1. Horizontal Analysis of the Income Statement

   Income statement data for Winthrop Company for two recent years ended December 31, are as follows:

   	Current Year			Previous Year
   Sales	$800,000			$640,000
   Cost of goods sold	676,500			550,000
   Gross profit	$123,500			$90,000
   Selling expenses	$35,650			$31,000
   Administrative expenses	31,980			26,000
   Total operating expenses	$67,630			$57,000
   Income before income tax	$55,870			$33,000
   Income tax expenses	22,300			13,200
   Net income	$33,570			$19,800

   a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.

   Winthrop Company
   Comparative Income Statement
   For the Years Ended December 31
   	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
   Sales	$800,000	$640,000	$	%
   Cost of goods sold	676,500	550,000		%
   Gross profit	$123,500	$90,000	$	%
   Selling expenses	$35,650	$31,000	$	%
   Administrative expenses	31,980	26,000		%
   Total operating expenses	$67,630	$57,000	$	%
   Income before income tax	$55,870	$33,000	$	%
   Income tax expense	22,300	13,200		%
   Net income	$33,570	$19,800	$	%

   Feedback

   b. The net income for Winthrop Company increased between years. This increase was the combined result of an

   • increase
   • decrease
   in sales and
   • higher
   • lower
   percentage
   • increase
   • decrease
   in cost of goods sold. The cost of goods sold increased at a
   • slower
   • faster
   rate than the increase in sales, thus causing the percentage increase in gross profit to be
   • greater
   • less
   than the percentage increase in sales.

The adjusted trial balance for Tybalt Construction as of December 31, 2018, follows.

The December 31, 2017, credit balance of the Retained Earnings account was $123,300. Tybalt Construction is required to make a $7,000 payment on its long-term notes payable during 2019.

Required:
1a. Prepare the income statement for the calendar-year 2018.
1b. Prepare the statement of retained earnings for the calendar-year 2018.
1c. Prepare the classified balance sheet at December 31, 2018.
2. Prepare the necessary closing entries at December 31, 2018.
3. Use the information in the financial statements to compute the following ratios:

The adjusted trial balance for Tybalt Construction as of December 31, 2018, follows.

The December 31, 2017, credit balance of the Retained Earnings account was $123,300. Tybalt Construction is required to make a $7,000 payment on its long-term notes payable during 2019.

Required:
1a. Prepare the income statement for the calendar-year 2018.
1b. Prepare the statement of retained earnings for the calendar-year 2018.
1c. Prepare the classified balance sheet at December 31, 2018.
2. Prepare the necessary closing entries at December 31, 2018.
3. Use the information in the financial statements to compute the following ratios:

Use the information in the financial statements to compute the following ratios:

Prepare the classified balance sheet at December 31, 2018.

The adjusted trial balance for Tybalt Construction as of December 31, 2017, follows.

O. Tybalt invested $7,500 cash in the business during year 2017 (the December 31, 2016, credit balance of the O. Tybalt, Capital account was $123,800). Tybalt Construction is required to make a $6,500 payment on its long-term notes payable during 2018.
  
Required:
1a. Prepare the income statement for the calendar-year 2017.
1b. Prepare the statement of owner's equity for the calendar-year 2017.
1c. Prepare the classified balance sheet at December 31, 2017.
2. Prepare the necessary closing entries at December 31, 2017.
3. Use the information in the financial statements to compute the following ratios:

Ball Construction Corporation

You are the audit senior of Ball Construction Corporation (BC), a small public company that enters into construction contracts with individuals and developers and builds to their specifications. BC is a Canadian company, but recently opened a branch in the southwestern United States.

It is September and the audit fieldwork for this year's audit engagement has just been completed. You are in the process of finalizing the audit file. The following is documented in the audit file:

Risk Assessment

Although BC's audit is recurring and we are familiar with its operations and systems, we determined that the audit risk for this year has increased from medium to high. There are three main reasons for the change:

• •Recent declines and instability in the U.S. housing market have created a high-credit-risk situation.
• •BC's controller left in March 2020, and the position had not been filled by year end.
• •The bank increased the interest rate on the company's operating line during the year, suggesting that it views BC as a higher risk than before.

Audit Approach

No information systems issues were noted in prior years. While we identified isolated control weaknesses in this year's review of the systems, overall the controls appear reliable. We will use a combined approach, and, because of the increased risk, we will increase the amount of substantive work.

Materiality

Planning materiality was set at $242,000.

