AUDITING II QUIZ 1 Score Name Section Essay Question (10 points). You are planni

Question

AUDITING II QUIZ 1 Score Name Section Essay Question (10 points). You are planning the audit of Buchanan, Inc., a publicly traded company that develops and markets products used in the prevention and treatment of infectious discases. Buchanan markets two products and has eight new product candidates in various stages of development. The following information for the current year is available to the auditor. All credit sales terms are 30 days. BUCHANAN, INC. LIST OF FINANCIAL ITEMS AND THEIR RELATED BALANCES Average Accounts Receivable Average Inventory Average Total Assets Total Assets Cost of Goods Sold Current Assets Current Liabilities Total Liabilities Interest Expense Income Tax Expense 5,600,000 6,100,000 110,600,000 115,000,000 19,700,000 50,800,000 19,500,000 72,500,000 2,200,000 1,300,000 25,900,000 900,000 Net Sales Net Income (Loss)

Explanation / Answer

The ratio's are below:
Profitability ratios:
1)net profit(%)=net income/sales
=900000/25900000
=3.475
2)Return on equity= net income/equity
equity=assets-liabilites
=115000000-72500000
=42500000
=900000/42500000
=2.12%
3)Gross profit(%)=(sales-cogs)/sales
=(25900000-19700000)/25900000
=23.94%

Liquidity ratio:
4)Current ratio=current assets/current liabiltes
=50800000/19500000
=2.61

Turnover ratios:
5)Acc receivable turover= sales/acc rec
=25900000/5600000
=4.63
6)Inventory turnover=cogs/avg inv
=19700000/6100000
=3.23
7)Asset turnover=sales/assets
=25900000/115000000
=0.23

solvency ratios:
8)debt ratio=debt/assets
=72500000/115000000
=63.04%

All the ratios;s caluclated can not be commented directly as we do not have last year numbes or
The current ratio is above 2 which is a good sign and the debt ratio of more than 50% means it is highlt leveraged

2)The additioanl audit requirement are supporting documents for account receivable,sales,incentory and others

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