Revenues Case Studies Example
The BOD (Board of Directors) minutes show that the sales could have increased by 10%.However, Mr. Unum explained that the sales did not meet expectations; hence Apollo increased their prices. The decline in sales by 0.014% is due to the increased prices. Additionally, the proportion of sales in the net sales increased by 102.33% as at 12-31-2013 and by 105.32% as at 12-31-2014.The increased percentages show that there could be a misstatement in the financial records.
b. Sales Returns
The percentage change in the sales returns indicates a possible misstatement that may have occurred due to the misstatements that occurred during the computation of sales. Accordingly, the sales returns would have declined due to the reduction of sales volume that occurred after increasing the selling price.
c. Warranty Expense
The variance witnessed in the warranty expense is minor. However, due to decrease in sales, the warranty expense would have decreased. T therefore, there could be a misstatement in the recording of the warranty expense.
d. Net Sales
There are misstatements in the net sales which could have arisen from the misstatements in the warranty expenses, sales returns and sales.
e. Investments Income
The variance between the income from investments as at 12-31-2013 and 12-31-2014 shows that the income from investments may have be posted to the incorrect account. The recording should be investigated to ascertain the origin of the discrepancy.
f .Interest Income
The reduction of the interest income by 35.45 indicates that Apollo may not have accrued any interest income.
g. Miscellaneous Income
The variance of the miscellaneous income as at 12-31-2014 and 21-31-2014 should be analyzed and investigated because it indicates that there could have been inaccurate recording and misstatements in the original books of entry.
Cost of goods sold (COG)
The Cost of goods sold reduced by 8.03%.Under normal circumstances, the cost should re constant with the sales percentage. The reduction in the COG sold ins due to the increased prices at the company. The increased prices reduced sales volume and consequently, the cost of the goods sold declined. Additionally, the cost of goods sold is expressed as a percentage of sales; hence, the decline in sales led to reduced cost of sales.
The freight charges reduced by 1.46% due to the reduced sales volume. Freight charges correlate with sales thus a decline in sales will be accompanied by a reduction in the sales volumes.
The advertising expense increased by 15.6% in 2014.The inches was due to the Company’s 15-second commercial whose cost had increased by 10% since 2013.The production and air expense for the advert were approximately $ 1,000, 000 as at 2014.
The percentage change in the Auto expense is minimal ; thus, it is almost the same in the two years.
e. Research and Development
The research and development expenses reduced by 98.3% because the Board decided to cut down the expenses. The research and development activities at Phoneshoe were stopped in 2014n, thus, reducing the research and development expenses.
f. Depreciation expense
The depreciation expense increased by 250.4% and this should be investigated. The large percentage change implies that there could be a material misstatement in the financial records.
g. Warehouse Salaries
The warehouse salaries increased by 1.885% in 2014.The increase in warehouse salaries was due to the Board's decision to increase the officers' salaries by 10% in 2014.
h. Property tax expense
The property tax expense increased by 23.4% in 2014.The increase was due to the Board’s decision to purchase and install a computer system that could cost $1.2 million. Subsequently, the purchase of the new system was subject to property tax.
Legal and Professional Expense
The legal and professional expense increased by 36.3 %.A confirmation of the legal expenses was obtained from the company’s Attorney. The increase in the legal and professional expense was due to the inclusion of the audit fees for 2014.Additionally, the personal secretary of Mr. Lancaster was given an advance of $ 1,250, 000 to cover her legal expenses.
j. Bad Debt Expense
The recording of the bad debt expenses should be investigated for a possible misstatement. A bad debt of $ 23,810.13 was written off and no other write-offs were expected during the year.
k. Insurance Expense
The insurance expenses reduced by 95.8% due to the $ 50,000 damages that were caused by the Nor Easter storm that hit Shoe town in the month of April. The Damages were deducted from the insurance expenses.
l. Maintenance Expense
The maintenance expense reduced by 41.9 % due to the stoppage of development and research activities at phoneShoe.
The utilities did not show a large change in 2014; hence, they were almost the same in both years.
n. Telephone Expense
The telephone expense reduced by 31.1 percent in 2014.The reduction was due to the board's decision to use e-mail in most of the communications.
o. Postage Expense
The postage expense reduced by 39.25 in 2014.The frequent use of email during communication contributed to the reduction of the postage expense.
p. Miscellaneous office expense
The miscellaneous expenses increased by 46.2%; thus, all miscellaneous expenditures should be analyzed in detail to identify possible misstatements and misappropriation of cash at the company.
q. Payroll tax expense
The payroll tax I expense rose by 1.73% due to the increment of salaries for some officials at the company.
r. Pension/Profit-Sharing Plan expense
The pension profit-sharing expense rose by 10%.The increase should be investigated because the board did not authorize any pension payment in 2014.
s. Rent/Lease Expense
The rent/ lease expense reduce by 53.8% and the most plausible explanation for this decline is that bank borrowing replaced lease and rent in 2014.
t. Administrative wage expense
The administrative wage expense reduced by 4.02%.The reduction should be investigated because the board approved stipends of $ 90,000 for every outside board member. The reduction indicates that there could be a discrepancy in the financial records.
u. Interest Expense
The interest expense has increased by 196.2% and this shows that Apollo may have borrowed credit for many reasons. The company may have borrowed loans to buy a new computer system. Accordingly, the company accrued interest expense in 2014.
v. Federal Income Tax Expense
The federal income tax increased by 276.3%.Thre should be communications with the federal tax authority to determine the reasons for the sharp increase in the federal tax expense.
w. State Income Tax Expense
The state income tax expense increased by 622.6% in 2014.The company management should communicate with the state tax authority to ascertain the reasons for the increment.
2. Prepaids and other assets
The following insurance schedule analyzes the prepaid insurance.
Bradley Crampler’s email confirmed that the rent expenses and pre-paid rent were settled.
Bradley Crumpler’s email confirmed the verification of all office supplies
Schock-Proof Socks earned a total operating income of $ 3,130, 610.003 in 2014 and this caused the equity investments to increase by 191.33%.The value of Apollo’s investment in Synergizer battery increased by $ 330,375.80 because of the company’s decision to purchase 20,000 shares at $16.13 every share.
Other Non-current assets
The discontinuation of Phoneshoes’ operations eliminated the company’s patent expenses. Additionally, $ 330,375.80 was transferred from the Controller’s Clearing account.
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