Case 3: Materiality and Liabilities Testing - Gabriela Aguiar LLC Audit Case (Due in 24h)

profileestudiante
TrialBalance-WorkpaperTemplate.xlsx
Home>Business & Finance homework help>Accounting homework help>Case 3: Materiality and Liabilities Testing - Gabriela Aguiar LLC Audit Case (Due in 24h)

A1- Trial Balance-Audited

Gabriela Aguiar LLC DACPA
Audited Trial Balance as of December 31, 2024 A-1
(All figures in thousands of USD)
Account ID Account Description Debit (USD 000s) Credit (USD 000s) Single Column format
10500 Cash on Hand 375 - 0 375
10600 Regular Checking Account 21,000 - 0 21,000
10700 Payroll Checking Account 1,125 - 0 1,125
10800 Savings Account 750 - 0 750
10900 Accounts Receivable 21,000 - 0 21,000
11000 Allowance for Doubtful Accounts - 0 1,050 (1,050)
11100 Inventory - Spotlight 33,750 - 0 33,750
11200 Reserve for Inventory Obsolescence - 0 1,500 (1,500)
11300 Prepaid Insurance 900 - 0 900
11400 Prepaid Rent 600 - 0 600
11500 Office Supplies 375 - 0 375
11600 Notes Receivable-Current 1,500 - 0 1,500
11700 Other Current Assets 375 - 0 375
15000 Land 15,000 - 0 15,000
15200 Buildings and Land Improvements 60,000 - 0 60,000
15400 Machinery, Equipment, Office Furniture 60,000 - 0 60,000
15600 Accumulated Depreciation - 0 33,750 (33,750)
15800 Investments 7,500 - 0 7,500
16000 Other Noncurrent Assets 33,075 - 0 33,075
20000 Deferred Tax Assets (Liabilities) - 0 6,000 (6,000)
20200 Accounts Payable - 0 19,200 (19,200)
20400 Sales Tax Payable - 0 600 (600)
20600 Income Tax Payable - 0 900 (900)
20800 Wages Payable - 0 1,125 (1,125)
21000 FICA Employee Withholding - 0 188 (188)
21200 Medicare Withholding - 0 45 (45)
21400 Federal Payroll Taxes Payable - 0 225 (225)
21600 FUTA Tax Payable - 0 15 (15)
21800 State Payroll Taxes Payable - 0 75 (75)
22000 SUTA Tax Payable - 0 23 (23)
22200 FICA Employer Withholding - 0 188 (188)
22400 Medicare Employer Withholding - 0 45 (45)
22600 Dividend Payable - 0 375 (375)
22800 Interest Payable - 0 473 (473)
23000 Line of Credit - 0 12,000 (12,000)
23200 Current Portion Long-Term Debt - 0 3,750 (3,750)
23400 Other Current Liabilities - 0 750 (750)
25000 Notes Payable-Noncurrent - 0 84,000 (84,000)
26000 Common Stock - 0 37,500 (37,500)
27000 Paid-in Capital - 0 7,500 (7,500)
28000 Retained Earnings - 0 28,500 (28,500)
40000 Sales - 0 187,500 (187,500)
40500 Sales Returns 1,500 - 0 1,500
41000 Warranty Expense 1,125 - 0 1,125
41500 Income from Investments - 0 600 (600)
42000 Interest Income - 0 150 (150)
45000 Cost of Goods Sold 112,500 - 0 112,500
50000 Freight 2,250 - 0 2,250
50500 Advertising Expense 3,750 - 0 3,750
51000 Auto Expenses 375 - 0 375
51500 Research and Development 6,000 - 0 6,000
52000 Depreciation Expense 5,250 - 0 5,250
52500 Warehouse Salaries 4,500 - 0 4,500
53000 Property Tax Expense 900 - 0 900
53500 Legal and Professional Expense 4,575 - 0 4,575
54000 Bad Debt Expense 750 - 0 750
54500 Insurance Expense 1,500 - 0 1,500
55000 Maintenance Expense 1,125 - 0 1,125
55500 Utilities 1,350 - 0 1,350
56000 Phone 300 - 0 300
56500 Postal 75 - 0 75
57000 Miscellaneous Office Expense 375 - 0 375
60000 Payroll Tax Expense 1,500 - 0 1,500
60500 Pension/Profit-Sharing Plan Expense 1,125 - 0 1,125
61000 Rent or Lease Expense 2,250 - 0 2,250
61500 Administrative Wages Expense 9,000 - 0 9,000
62000 Interest Expense 3,750 - 0 3,750
70000 Income Tax Expense - Federal 3,750 - 0 3,750
70500 Income Tax Expense - State 750 - 0 750
80000 Loss on Legal Settlement 375 - 0 375
Totals 428,025 428,025 - 0

A-2 PBC 2025 Trial Balance

Gabriela Aguiar LLC DACPA
Trial Balance as of December 31, 2025 A-2
(All figures in thousands of USD)
Account ID Account Description Debit (USD 000s) Credit (USD 000s) Single Column format
10500 Cash on Hand 500 500
10600 Regular Checking Account 12,000 12,000
10700 Payroll Checking Account 1,500 1,500
10800 Savings Account 1,000 1,000
10900 Accounts Receivable 16,000 16,000
11000 Allowance for Doubtful Accounts 1,400 (1,400)
11100 Inventory - Spotlight 45,000 45,000
11200 Reserve for Inventory Obsolescence 2,000 (2,000)
11300 Prepaid Insurance 1,200 1,200
11400 Prepaid Rent 800 800
11500 Office Supplies 500 500
11600 Notes Receivable-Current 2,000 2,000
11700 Other Current Assets 500 500
15000 Land 20,000 20,000
15200 Buildings and Land Improvements 80,000 80,000
15400 Machinery, Equipment, Office Furniture 80,000 80,000
15600 Accumulated Depreciation 45,000 (45,000)
15800 Investments 10,000 10,000
16000 Other Noncurrent Assets 32,700 32,700
20000 Deferred Tax Assets (Liabilities) 8,000 (8,000)
20200 Accounts Payable 22,000 (22,000)
20400 Sales Tax Payable 800 (800)
20600 Income Tax Payable 1,200 (1,200)
20800 Wages Payable 1,500 (1,500)
21000 FICA Employee Withholding 250 (250)
21200 Medicare Withholding 60 (60)
21400 Federal Payroll Taxes Payable 300 (300)
21600 FUTA Tax Payable 20 (20)
21800 State Payroll Taxes Payable 100 (100)
22000 SUTA Tax Payable 30 (30)
22200 FICA Employer Withholding 250 (250)
22400 Medicare Employer Withholding 60 (60)
22600 Dividend Payable 500 (500)
22800 Interest Payable 630 (630)
23200 Current Portion Long-Term Debt 5,000 (5,000)
23400 Other Current Liabilities 1,000 (1,000)
25000 Notes Payable-Noncurrent 85,000 (85,000)
26000 Common Stock 50,000 (50,000)
27000 Paid-in Capital 10,000 (10,000)
28000 Retained Earnings 41,600 (41,600)
40000 Sales 250,000 (250,000)
40500 Sales Returns 2,000 2,000
41000 Warranty Expense 1,500 1,500
41500 Income from Investments 800 (800)
42000 Interest Income 200 (200)
45000 Cost of Goods Sold 150,000 150,000
50000 Freight 3,000 3,000
50500 Advertising Expense 5,000 5,000
51000 Auto Expenses 500 500
51500 Research and Development 8,000 8,000
52000 Depreciation Expense 7,000 7,000
52500 Warehouse Salaries 6,000 6,000
53000 Property Tax Expense 1,200 1,200
53500 Legal and Professional Expense 2,500 2,500
54000 Bad Debt Expense 1,000 1,000
54500 Insurance Expense 2,000 2,000
55000 Maintenance Expense 1,500 1,500
55500 Utilities 1,800 1,800
56000 Phone 400 400
56500 Postal 100 100
57000 Miscellaneous Office Expense 500 500
60000 Payroll Tax Expense 2,000 2,000
60500 Pension/Profit-Sharing Plan Expense 1,500 1,500
61000 Rent or Lease Expense 3,000 3,000
61500 Administrative Wages Expense 12,000 12,000
62000 Interest Expense 5,000 5,000
70000 Income Tax Expense - Federal 5,000 5,000
70500 Income Tax Expense - State 1,000 1,000
80000 Loss on Legal Settlement 500 500
Totals 527,700 527,700 - 0

A-4 MaterialityMemo

Gabriela Aguiar LLC A-4
AUDIT MATERIALITY Prepared by
(Required for all engagements) Reviewed by
CLIENT: Gabriela Aguiar LLC
PERIOD ENDED: December 31, 2025
MATERIALITY CALCULATION
Only if the current year net income (loss) (or other measure) is significantly different from the entity’s historical results would 2-year averaging to obtain normalized net income (loss) (or other measure) be appropriate.
PROFIT ORIENTED ENTITIES Current Year Prior Year
Net income (loss)
Plus (minus) unusual, non-recurring revenues and expenses, and extraordinary items. - 0 - 0
ADJUSTED NET INCOME (LOSS) - 0 - 0
Adjusted net income (loss) multiplied by:
5.00% - 0 - 0
Current Year
TOTAL ASSETS
Total assets multiplied by:
1.00% - 0 - 0
Current Year
TOTAL REVENUES
Plus (minus) unusual, non-recurring revenues - 0
ADJUSTED REVENUES - 0 - 0
Total adjusted revenues multiplied by:
1.00% - 0 - 0
JUSTIFICATION OF PLANNING MATERIALITY
1. Financial data source (i.e. actual, budget, projection): Year end trial balance, actual data obtained from client.
2. Basis (i.e. normalized net income, revenue, total assets, other): Adjusted net income
Justification: USE THIS BOX TO DOCUMENT AND JUSTIFY WHICH BASIS YOU'VE SELECTED
3. Percentage of financial data source used: Standard 5% used.
4. Amount selected (planning materiality) - 0
5. Prior year’s final materiality - 0 Being that GA is a new client and we were not provided with materiality amounts from the predecessor auditor, we assume that planning materiality is 5% of net income from 2024.
6. Performance materiality/Tolerable misstatement (75% of planning materiality) 0
7. Listing scope (amount threshold for suggested adjustments) (using 5% to 10% of planning materiality based on expected level of adjustments is usually appropriate)
5% 0
Engagement Partner A. Anderson
Engagement Quality Control Reviewer Ernest Olds

F-0 Liabilities Program

Gabriela Aguiar LLC F-0
AUDIT PLAN—Liabilities
FYE 12/31/2025
Materiality for Testing = $ (Listing Scope) Workpaper Reference Related Assertion (s) Performed by Comments
1 Ensure that the current year's liability amounts on the lead schedule reconcile with the trial balance.
2 Ensure alignment of prior year amounts with the prior year audited financial statements.
3 Foot the liabilities lead schedule
4 Request for Debt Confirmations (standard bank confirmation).
a Review the bank confirmation for loans and collateral.
5 Request for Listing of Year-End Accounts Payable
6 Calculate and reconcile aged accounts payable schedule.
7 Reconciliation of Accounts Payable Aging Schedule with Lead Sheet and Trial Balance.
8 Review the aged accounts payable schedule for unusual or related party items.
9 Examine open vouchers, vendors' invoices, and statements received to search for unrecorded liabilities after the year-end period. Also, review cash payments made during this time for any potential unrecorded liabilities.
10 Review the terms that justify classifying payables as long-term instead of current.
11 Inquire of management about any capital lease agreements entered into during the year.
12 Review agreements/contracts for leases to ensure that they are appropriately classified.
13 Confirm lease amounts match the lead sheet and trial balance.
14 Calculate and reconcile the long-term debt amortization table.
15 Reconcile the long-term debt to the lead sheet and trial balance.
16 Review long-term debt agreements/contracts for future minimum required debt payments that should be disclosed.
17 Debt contracts should be reviewed for restrictive debt covenants, which must be disclosed in the footnotes. Presentation and Disclosure PER DW - Still waiting on this.

F-1 Liabilities Lead Sheet

Gabriela Aguiar LLC F-1
Liabilities Lead Schedule Prepared by
For Year Ended 12/31/2025 Reviewed by
(Audited)-Balance Unaudited-Balance Adjustments Audited
Acct # Account Title 12/31/24 12/31/25 AJE# Dr Cr 12/31/25 WP
Accounts Payable $0.00
Line of Credit $0.00
Current Portion Long-Term Debt $0.00
Other Current Liabilities $0.00
Notes Payable-Noncurrent $0.00
$0.00 $0.00 $0.00
Tickmark Legend
F - Footed without exception
M - Amount is considered immaterial, no further work necessary.
TB - Agrees to Trial Balance without exception
PY - Agrees to prior year audited financial statements without exception
NOTES & PROPOSED JEs:

F-3 AP Aged Schedule

Gabriela Aguiar LLC F-3
AP Aging Schedule DACPA
For Year Ended 12/31/2025
Current Past Due
Vendor Outstanding Amt <30 Days 30-60 Days 60-90 Days >90 Days
Justice & Associates, LLC 4,400,000 2,200,000 1,100,000 1,100,000 - 0
Yacht Components Inc. 4,800,000 4,800,000 - 0 - 0 - 0
Marina Systems International 3,800,000 1,650,000 1,025,000 1,025,000 1,025,000
Gulf Coast Electronics 2,200,000 2,200,000 - 0 - 0 - 0
Luxury Interiors Co. 1,800,000 550,000 950,000 550,000 - 0
Nautical Engineering Services 1,735,000 1,400,000 - 0 - 0 - 0
Caloosa Wellness Center 1,100,000 750,000 - 0 - 0 - 0
Edison Legal Advisors 600,000 600,000 - 0 - 0 - 0
Tech Coast Innovations 550,000 275,000 275,000 - 0 - 0
PowerPlus Battery Co. 350,000 350,000 - 0 - 0 - 0
Cypress Auto Group 250,000 250,000 - 0 - 0 - 0
Gulf Breeze Catering 150,000 150,000 - 0 - 0 - 0
SWFL Communications 75,000 75,000 - 0 - 0 - 0
Sunshine Office Solutions 50,000 50,000 - 0 - 0 - 0
Signs Now! 55,000 45,000 - 0 - 0 - 0
Box Depot 45,000 15,000 - 0 - 0 - 0
Secure Shred Services 40,000 15,000 - 0 - 0 - 0
22,000,000 15,375,000 3,350,000 2,675,000 1,025,000
Tickmark Legend
F - Footed without exception
M - Amount is considered immaterial, no further work necessary.
TB - Agrees to Trial Balance without exception
PY - Agrees to prior year audited financial statements without exception
Per the Legal confirmation at J-1 incurred legal fees as of 12/31 included 2,800,000 which had been incurred but not yet billed to Gabriela Aguiar LLC .

F-4 Cash Disbursements Journal

Gabriela Aguiar LLC F-4
Cash Disbursements Journal (Jan 2026) DACPA
For Year Ended 12/31/2025
Check Number Date of Check Payee Amount Invoice Date Reviewed -Notes A, B or C
5433 1/10/26 Coastal Tech Innovations 8,355 12/26/25 A comprehensive annual maintenance contract for computer hardware and networking equipment was secured for the year 2026.
5434 1/10/26 Everglades Fleet Management 3,671 1/8/26 Scheduled maintenance check-ups for a fleet of 5 automobiles were conducted on 1/9/2026.
5435 1/10/26 FGCU Tropical Event Planners 8,585 12/30/25 Catered Holiday party.
5436 1/10/26 Staples-All-Florida Office Solutions 1,560 1/9/26 Office supplies purchased 1/09/2026.
5437 1/10/26 Florida Power & Light 19,020 1/5/26 Utility bill electricity For December
5438 1/10/26 Bay Area Communications 8,600 1/4/26 December utility bill-Phone Services
5439 1/10/26 Kevin Arce 7,538 NA Oil changes for a fleet of 8 automobiles were performed on 1/13/2026.
5440 1/10/26 Palm Packaging Supplies 1,160 1/6/26 Raw materials for packaging production were ordered on 1/7/2026.
5441 1/10/26 Horizon Marketing Agency 10,525 1/2/26 The goods were received on 1/7/2026 with bill of lading showing a 1/4/2026 shipping date and marked FOB, Shipping - Los Angeles.
5442 1/10/26 Gulf Power Parts Solutions 10,543,611 12/26/25 The receiving report was dated, Monday, 12/29/2025. However, due to unexpected maintenance issues, the truck was not able to deliver the goods until the following week. The AP clerk indicated that the receiving report was not processed until the next working day, and as a result, it was not included in the year-end accounts payable.
5443 1/10/26 Summit IT Services 1,396 12/30/25 Business cards, picked up 12/30/2025
5444 1/10/26 Coastal Tech Innovations 8,656 1/9/26 Computer purchased 1/10/2026.
5445 1/10/26 Bright Sign Solutions 6,243 12/30/25 New logos on vehicles on 12/31/2025.
5446 1/10/26 Staples-All-Florida Office Solutions 6,467 1/9/26 Copy machine purchased 1/10/2026.
5447 1/10/26 Coastal Tech Innovations 731 1/9/26 Computer supplies picked up 1/10/2026.
Tickmark Legend
F - Footed without exception
M - Amount is considered immaterial, no further work necessary.
TB - Agrees to Trial Balance without exception
NOTES:
A - Correctly included on year end payables aging.
B - Correctly not included on year end payables aging.
C - Incorrectly not included on year end payables aging.
PROPOSED JEs: