likely represent a misstatement? Explain
why the response indicates a misstatement.
c. For each of the 10 confirmation responses, indicate the procedures you would
perform to determine whether the exception is a misstatement or has been
appropriately recorded by the client.*

(If possible can you please complete in an excel document)

Excel Project Instructions

Assume ABC Company has asked you to not only prepare their 2015 year-end Balance Sheet but to also provide pro-forma financial statements for 2016. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:

End of the year information:

Account

12/31/15

Ending Balance

Cash

50,000

Accounts Receivable

175,000

Inventory

126,00

Equipment

480,000

Accumulated Depreciation

90,000

Accounts Payable

156,000

Short-term Notes Payable

12,000

Long-term Notes Payable

200,000

Common Stock

235,000

Retained Earnings

solve

Additional Information:

Sales for December total 10,000 units. Each month’s sales are expected to exceed the prior month’s results by 5%. The product’s selling price is $25 per unit.

Company policy calls for a given month’s ending inventory to equal 80% of the next month’s expected unit sales. The December 31 2015 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.

Sales representatives’ commissions are 12.5% of sales and are paid in the month of the sales. The sales manager’s monthly salary will be $3,500 in January and $4,000 per month thereafter.

Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.

The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).

All merchandise purchases are on credit, and no payables arise from any other transactions. One month’s purchases are fully paid in the next month.

The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

Dividends of $100,000 are to be declared and paid in February.

No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.

Equipment purchases of $55,000 are scheduled for March.

ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.

Project 1

Project 2

Project 3

Purchase Price

$80,000

$175,000

$22,700

Required Rate of Return

6%

8%

12%

Time Period

3 years

5 years

2 years

Cash Flows – Year 1

$48,000

$85,000

$15,000

Cash Flows – Year 2

$36,000

$74,000

$12,000

Cash Flows – Year 3

$22,000

$38,000

N/A

Cash Flows – Year 4

N/A

$26,800

N/A

Cash Flows – Year 5

N/A

$19,000

N/A

Required Action:

Part A:

Prepare the year-end balance sheet for 2015. Be sure to use proper headings.

Prepare budgets such that the pro-forma financial statements for the first quarter of 2016 may be prepared.

Sales budget, including budgeted sales for April.

Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.

Selling expense budget.

General and administrative expense budget.

Expected cash receipts from customers and the expected March 31 balance of accounts receivable.

Expected cash payments for purchases and the expected March 31 balance of accounts payable.

Cash budget.

Budgeted income statement.

Budgeted statement of retained earnings.

Budgeted balance sheet.

Part B:

Calculate using Excel formulas, the NPV of each of the 3 projects.

It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).

Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.

Tivoli Home Furnishings Mini Case Anders Jensen founded TivoliHome Furnishings as a corporation during mid-2015. Sales during thefirst full year (2016) of operation reached $1.3 million. Salesincreased by 15% in 2017 and another 20% in 2018. However, profits,after increasing in 2017 over 2016, fell sharply in 2018, causingAnders to wonder what was happening to his “pride-and-joy” businessventure. After all, Anders has continued to work as closely aspossible to a 24/7 pace beginning with the startup of Tivoli andthrough the first three full years of operation. Tivoli HomeFurnishings, located in eastern North Carolina, designs,manufactures, and sells Scandinavian-designed furniture andaccessories to home furnishings retailers. The modern Scandinaviandesign has a streamlined and uncluttered look. While this furniturestyle is primarily associated with Denmark, both Norwegian andSwedish designers have contributed to the allure of Scandinavianhome furnishings. Some say that the inspiration for theScandinavian design can be traced to the elegant curves of artnouveau from which designers were able to produce aestheticallypleasing, structurally strong modern furniture. Danish furnishingsand the home furnishings produced by the other Scandinaviancountries––Sweden, Norway, and Finland–– are made using wood(primarily oak, maple, and ash), aluminum, steel, and high-gradeplastics. Anders grew up in Copenhagen, Denmark, and received anundergraduate degree from a technical university in Sweden. As istypical in Europe, Anders began his business career as anapprentice at a major home furnishings manufacturer in Copenhagen.After learning the trade, he quickly moved into a managementposition in the firm. However, after a few years, Anders realizedthat what he really wanted to do was to start and operate his ownScandinavian home furnishings business. At the same time, aftertraveling throughout the world, including the United States, he wassure that he wanted to be an entrepreneur in the United States.Anders moved to the U.S. in early 2015. With $140,000 of hispersonal assets and $210,000 from venture investors, he beganoperations in mid-2015. Anders, with 40% ownership interest andindustry-related management expertise, was allowed to operate theventure in a way that he thought was best for Tivoli. Four yearslater, Anders is sure he did the right thing. Following are thethree years of income statements and balance sheets for Tivoli HomeFurnishings. Anders felt that in order to maintain a competitiveadvantage, he would need to continue to expand sales. After firstconcentrating on selling Scandinavian home furnishings in thenortheast in 2016 and 2017, he decided to enter the west coastmarket. An increase in expenses occurred associated withidentifying, contacting, and selling to home furnishings retailersin California, Oregon, and Washington. Anders Jensen hopes that youcan help him better understand what has been happening to TivoliHome Furnishings from both operating and financial standpoints.  Tivoli Home Furnishings, Inc. Income Statements 2016 2017 2018 Netsales $ 1,300,000 $ 1,500,000 $ 1,800,000 Cost of goods sold780,000 900,000 1,260,000 Gross profit 520,000 600,000 540,000Marketing expenses 130,000 150,000 200,000 General andadministrative 150,000 150,000 200,000 Depreciation expense 40,00053,000 60,000 EBIT 200,000 247,000 80,000 Interest expense 45,00057,000 70,000 Earnings before taxes 155,000 190,000 10,000 Incometaxes (40%) 62,000 76,000 4,000 Net income $ 93,000 $ 114,000 $6,000 Tivoli Home Furnishings, Inc. Balance Sheets 2016 2017 2018Cash $ 50,000 $ 40,000 $ 10,000 Accounts receivable 200,000 260,000360,000 Inventories 450,000 500,000 600,000 Total current assets700,000 800,000 970,000 Fixed assets, net 300,000 400,000 500,000Total assets $1,000,000 $1,200,000 $1,470,000 Accounts payable $130,000 $ 170,000 $ 180,000 Accruals 50,000 70,000 80,000 Bank loan90,000 90,000 184,000 Total current liabilities 270,000 330,000444,000 Long-term debt 300,000 400,000 550,000 Common stock ($10par)* 300,000 300,000 300,000 Capital surplus 50,000 50,000 50,000Retained earnings 80,000 120,000 126,000 Total liabilities andequity $1,000,000 $1,200,000 $1,470,000 * 30,000 shares of commonstock were issued to Anders Jensen and the venture investors whenTivoli Home Furnishings was incorporated in mid-2015.   A.Calculate the current ratio and the quick ratio for each of theyears. What has happened to Tivoli’s liquidity position? CurrentRatio: Quick Ratio: B. Calculate the inventory turnover, days salesin inventory, receivables turnover, and days sales in receivablesfor each of the years and interpret the results. InventoryTurnover: Day Sales in Inventory: Receivables Turnover: Days Salesin Receivables: C. Creditors as well as management are alsoconcerned about the ability of the venture to meet its debtobligations as they come due. For each year, calculate total debt,debt to equity, equity multiplier, and the times interest earnedratios. Interpret your results and explain what has happened toTivoli. Total Debt: Debt to Equity: Equity Multiplier: Total Assets/Total Equity (Assets – Liabilities) Times Interest Earned Ratios:D. Of importance to Anders and the venture investors is theprofitability of the venture. Calculate the profit margin, ROA, andROE for each year and describe what is happening to theprofitability of Tivoli Home Furnishings. E. Anders and the ventureinvestors are also interested in how efficiently Tivoli is able toconvert the firm’s total assets into sales. Calculate the totalasset turnover ratio for each year and interpret. F. Perform a DuPont decomposition for each year and provide an interpretation ofyour findings. G. Trade association data show an average profitmargin of 6.5 percent, a sales to asset ratio of 1.3 times, and atotal debt ratio of 55 percent over the 2016-2018 period. Comparethe components of the Du Pont analysis with the industry averages –compare each component, as well as the product of the components.How does Tivoli compare with the rest of the industry? H. What isgoing on with Tivoli and what is the likely solution?

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