Audit Assignment

Current Assets 2018 2019 2018 % of

Assets 2019 % of

Assets % Change

Cash and cash equivalents 22,045$ 10,867$ 1.94 0.79 (50.71)

Money market funds 31,510 16,000 2.78 1.16 (49.22)

Accounts receivable 301,713 425,755 26.60 30.83 41.11

Allowance for doubtful accounts (31,916) (33,779) (2.81) (2.45) (5.84)

Inventory 307,701 503,091 27.13 36.43 63.50

Total Current Assets 631,053 921,934 55.65 66.76 46.09

Property and Equipment Plant 625,000$ 625,000$ 55.11$ 45.26$

Accumulated depreciation - plant (220,000) (240,000) (19.40) (17.38) (9.09)

Equipment 120,000 120,000 10.58 8.69

Accumulated depreciation - equipment (72,000) (96,000) (6.35) (6.95) (33.33) Land 50,000 50,000 4.41 3.62 -

Net Property and Equipment 503,000 459,000 44.35 33.24 (8.75)

Total Assets 1,134,053$ 1,380,934$ 100 100 21.77

Current Liabilities Accounts payable 145,031 387,757 12.79 28.08 167.36

Payroll taxes payable 8,524 17,436 0.75 1.26 104.55

Income taxes payable 30,235 4,125 2.67 0.30 (86.36)

Dividends payable 14,197 3,203 1.25 0.23 (77.44)

Total Current Liabilities 197,987 412,521 17.46 29.87 108.36

Marco Appliances, Inc. Balance Sheets

(Amounts in U.S. Dollars)

Assets

Liabilities and Stockholders' Equity

Notes payable 215,000 185,000 18.96 13.40 (13.95) Total Long-term Liabilities 215,000 185,000 18.96 13.40 (13.95)

Stockholders' Equity Capital stock 300,000 300,000 26.45 21.72

Paid-in capital 100,000 100,000 8.82 7.24 Retained earnings 321,066 383,413 28.31 27.76 19.42 Total Stockholders' Equity 721,066 783,413 63.58 56.73 8.65

Total Liabilities and Equity 1,134,053$ 1,380,934$ 100 100 21.77

2018 2019 2018 2019 % Change

Sales 2,756,561$ 3,307,873$ 100.00 100.00 20.00

Sales discounts (8,371) (9,207) (0.30) (0.28) (9.99)

Sales returns (33,809) (51,559) (1.23) (1.56) (52.50)

Bad debt expenses (27,565) (33,078) (1.00) (1.00) (20.00)

Net Sales 2,686,816 3,214,029 97.47 97.16 19.62

Cost of goods sold 2,159,042 2,601,646 78.32 78.65 20.50

Gross margin 527,774 612,383 19.15 18.51 16.03

Salaries expense 259,287$ 290,400$ 9.41 8.78 12.00

Payroll tax expense 18,434 21,199 0.67 0.64 15.00

Fringe benefits 14,357 16,081 0.52 0.49 12.01

Rent 6,491 7,140 0.24 0.22 10.00

Utilities 21,943 25,673 0.80 0.78 17.00

Insurance 6,149 6,456 0.22 0.20 4.99

Supplies expense 3,067 3,650 0.11 0.11 19.01

Postage expense 974 1,140 0.04 0.03 17.04

Advertising expense 4,636 5,100 0.17 0.15 10.01

Professional fees 11,386 11,500 0.41 0.35 1.00

Miscellaneous 980 1,225 0.04 0.04 25.00

Purchase discounts lost 42,374 53,815 1.54 1.63 27.00

Interest expense 9,215 12,164 0.33 0.37 32.00

Depreciation expense 44,000 44,000 1.60 1.33 -

Total operating expenses 443,293 499,543 16.08 15.10 12.69

Operating Income 84,481 112,840 3.06 3.41 33.57

Interest revenue 22,864 28,580 0.83 0.86 25.00 Income before income taxes 107,345 141,420 3.89 4.28 31.74

Income taxes 25,114 37,508 0.91 1.13 49.35

Net Income 82,231$ 103,912$ 2.98 3.14 26.37

Marco Appliances, Inc. Income Statements

(Amounts in U.S. Dollars)

Beginning retained earnings 271,728$ 321,067$

Net income 82,231 103,912

Dividends (32,892) (41,565)

Ending retained earnings 321,067$ 383,414$

2019 2019

Operating cash flows

Net income 103,912$ 3.14

Depreciation 44,000 1.33

Changes in working capital -

(Increase) in accounts receivable (122,179) (3.69)

(Increase) in inventory (195,390) (5.91)

Increase in accounts payable 242,726 7.34

Increase in payroll taxes payable 8,912 0.27

(Decrease) in income taxes payable (26,110) (0.79)

(Decrease) in dividends payable (10,994) (0.33)

Cash flow from Operating Activities 44,877 1.36 Investing cash flows

Money market funds 15,510 0.47

Cash flow from Investing Activities 15,510 0.47

Financing cash flows

Repayment of notes payable (30,000) (0.91)

Dividends (41,565) (1.26)

Cash flow from Financing Activities (71,565) (2.16)

Net cash flow (11,178)

Beginning cash 22,045

Ending cash 10,867$

Statement of Cash Flows (Amounts in U.S. Dollars)

Marco Appliances, Inc.

2018 2019

Operating Performance Overall Performance

Return on Assets 7.3% 7.5%

Return on Equity 11.4% 13.3%

Asset Turnover 2.4 2.4

Cash Conversion Cycle

Days cash in receivables 40.0 47.0

Days cash in inventories 52.0 70.6

Days needs 92.0 117.6

Days cash in payables and accrued liabilities 23.0 50.8

Net conversion cycle 69.0 66.8

Financial Position Short-term

Current Ratio 3.19 2.23 Quick Ratio 1.79 1.10 Dividend payout 92.6%

Long-term

Total debt to equity 0.57 0.76 Long-term debt to equity 0.30 0.24

Effective Tax Rate 23.4% 26.5%

Marco Appliances, Inc. Financial Ratios

(Amounts in U.S. Dollars)

12/31/18 12/31/19 % of Assets % of Assets

Cash and Equivalents 5.00 4.50

Accounts Receivable (net) 35.00 37.00

Inventory 40.00 39.00

Other Current Assets 1.50 1.40

Total Current Assets 81.50 81.90

Fixed Assets (net) 17.50 17.00

Intangible Assets (net) 1.00 1.10

Other Non-Current Assetts 18.50 18.10

Total Assets 100.00 100.00

Liabilities Accounts Payable 28.50 30.50

Short-term Loan Payables 13.50 14.00

Income Taxes Payable 2.00 2.20

Other Current Liabilities 1.40 1.30

Total Current Liabilities 45.40 48.00

Long-term Debt 8.90 8.50

Net Worth 45.70 43.50

Total Liabilities and Net Worth 100.00 100.00

Wholesale Heating and AC Industry Comparative Balance Sheet Percentages

Net Sales 100.00 100.00

Cost of Goods Sold 79.00 79.50

Gross Margin 21.00 20.50

Total Expenses 16.50 17.00

Income before Taxes 4.50 3.50

Asset Turnover 2.60 2.55

Return on Assets 6.20% 5.90%

Current Ratio 1.80 1.71

Quick Ratio 0.88 0.86

Total Debt to Equity 1.19 1.30

Long-term Debt to Equity 0.19 0.20

Comparative Income Statement Percentages