• 1.Internal control
  • (a)When the controller left, the finance department staff took on additional duties. We noted that during the latter part of the year, the same individual was creating purchase orders, entering invoices into the system, and preparing the cheque runs. The CFO said the situation was unavoidable, and noted that the accounting manager reviewed the cheque runs and prepared the bank reconciliations.
  • (b)We noted that many journal entries had not been approved. The CFO said that he trained most of the employees responsible for the entries, so he knows what the entries are for. He also said, “Our management review of reports and financial statements would uncover any incorrect entries.”
  • (c)The CFO relies on senior management to review, approve, and sign reports generated by the finance department, such as the costing report by project. Testing of a sample of reports indicated that most reports had been appropriately approved. However, some reports were found on a construction manager's desk. When asked about them, she explained, “I'm so busy managing the jobs that I have that I haven't had time yet to look them over.” The signed reports were given to the audit team the next day and the audit testing was completed.
• 2.Accounts receivable and allowance for doubtful accounts

We sent confirmations to a sample of accounts receivable and noted the following issues based on the responses received:

• •One confirmation was returned stating that a receivable balance, related to a $1,542,000 contract, was overstated based on the progress report. Upon examination of the relevant report, we noted that a transposition error had occurred (86 percent completion was used when it should have been 68 percent). This represents a known error of $277,560. The CFO agreed that it was an error but was satisfied that this was an isolated issue and would normally have been caught by the supervisor's review. The CFO does not want to adjust for this error.
• •The CFO was quite adamant that no adjustments be made to the financial statements, declaring that “the statements fairly and accurately represent the financial situation of BC.”

Required

a.  

What type of audit report should be prepared, assuming the CFO does not change his position? Discuss.

b.  

Prepare the draft management letter.

The adjusted trial balance for Tybalt Construction as of December 31, 2019, follows.

O. Tybalt invested $6,000 cash in the business in exchange for common stock during year 2019. The December 31, 2018, credit balance of the Retained Earnings account was $126,700.  

Required:
1a. Prepare the income statement for the calendar-year 2019.
1b. Prepare the statement of retained earnings for the calendar-year 2019.
1c. Prepare the classified balance sheet at December 31, 2019.
2. Prepare the necessary closing entries at December 31, 2019.

On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,225,000. During 2021, costs of $2,090,000 were incurred, with estimated costs of $4,090,000 yet to be incurred. Billings of $2,608,000 were sent, and cash collected was $2,340,000.

In 2022, costs incurred were $2,608,000 with remaining costs estimated to be $3,735,000. 2022 billings were $2,858,000, and $2,565,000 cash was collected. The project was completed in 2023 after additional costs of $3,890,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time.

Required:
1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.

The adjusted trial balance for Tybalt Construction as of December 31, 2015, follows.

TYBALT CONSTRUCTION
Adjusted Trial Balance
December 31, 2015
No.   Account Title   Debit   Credit
101   Cash      $   5,000                 
104   Short-term investments         23,000                 
126   Supplies         8,100                 
128   Prepaid insurance         7,000                 
167   Equipment         40,000                 
168   Accumulated depreciation—Equipment                  $   20,000     
173   Building         150,000                 
174   Accumulated depreciation—Building                     50,000     
183   Land         55,000                 
201   Accounts payable                     16,500     
203   Interest payable                     2,500     
208   Rent payable                     3,500     
210   Wages payable                     2,500     
213   Property taxes payable                     900     
233   Unearned professional fees                     7,500     
251   Long-term notes payable                     67,000     
301   O. Tybalt, Capital                     126,400     
302   O. Tybalt, Withdrawals         13,000                 
401   Professional fees earned                     97,000     
406   Rent earned                     14,000     
407   Dividends earned                     2,000     
409   Interest earned                     2,100     
606   Depreciation expense—Building         11,000                 
612   Depreciation expense—Equipment         6,000                 
623   Wages expense         32,000                 
633   Interest expense         5,100                 
637   Insurance expense         10,000                 
640   Rent expense         13,400                 
652   Supplies expense         7,400                 
682   Postage expense         4,200                 
683   Property taxes expense         5,000                 
684   Repairs expense         8,900                 
688   Telephone expense         3,200                 
690   Utilities expense         4,600                 
      

   

    Totals      $   411,900         $   411,900     
      

   

  
O. Tybalt invested $5,000 cash in the business during year 2015 (the December 31, 2014, credit balance of the O. Tybalt, Capital account was $121,400). Tybalt Construction is required to make a $7,000 payment on its long-term notes payable during 2016.
  
