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Use the information below to perform analytical procedures on ALL of Waren?s income statement accounts




Part 3: Use the information below to perform analytical procedures on ALL of Waren?s income statement accounts. While there is some flexibility in how you can develop expectations for EACH account, you must use each of the three primary methods discussed in class (trends, ratios, and reasonableness) at least once in your analysis. Make sure to highlight any discrepancies you feel are material and warrant further investigation. Select from your analyses one account you feel deviates materially from expectations and investigate the discrepancy appropriately. For your investigation, I play the role of Ray Kramer, so you should direct your questions to me?in my office?as part of your investigation. Once you have an explanation, describe some substantive evidence you could gather to test it.;Use Excel to complete your analyses. In all cases, make sure you clearly show how you develop your expectations. Also, make sure you clearly and adequately document your investigation.;Additional information that might be useful includes the following;1. Waren sold 19,350 items this year (net of returns). They sold 19,610 items last year (net of returns).;2. Jim Adams worked 2100 hours of regular time this year and 194 hours of overtime. Nancy Ford worked 383 hours of regular time this year and 6 hours of overtime.;3. The average effective tax rate in the industry is 21%.;4. The average market interest rate on CDs during the year was 5%.;?;Waren Sports Supply;Income Statement;Year ended December 31, 2012;Revenue;Sales 1,610,450;Less;Sales Returns & Allowances 61,225;Sales Discounts Taken 16,002;Net Sales 1,533,223;Cost of Goods Sold 1,141,100;Gross Margin 392,123;Operating Expenses;Rent expense 55,800;Advertising expense 26,229;Office Supplies expense 5,644;Depreciation expense 33,821;Wages and salaries 138,400;Payroll taxes 11,300;Bad debt expense 3,833;Other operating expense 28,174;Total Operating Expenses 303,201;Operating Income 88,922;Other Income and Expenses 0;Income Before Taxes 88,922;Income Tax Expense 18,762;Net Income 70,160;2013 Income Statement;REVENUE;Sales $1,588,571.00;Less: Sales returns and allowances 61,111.00;Sales discounts taken 15,405.82;Net sales 1,509,054.18;COST OF GOODS SOLD;Beginning inventory 101,681.00;Net purchases 1,096,859.60;Freight-in 24,642.69;Goods available for sale 1,223,181.29;Less: Ending inventory 198,296.00;Cost of goods sold 1,021,703.04;GROSS MARGIN 487,351.14;OPERATING EXPENSES;Rent expense 57,600.00;Advertising expense 21,905.00;Office supplies expense 5,621.45;Depreciation expense 35,109.50;Wages and salaries 141,563.97;Payroll taxes 11,568.80;Bad debt expense 3373.31;Other operating expense 29,287.75;Total operating expenses 306,030.78;Operating income 148,138.11;OTHER INCOME - Miscellaneous income 825.00;OTHER EXPENSE - Interest expense 197.26;INCOME BEFORE TAXES 181,320.36;FEDERAL INCOME TAXES 51,741.50;NET INCOME 129,578.


Paper#20436 | Written in 18-Jul-2015

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