ATG 657, Spring 2013, Class 7 February 13, 2012

1.8 Crazy Eddie Prepare type written answers for questions 1 and 2. Be prepared to discuss questions 3-6.

3.1 The Trolley Dodgers Prepare type written answers for questions 2 & 3. Be prepared to discuss question 1. 1 Remember that audit objectives flow from audit assertions. 2 In order to do a thorough consideration of internal control, remember that our definition of internal control comes from COSO. This definition has five components. The components are described in AU-C 315.A71 - .A107. Therefore, think about weaknesses in all five components. 3.3 United Way of America Prepare a type written answer for question 3. Be prepared to discuss questions 1 & 2. 3 Look at chapter 2 of the Not-for-Profit Entities Audit and Accounting Guide for information about risks unique to auditing charities and other not-for-profit entities.

Each written question is worth 20 points for a total of 100 points.

ATG 657, Spring 2013, Class 7 February 13, 2012 Common-sized balance sheets for Crazy Eddie, 19841987:
March 1, 1987 Current assets Cash Short-term investments Receivables Merchandise inventories Prepaid expenses Total current assets Restricted cash Due from affiliates Property, plant and equipment Construction in process Other assets Total assets Current liabilities Accounts payable Notes payable Short-term debt Unearned revenue Accrued expenses Total current liabilities Long-term debt Convertible subordinated debentures Unearned revenue Stockholders equity Common stock Additional paid-in capital Retained earnings Total stockholders equity Total liabilities and stockholders equity 3.2 41.4 3.6 37.0 3.6 88.8 --9.0 -2.2 100.0 March 2, 1986 10.4 21.1 1.8 47.2 1.9 82.4 2.6 -5.7 4.9 4.4 100.0 March 3, 1985 34.0 -4.2 40.5 1.0 79.7 10.8 -5.6 1.8 2.1 100.0 May 31, 1984 3.8 -7.1 63.8 1.4 76.1 -15.7 5.0 -3.2 100.0

17.0 -16.8 1.2 1.9 36.9 2.9 27.5 1.1

40.7 -1.8 2.9 13.5 58.9 6.1 -1.5

35.2 -.7 1.8 13.3 51.0 11.6 -1.0

55.0 8.0 .3 2.1 16.6 82.0 .1 -.9

.1 19.5 12.0 31.6

.2 13.9 19.4 33.5

.2 18.8 17.4 36.4

.1 1.6 15.3 17.0

100.0

100.0

100.0

100.0

ATG 657, Spring 2013, Class 7 February 13, 2012 Common-sized income statements for Crazy Eddie, 1984-1987:
Year Ended March 1, 1987 Net sales Cost of goods sold Gross profit Selling, general and admin. expense Interest and other income Interest expense Income before taxes Pension contribution Income taxes Net income 100.0 77.2 22.8 17.4 2.1 1.5 6.0 .1 2.9 3.0 Year Ended March 2, 1986 100.0 74.1 25.9 16.4 1.2 .3 10.4 .3 5.1 5.0 Nine Months Ended March 3, 1985 100.0 75.9 24.1 15.0 .9 .3 9.7 .4 5.0 4.3 Year Ended May 31, 1984 100.0 77.9 22.1 16.4 .5 .4 5.8 -3.1 2.7

Financial Ratios for Crazy Eddie:

1987 Liquidity: Current ratio Quick ratio Solvency: Debt to assets Times interest earned Long-term debt to equity Activity: Inventory turnover Age of inventory Accounts receivable turnover Age of accounts receivable Profitability: Gross margin Profit margin on sales Return on total assets Return on equity 2.41 1.40 1986 1.40 .60

.68 4.94 .96

.66 33.3 .18

3.22 111.8 days 53.9 6.7 days

4.50 80.0 days 105.2 3.4 days

22.8% 3.0% 5.4% 15.6%

25.9% 5.0% 11.1% 39.8%