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ou are an auditor. Please identify 3 unaudited financial statement items for 2023 that you consider to have the highest risk of material misstatement. Explain in detail why they are higher risk,

ou are an auditor. Please identify 3 unaudited financial statement items for 2023 that you consider to have the highest risk of material misstatement. Explain in detail why they are higher risk,

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You are an auditor. Please identify 3 unaudited financial statement items for 2023 that you consider to have the highest risk of material misstatement. Explain in detail why they are higher risk,

CONSOLIDATED STATEMENTS OF INCOME (in USD) 2022 (audited) 278,481,969 Net sales Cost of sales Gross margin Selling and shipping expenses General and administrative expenses Income from operations Interest - net Earnings before income taxes Income taxes Net earnings ASSETS Cash Accounts receivable, gross Allowance for bad debt Inventories Prepaid expenses and other current assets Deferred income taxes net OTHER ASSETS TOTAL ASSETS TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT, CONSOLIDATED BALANCE SHEETS (in USD) 2022 (audited) LIABILITIES Accounts payable Current portion of capital leases Mortgage payable - current Income taxes payable Accrued expenses and other current liabilities TOTAL CURRENT LIABILITIES DEFERRED INCOME TAXES REVOLVING CREDIT LOAN SUBORDINATED DEBT LONG-TERM CAPITAL LEASES MORTGAGE PAYABLE OTHER LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY Common stock Additional paid-in capital Retained earnings Treasury stock TOTAL SHAREHOLDERS' EQUITY 2021 (audited) 176,281,035 (146,351,545) (232,932,864) 29,929,490 45,549,105 (14,045,503) (21,892,885) (4,421,124) (6,913,721) (18,466,627) (28,806,606) TOTAL LIABILITIES AND EQUITY 11,462,863 (4,328,838) 7,134,025 (2,926,000) 4,208,025 2021 (audited) 358,214 950,121 36,577,832 63,097,198 (570,290) (770,290) 35,918,720 51,630,343 596,023 755,067 228,000 89,000 73,108,499 115,751,439 7,085,948 7,181,208 16,742,499 (5,920,618) 10,821,881 (4,437,000) 6,384,881 1,804,528 2,027,069 81,998,975 124,959,716 12,123,099 550,761 49,220 1,710,000 2,409,839 1,715,327 868,468 61,488,313 13,989,065 609,690 53,574 16,842,919 1,120,000 30,441,599 65,887,000 10,500,000 10,500,000 1,105,637 814,920 1,539,000 3,743,917 19,935,246 749,000 98,991,803 46,555 11,365,207 15,998,771 2023 (unaudited) 420,363,142 81,998,975 124,959,716 (355,409,651) 64,953,491 (31,360,045) (8,770,662) (40,130,707) 24,822,784 (10,033,104) 14,789,680 (5,916,000) 8,873,680 2023 (unaudited) 609,527 102,652,554 (770,290) 74,514,662 985,627 308,000 178,300,080 10,560,513 1,551,696 190,412,289 26,434,121 510,155 57,785 2,587,759 4,720,335 45,988 58,679 11,247,154 19,444,319 9,613,890 24,872,451 (396,370) (1,442,620) (1,547,620) 20,510,662 25,967,913 42,827,829 34,310,155 780,900 99,265,262 10,500,000 595,481 757,661 1,375,001 147,584,460 190,412,289
Transcribed Image Text:CONSOLIDATED STATEMENTS OF INCOME (in USD) 2022 (audited) 278,481,969 Net sales Cost of sales Gross margin Selling and shipping expenses General and administrative expenses Income from operations Interest - net Earnings before income taxes Income taxes Net earnings ASSETS Cash Accounts receivable, gross Allowance for bad debt Inventories Prepaid expenses and other current assets Deferred income taxes net OTHER ASSETS TOTAL ASSETS TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT, CONSOLIDATED BALANCE SHEETS (in USD) 2022 (audited) LIABILITIES Accounts payable Current portion of capital leases Mortgage payable - current Income taxes payable Accrued expenses and other current liabilities TOTAL CURRENT LIABILITIES DEFERRED INCOME TAXES REVOLVING CREDIT LOAN SUBORDINATED DEBT LONG-TERM CAPITAL LEASES MORTGAGE PAYABLE OTHER LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY Common stock Additional paid-in capital Retained earnings Treasury stock TOTAL SHAREHOLDERS' EQUITY 2021 (audited) 176,281,035 (146,351,545) (232,932,864) 29,929,490 45,549,105 (14,045,503) (21,892,885) (4,421,124) (6,913,721) (18,466,627) (28,806,606) TOTAL LIABILITIES AND EQUITY 11,462,863 (4,328,838) 7,134,025 (2,926,000) 4,208,025 2021 (audited) 358,214 950,121 36,577,832 63,097,198 (570,290) (770,290) 35,918,720 51,630,343 596,023 755,067 228,000 89,000 73,108,499 115,751,439 7,085,948 7,181,208 16,742,499 (5,920,618) 10,821,881 (4,437,000) 6,384,881 1,804,528 2,027,069 81,998,975 124,959,716 12,123,099 550,761 49,220 1,710,000 2,409,839 1,715,327 868,468 61,488,313 13,989,065 609,690 53,574 16,842,919 1,120,000 30,441,599 65,887,000 10,500,000 10,500,000 1,105,637 814,920 1,539,000 3,743,917 19,935,246 749,000 98,991,803 46,555 11,365,207 15,998,771 2023 (unaudited) 420,363,142 81,998,975 124,959,716 (355,409,651) 64,953,491 (31,360,045) (8,770,662) (40,130,707) 24,822,784 (10,033,104) 14,789,680 (5,916,000) 8,873,680 2023 (unaudited) 609,527 102,652,554 (770,290) 74,514,662 985,627 308,000 178,300,080 10,560,513 1,551,696 190,412,289 26,434,121 510,155 57,785 2,587,759 4,720,335 45,988 58,679 11,247,154 19,444,319 9,613,890 24,872,451 (396,370) (1,442,620) (1,547,620) 20,510,662 25,967,913 42,827,829 34,310,155 780,900 99,265,262 10,500,000 595,481 757,661 1,375,001 147,584,460 190,412,289
CONSOLIDATED STATEMENTS OF CASH FLOWS (in USD) 2021 2022 (audited) (audited) 4,208,025 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings Adjustments: Depreciation and amortization Provision for doubtful accounts Deferred income tax provision (recovery) Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets Prepaid income taxes Other assets Accounts payable Income taxes payable Accrued expenses and other current liabilities Other liability Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchase of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit loan Repayment of revolving credit loan Principal payments of mortgage Principal payments of capital leases Proceeds from public offering (net) Proceeds from exercise of stock options Acquisition of treasury stock Net cash provided by financing activities NET INCREASE (DECREASE) IN CASH CASH, beginning of year CASH, end of year 876,875 1,431,340 100,000 200,000 122,000 (232,000) 6,384,881 1,710,000 (171,000) 944,619 1,334,078 (187,100) (12,867,732) (26,519,366) (39,555,356) (7,406,790) (15,711,623) (22,884,319) 92,094 (159,044) (230,560) 235,348 (371,770) (1,072,541) 4,653,677 1,865,966 (7,703,654) (32,649,309) 4,167 (396,370) 8,239,248 (131,676) 489,890 358,214 2023 (unaudited) 8,873,680 1,330,042 (667,270) (676,600) (4,084,347) (667,270) (676,600) (4,084,347) 118,620 (1,046,250) 33,917,816 54,302,599 85,920,000 144,934,999 (45,123,000) (50,474,599) (111,556,737) (47,182) (49,194) (53,048) (500,966) (550,761) (609,691) 591,907 358,214 950,121 (149,627) 12,445,056 1,048,759 976,418 1,375,001 (36,958,006) 7,974,161 117,075 (105,000) 40,701,759 (340,594) 950,121 609,527 You are an auditor for this company. Please Identify 3 high risk accounts and explain why they're risky.
Transcribed Image Text:CONSOLIDATED STATEMENTS OF CASH FLOWS (in USD) 2021 2022 (audited) (audited) 4,208,025 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings Adjustments: Depreciation and amortization Provision for doubtful accounts Deferred income tax provision (recovery) Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets Prepaid income taxes Other assets Accounts payable Income taxes payable Accrued expenses and other current liabilities Other liability Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchase of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit loan Repayment of revolving credit loan Principal payments of mortgage Principal payments of capital leases Proceeds from public offering (net) Proceeds from exercise of stock options Acquisition of treasury stock Net cash provided by financing activities NET INCREASE (DECREASE) IN CASH CASH, beginning of year CASH, end of year 876,875 1,431,340 100,000 200,000 122,000 (232,000) 6,384,881 1,710,000 (171,000) 944,619 1,334,078 (187,100) (12,867,732) (26,519,366) (39,555,356) (7,406,790) (15,711,623) (22,884,319) 92,094 (159,044) (230,560) 235,348 (371,770) (1,072,541) 4,653,677 1,865,966 (7,703,654) (32,649,309) 4,167 (396,370) 8,239,248 (131,676) 489,890 358,214 2023 (unaudited) 8,873,680 1,330,042 (667,270) (676,600) (4,084,347) (667,270) (676,600) (4,084,347) 118,620 (1,046,250) 33,917,816 54,302,599 85,920,000 144,934,999 (45,123,000) (50,474,599) (111,556,737) (47,182) (49,194) (53,048) (500,966) (550,761) (609,691) 591,907 358,214 950,121 (149,627) 12,445,056 1,048,759 976,418 1,375,001 (36,958,006) 7,974,161 117,075 (105,000) 40,701,759 (340,594) 950,121 609,527 You are an auditor for this company. Please Identify 3 high risk accounts and explain why they're risky.
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