Required:
1.1  
Prepare the income statement for the calendar year 2015.
      

1.2  
Prepare the statement of owner's equity for the calendar year 2015.
      
  

  
1.3  
Prepare the classified balance sheet at December 31, 2015.
      
  

  
2.   Prepare the necessary closing entries at December 31, 2015.
      
    Closing entries (all dated December 31, 2015):
      

  
3.  
Use the information in the financial statements to compute the following ratios:
      
  

This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.Next

The adjusted trial balance for Tybalt Construction as of December 31, 2017, follows.

O. Tybalt invested $8,000 cash in the business during year 2017 (the December 31, 2016, credit balance of the O. Tybalt, Capital account was $123,300). Tybalt Construction is required to make a $6,500 payment on its long-term notes payable during 2018.
  
Required:
1a. Prepare the income statement for the calendar-year 2017.
1b. Prepare the statement of owner's equity for the calendar-year 2017.
1c. Prepare the classified balance sheet at December 31, 2017.
2. Prepare the necessary closing entries at December 31, 2017.
3. Use the information in the financial statements to compute the following ratios:
  

Require filling out worksheet templet.*-

You are the accountant for Smart Construction Company, a large construction company in Colorado. You have been presented with the following financial information for Smart and asked to prepare the Statement of Cash Flows for the year ended June 30, 2017. You will complete all work for the project in this excel file, which includes the following tabs: 1. Facts - Information taken from Smart's accounting records and additional information regarding the cash flows as of June 30, 2017. 2. Worksheet - Worksheet template (also see Example 21.3a in text). 3. Cash Flows - Statement of Cash Flows template (also see Example 21.3b in text). Account Balances June 30, 2016 June 30, 2017 Debits Cash $361,700 $880,550 Accounts Receivable 100,000 125,000 Marketable Securities (at cost) 11,700 13,000 Allowance for Change in Value 1,500 1,800 Construction in Process 168,750 405,000 Prepaid Expenses 45,000 10,000 Investments (long-term) - 13,500 Leased Equipment - 20,000 Building 30,000 - Deferred tax asset 5,375 2,200 Land 10,500 10,500 Discount on Bonds Payable - 1,305 Totals 734,525 1,482,855 Credits Allowance for doubtful accounts $6,000 $4,500 Accounts Payable 87,500 210,000 Deferred tax liability 1,000 3,300 Income Taxes Payable 3,500 9,000 Note Payable (long-term) 3,500 - Accumulated Depreciation on Building 2,500 - Accumulated Depreciation on Leased Asset - 3,000 Lease obligation - 18,000 Interest payable on lease obligation - 1,800 Interest payable (Bonds) - 1,800 Bonds payable - 45,000 Billings on contruction in process 150,000 325,000 Pension liability 150,000 400,000 Convertible preferred stock, $100 par 9,000 - Common Stock, $10 par 14,000 24,500 Additional Paid-in Capital 8,700 13,700 Unrealized Increase in Value of Marketable Securities 1,500 1,800 Retained Earnings 297,325 421,455 Totals 734,525 1,482,855 Additional information: a. Dividends declared and paid totaled $650. b. 300 shares of common stock (at par) were issued for cash. c. On July 1, 2016, convertible preferred stock that had originally been issued at par value were converted into 500 shares of common stock. The book value method was used to account for the conversion. d. The long-term note payable was paid by issuing 250 shares of common stock at the beginning of the fiscal year. e. Short-term marketable securities were purchased at a cost of $1,300. The portfolio was increased by $300 to a $14,800 fair value at year-end by adjusting the related allowance account. f. During the year, a 30% interest in Ricochet Co. was purchased as an investment for $9,500. Ricochet reported $20,000 in net income for the year and paid dividends of $2,000 to Smart. g. $5,000 of accounts receivable were written off as uncollectible during the year. h. Smart’s inventory consists of Construction-in-Process in excess of the Billings on Construction-in-Process account balance. i. A building was destroyed by fire during the year and insurance proceeds of $26,000 were collected. j. The 12% bonds payable were issued on February 28, 2017, at 97. They mature on February 28, 2027. The company uses the straight-line method to amortize bond premiums and discounts. k. Smart recorded pension expense of $350,000 for the year. l. A lease agreement was signed on July 1st, 2016 for the use of equipment worth $20,000. The company determined that the transaction should be recorded as a capital lease.

Worksheet: