Auditing: Revenue and Expense Forecast Essay

802 Words Apr 22nd, 2013 4 Pages
ACC 235: Auditing
EXHIBIT 4.53
Dunder-Mifflin, Inc., Prior Year (Audited),
Forecast Current Year, Current Year Actual (Unaudited)

Prior year Forecast Current Year
Revenue and Expense:

Sales (net) $9,000,000 $9,900,000 $9,720,000
Cost of Goods Sold 6,296,000 6,926,000 7,000,000
Gross Margin 2,704,000 2,974,000 2,720,000
General Expense 2,044,000 2,000,000 2,003,000
Depreciation 300,000 334,000 334,000
Operating Income $360,000 $640,000 $383,000
Interest Expense 60,000 110,000 75,000
Income Taxes (40%) 120,000 212,000 123,200
Net Income $180,000 $318,000 $184,800

Assets:
Cash $600,000 $880,000 $690,800
Accounts Receivable 500,000 600,000 900,000
Allowance for Doubtful
…show more content…
Since Dunder-Mifflin planned to sell stock for
permanent financing, the bank made the loan due on December 31 of the following year. Interest is
payable each calender quarter on October 1 of the current year, and January 1, April 1, July 1,
October 1, and December 31 of the following year.
The auditors' interviews with Dunder-Mifflin's management near the end of the current year produced
the following information: The facilities did not cost as much as previously anticipated. However, sales
were slow and the company granted more liberal return privilege terms than in the prior year. Officers
wanted to generate significant income to impress First Bank and to preserve the company dividend
($120,000 paid in the prior year).The production managers had targeted inventory levels for a 4.0 turnover
ratio and were largely successful even though prices of materials and supplies had risen about 2 percent
relative to sales dollar volume. The new facilities were depreciated using a 25-year life from the date of
opening.
Dunder-Mifflin has now produced the current-year financial statements (Exhibit 4.53, column
labeled "current year") for the auditors' work on the current audit.


Required:
Perform preliminary analytical procedures analysis on the current-year unaudited financial
statements for the purpose of identifying accounts that you want to investigate…

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