Question

Hi, I am doing a preminary analytical procedures for Apollo Shoes.
I have to find a unusual percentage and explain two possible hypotheses for why the change occurred.
I found one that increased prepaid insurace( 361%) ID:14100, but decreased in insurance expense(-96%)ID:68000.
I know this is strange because when prepaid insurance goes up, insurance expense should go up, but I dont' know
how to explain. Would you please help me? Thank you.

					Prepared by
	Apollo Shoes, Inc				Reviewed by
	Trial Balance
		Audited	Unaudited
		2013	2014	Raw Change	Percent Change
Account ID	Account Description	(Audited)	(Unaudited)	(CY-PY)	(Raw Change/PY)
10100	Cash on Hand	$1,987.28	$2,275.23	$287.95	14%
10200	Regular Checking Account	$198,116.52	$557,125.92	$359,009.40	181%
10300	Payroll Checking Account	$0.00	$0.00	$0.00
10400	Savings Account	$3,044,958.13	$3,645,599.15	$600,641.02	20%
11000	Accounts Receivable	$16,410,902.71	$51,515,259.98	$35,104,357.27	214%
11400	Other Receivables	$0.00	$1,250,000.00	$1,250,000.00	100%
11500	Allowance for Doubtful Accounts	($1,262,819.88)	($1,239,009.75)	$23,810.13	-2%
12000	Inventory - Spotlight	$18,825,205.24	$67,724,527.50	$48,899,322.26	260%
12300	Reserve for Inventory Obsolescence	($3,012,000.00)	($846,000.00)	$2,166,000.00	-72%
14100	Prepaid Insurance	$743,314.38	$3,424,213.78	$2,680,899.40	361%
14200	Prepaid Rent	$200,000.00	$0.00	($200,000.00)	-100%
14300	Office Supplies	$7,406.82	$8,540.00	$1,133.18	15%
14400	Notes Receivable-Current	$0.00	$0.00	$0.00
14700	Other Current Assets	$0.00	$0.00	$0.00
15000	Land	$117,000.00	$117,000.00	$0.00	0%
15100	Buildings and Land Improvements	$623,905.92	$674,313.92	$50,408.00	8%
15200	Machinery, Equipment, Office Furniture	$433,217.10	$2,929,097.13	$2,495,880.03	576%
17000	Accum. Depreciation	($164,000.00)	($610,000.00)	($446,000.00)	272%
19000	Investments	$572,691.08	$1,998,780.39	$1,426,089.31	249%
19900	Other Noncurrent Assets	$53,840.59	$53,840.59	$0.00	0%
20000	Accounts Payable	($4,633,118.09)	($1,922,095.91)	$2,711,022.18	-59%
23100	Sales Tax Payable	$0.00	$0.00	$0.00
23200	Wages Payable	($29,470.32)	$0.00	$29,470.32	-100%
23300	FICA Employee Withholding	($1,318.69)	($8,439.65)	($7,120.96)	540%
23350	Medicare Withholding	($583.99)	($11,414.99)	($10,831.00)	1855%
23400	Federal Payroll Taxes Payable	($6,033.01)	($118,086.12)	($112,053.11)	1857%
23500	FUTA Tax Payable	$0.00	$0.00	$0.00
23600	State Payroll Taxes Payable	($2,815.47)	($55,106.86)	($52,291.39)	1857%
23700	SUTA Tax Payable	$0.00	$0.00	$0.00
23800	FICA Employer Withholding	($1,318.69)	($8,439.65)	($7,120.96)	540%
23900	Medicare Employer Withholding	($583.99)	($11,414.99)	($10,831.00)	1855%
24100	Line of Credit	($10,000,000.00)	($44,403,000.00)	($34,403,000.00)	344%
24200	Current Portion Long-Term Debt	$0.00	$0.00	$0.00
24700	Other Current Liabilities	$0.00	$0.00	$0.00
27000	Notes Payable-Noncurrent	$0.00	($12,000,000.00)	($12,000,000.00)
39003	Common Stock	($8,105,000.00)	($8,105,000.00)	$0.00	0%
39004	Paid-in Capital	($7,423,000.00)	($7,423,000.00)	$0.00	0%
39005	Retained Earnings	($2,219,120.65)	($6,590,483.64)	($4,371,362.99)	197%
40000	Sales	($246,172,918.44)	############	$3,459,465.56	-1%
41000	Sales Returns	$4,497,583.20	$11,100,220.89	$6,602,637.69	147%
42000	Warranty Expense	$1,100,281.48	$1,158,128.47	$57,846.99	5%
45000	Income from Investments	$0.00	($1,426,089.31)	($1,426,089.31)
46000	Interest Income	($204,302.81)	($131,881.46)	$72,421.35	-35%
47000	Miscellaneous Income	$0.00	($2,166,000.00)	($2,166,000.00)
50010	Cost of Goods Sold	$141,569,221.61	$130,196,645.26	($11,372,576.35)	-8%
57500	Freight	$4,302,951.46	$4,240,263.09	($62,688.37)	-1%
60000	Advertising Expense	$897,140.01	$1,036,854.01	$139,714.00	16%
61000	Auto Expenses	$208,974.39	$210,502.80	$1,528.41	1%
62000	Research and Development	$31,212,334.17	$528,870.44	($30,683,463.73)	-98%
64000	Depreciation Expense	$133,000.00	$446,000.00	$313,000.00	235%
64500	Warehouse Salaries	$4,633,383.82	$4,720,715.56	$87,331.74	2%
65000	Property Tax Expense	$80,495.32	$99,332.45	$18,837.13	23%
66000	Legal and Professional Expense	$3,605,133.96	$4,913,224.45	$1,308,090.49	36%
67000	Bad Debt Expense	$1,622,425.99	$0.00	($1,622,425.99)	-100%
68000	Insurance Expense	$853,942.65	$36,106.92	($817,835.73)	-96%
70000	Maintenance Expense	$61,136.04	$35,502.87	($25,633.17)	-42%
70100	Utilities	$135,642.99	$137,332.18	$1,689.19	1%
70110	Phone	$76,373.78	$52,599.02	($23,774.76)	-31%
70120	Postal	$128,033.21	$77,803.61	($50,229.60)	-39%
71000	Miscellaneous Office Expense	$17,023.27	$24,891.82	$7,868.55	46%
72000	Payroll Tax Exp	$1,550,989.06	$1,577,811.85	$26,822.79	2%
73000	Pension/Profit-Sharing Plan Ex	$3,000,000.00	$3,300,000.00	$300,000.00	10%
74000	Rent or Lease Expense	$2,603,485.87	$1,206,574.00	($1,396,911.87)	-54%
77500	Administrative Wages Expense	$16,875,305.98	$16,197,225.43	($678,080.55)	-4%
78000	Interest Expense	$875,000.00	$2,591,736.50	$1,716,736.50	196%
78500	Income Tax Expense - Federal	$2,365,000.00	$8,900,000.00	$6,535,000.00	276%
78510	Income Tax Expense - State	$429,000.00	$3,100,000.00	$2,671,000.00	623%
80000	Loss on Legal Settlement	$19,172,000.00	$0.00	($19,172,000.00)	-100%
		$0.00	$0.00

Answer 1

Line of Credit:

24100    Line of Credit     ($10,000,000.00)               ($44,403,000.00)               ($34,403,000.00)               344

Company can adjust their repayment amounts as needed, based on their budget or cash flow. For example, they can repay the entire outstanding balance at once or just make the minimum monthly payments, Sometimes it may happen that due to unavailability of cash either temporarily or permanently to meet the debt due will result in the company need to force the borrower take only certain interest amount or delay the payment to make over. And mainly we have to see whether the going concern is going to effected or not and we cannot decide on this one factor because the debts due is may be due to increase in taking more loans

Here in this case, Company had taken huge loans and compared to last year it is observed that Have huge loans taken this year compared to no loan during last year

Conclusion:

Here We don’t need to worry as Assets of the company are also increased along with the liabilities as company may expanding the business in many areas of scope this year . and It is purchased huge assets on loans this year. The company may defer some loans till the earning of money by utilising the all assets for production or expansion and thereby earning huge amounts by sale of service or merchandise .

Machinery, Equipment, Office Furniture

Machinery, Equipment, Office Furniture               $433,217.10 $2,929,097.13 $2,495,880.03              576%

Analysis: The company goals set at high levels by facing the risk ,the company might be taken this step based on , will growth in the economy or industry may be good or huge bumb in near future through , either to company products or services.

So Company take huge steps towards buying an asset for loans to avail the Opportunities in Upcoming industry or economy by using their strength.

Accum. Depreciation

                Accum. Depreciation      ($164,000.00)     ($610,000.00)     ($446,000.00)     272%

When assets increase automatically Accumulated depreciation also Increases ,the assets during the year increased 576% and accumulated depreciation is increased only 272% ,may be some of the assets may not be ready for intended use,,More or less by end of next year It may reach the same levels

Income Tax Expense:

Company earned huge profits this year as a result have to incurred huge taxes this year