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  • he BakFirn Corporation end-of-year is 12/31/20XX.Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.The…

he BakFirn Corporation end-of-year is 12/31/20XX.Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.The…

Daniel Kevins

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  • he BakFirn Corporation end-of-year is 12/31/20XX.
  • Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.
  • The firm is in the construction machine industry, making specialty tools.
  • Account receivable days sales outstanding (DSO) has been averaging 90–120 days. The year before, it was 80–90 days.
  • Inventory turns have decreased from 3 to 2 per year.
  • Account receivable and inventory make up 80% of total assets.
  • Internal auditing has been reduced by one person to reduce costs.
  • An initial test of controls in cash receipt indicated a lack of following procedures.
  • The construction industry is in the third year of a downturn. It is forecasted to last two more years.
  • The audit team has defined materiality to be focused on account receivable and inventory with $3,000 being the initial threshold. Net income for last year was $1,000,000.
  • Inventory at the end of the year was $2,500,000.
  • Account receivable at the end of the year was $2,740,000, or 100 DSO.
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