12-4 Analyytical procedures, Accounts receivable, and sales

Cheryl Ralston is planning analytical procedures for the December 31, 2002 financial statement audit of
singular, Inc., a publicly traded manufacturer of small electrical appliances including mixers, toasters,
can openers, and electrical blankets. The appliances are marketed to low-end retailers throughout North
America. An industry trade publication estimates Singulair’s 2002 market share at 12%. Singulair’s
December 31, 2002 and 2001 balance sheets and statement of operation follow.

Singulair, Inc

Balance sheets

December 31, 2002 and 2001

(000 omitted)

Assets 2002 2001

Cash 42,000 52,500

Accounts receivable, net 325,500 175,000

Inventory 252,000 234,500

Other current assets 17,500 21,000

Non-current assets

Net of depreciation 210,000 280,000

Total Assets 847,000 763,000

Liabilities and equities

Trade Accounts payable 133,000 143,500

Taxes payable 105,000 50,400

Noncurrent liabilities 70,000 140,000

Common Stock 245,000 245,000

Retained earnings 294,000 184,100

Total liabilities 847,000 763,000

 Singulair, Inc

Statement of operation

December 31, 2002 and 2001

(000 omitted)

2002 2001

Net credit sales 5,894,000 4,375,000

Cost of goods sold 3,244,500 2,485,000

2,649,500 1,890,000

Selling and administrative expenses 2,387,000 1,764,000

Income before taxes 262,500 126,000

Tax expense 105,000 50,400

Net income 157,500 75,600

Total industry-wide sales approximated $37.5 billion in 2002. The allowance for doubtful accounts was
$24,500,000 in 2002 and $35,000,000 in 2001, and accounts receivable, net, was $200,000,000 in 2000

I.
1. Number of days sales in receivables

Credit sales

Average Accounts receivable

2002: 5,894,000,000 = 23.55days 5,894,000,000 =16.84 days

250,250,000 350,000,000

2001: 4,375,000,000 = 23.33 days 4,375,000,000 = 20.83 days

187,500,000 210,000,000
2. Compare accounts

2002 2001 2000

Accounts receivable 350,000,000 210,000,000 200,000,000

67% increase for receivables

Net credit sales 5,894,000,000 4,375,000,000

35 % increase in credit sales

3. Sales compare to industry sales of 2002

Industry total sales 37,500,000,000 X 12% (share of the company) = 4,500,000,000

Sales market share

5,894,000,000 vs 4,500,000,000

:. Sales is overstated

II. For the #2 we compare the ending balance for both years, to see how much the increase of
accounts receivable and sales. #3 to compare
III. Test of ending balance. Since we’re checking the Accounts receivable and sales it’s best suited
to send confirmation to clients and confirm